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February 2007

Effects of ending steel tariffs and recycling

“Steel is the world’s most recycled material,” says Bill Heenan, the president of the Steel Recycling Institute (SRI) and data from 2005 endorses his assertion.

Approximately 445 million tons of steel scrap was recycled worldwide in 2005 and of that, 80 million tons (18 percent) was recycled in the United States, a nation that produces 10 percent of the world’s annual production of steel.

“We are a net producer of scrap steel,” says Heenan. “About 10 to 12 percent of it is exported, some of which goes to Mexico and Canada. It’s not a significant percentage and it has been that same range for the last 10 years.”

The steel recycling rate in the United States is not expected to change despite a recent ruling by the United States International Trade Commission (ITC), which recently determined whether individual tariff cases should be continued and duties be retained on corrosion resistant (galvanized) steel (CRS).

“The ITC found in some cases that they should stay,” says Thomas Danjczek, president of the Steel Manufacturing Association (SMA). “In the cases of Canada and Japan, they should not be retained, while for South Korea, they should. It was a mixed decision. China was not part of that case.

“Ninety percent of our member’s furnace inputs are scrap-based,” he adds, noting that scrap steel firms are associate SMA members. “The other materials are pig iron, DRI (direct reduced iron), HBI (hot briquetted iron), etc. The tariff changes won’t affect steel recycling significantly. There are greater market forces in place.

“We make steel for the automotive sector, which account for 24 percent of United States production and corrosion resistant steel (CRS) is about 20 million tons of the 140 million-ton market that we have,” he adds. “The automotive companies are going to continue to buy. Some amounts of additional imports are likely to come in because of the rulings, but not a substantial difference.”

Recycled steel is key ingredient for new steel and the circular flow of steel from the producer to the firms manufacturing finished products, recyclers and back to the producers requires everybody to be in lockstep for the system to maintain itself.

The United States currently imports 30 percent of its annual steel needs.

“China is the biggest problem that we all face,” says Danjczek. “Steel prices for CRS elsewhere, in some cases are higher than North American prices. I am more concerned about the amount of steel that comes from China; the financial health of the United States government with our massive current account deficit; our customers, including the big three United States auto producers; and interest rates.

“China’s steel industry is heavily (80 percent) subsidized,” he adds. “That is significant and some of the automobile companies are basing their future on China. I would question whether that is another example of an approach that disadvantages one industry over another and it is not going to be a solution for anybody else.

“Recycling is not going to be affected. Recycling steel means that you generate one fourth of the green house gases (GHG) and use one third of the energy. Recycling is going to continue to win whether there are tariffs or not.”

Danjczek says North America is the most environmentally sound place to produce steel.

“We are very economically competitive,” he says. “General Motors should be happy that the steel industry is alive and well, instead of 30 bankruptcies that we had 8 or 9 years ago.”

Steel, particularly recycled steel, is a key component in cars, trucks and other vehicles.

The average American vehicle contains approximately .5 tons of CRS and for the first half of 2006, the value of sales of United States steel was $728 per-ton. For that same period, the operating margins for American steel producers were about 5.2 percent.

“We make an operating profit of about $19 per-vehicle,” says Danjczek. “If you look at the 2005 North American operating profits per vehicle, Nissan makes almost $2,000, Toyota makes about $1,600, Honda about $1,200, Ford loses about $500 and General Motors (GM) loses about $2,500.

“The Japanese are putting their money where the potential is the greatest in the United States,” he adds. “They wouldn’t do that if steel prices weren’t out of control.”

GM chairman Rick Wagoner has recently blamed expensive annual health care costs as one of the major problems affecting his company’s ability to compete.

But Danjczek stresses that CRS costs GM under $400 per vehicle, which is one fourth the amount of money spent on health care costs that attributed to per-vehicle production.

“We are against unfair trade and the allegations of shortages expressed by domestic automobile producers emanate from their frustration with the worldwide increase for steel products, directly related to the demand for steel, triggered by Chinese GDP growth,” he says. “However, this impact has receded as China has become the world’s largest steel producer, now shipping large tonnages of subsidized steel exports to the United States. For many years, automobile producers demanded multi-year contracts at extremely low steel prices, during periods when there was persistent and pervasive dumping of steel imports into United States steel markets. They got used to prices at levels more often than not below domestic or foreign steel company costs of production.

“The only recourse domestic steel producers had to the predatory foreign dumping and subsidy practices, which depressed United States steel prices,” he explains, “were the trade cases, whose affirmative determinations created the import duties to which the automobile producers now object. Apparently automakers would rather have access to unfairly priced dumped and subsidized imports, no matter what the effect is on their domestic suppliers. This shortsighted approach in unfortunate and should be rejected.”

Danjczek says the United States needs “strong core infrastructure industries, including autos and steel, to maintain its economic viability - the essential underpinning for its international political strength.

“We want a strong United States automobile industry,” he adds. “In their own long-term interest, the automobile producers also need a strong American steel industry. But let’s not try to get there by countenancing indifference to or depending upon predatory trade practices. A ‘look the other way’ approach will rebound to everyone’s detriment. If imported autos are being dumped, United States auto producers should respond consistent with WTO rules, as we have done.”

Nancy Gravatt, vice president of communications for the American Iron and Steel Institute (ISRI), notes that every ton of imported steel entering the United States has a negative overall environmental impact. She estimates that a ton of steel imported from less developed nations equates to the emission of one ton of pollution, including GHG.

“The GHG emissions released in producing one ton of steel in China compared to the United States is eight to one,” says Gravatt. “The top 20 CO2 polluting cities in the world are in nations that have not addressed the high levels of emissions of pollutants. Some nations are producing more steel than is needed to meet demand in their country.

“The concern traditionally in the North American market has been about unfairly traded steel or steel where there is a violation of trade laws and dumping ensues,” says Gravatt. “The Chinese are competing with an unfair advantage in that the government heavily subsidizes their steel industry and maintains their currency at a pegged rate that gives them an advantage against American manufacturers in general. That is not a level playing field.”

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