A number of Chinese steel industry executives are calling for the establishment of a scrap steel procurement alliance to gain the initiative in scrap steel pricing on the international market and avoid huge losses resulting from transactions when prices have seen a significant increase.
Over the past several years, as Chinese scrap steel demands have increased, prices have soared. Proponents believe that an alliance would have greater buying power that would enable it to negotiate lower prices for scrap steel imports.
However, it is hard to coordinate between state-owned and nongovernmental enterprises in terms of interest. There are also experts worrying about a monopoly in the scrap steel sector after the alliance is established. Nongovernmental steel enterprises strongly oppose the establishment of such an alliance, regarding it as an attempt by state-owned enterprises to form a monopoly. By contrast, state-owned steel enterprises support the alliance, regarding it as a win-win. Scrap steel traders and suppliers are also against the establishment of such an alliance, believing that it will restrict imports and narrow the profit space of small enterprises.
China Scrap Steel Utilization Association Secretary-General Yan Qiping admitted that the alliance remains only a proposal. Thus far, the association has established a Scrap Steel Trade Coordination Work Commission, which aims to coordinate procurements by different enterprises in such a way as to lower the purchasing cost.
The China Iron and Steel Association has predicted that after 2005, China's shortage of scrap steel supply will reach 15-20 million tons. China imported 1.6 million tons of scrap steel in the first two months of this year, down 20 percent from the same time last year, and imports dropped further in March-April as Beijing enacted a series of macroeconomic control policies concerning iron ore and steel products prices. The level of Chinese scrap steel imports is forecast to continue falling in 2005, with imports lower than the 8.5-9 million tons level reached in 2004. Asia Pulse