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Country of Turkey tops the list of U.S. scrap metal consumersClick to Enlarge

As China’s once voracious appetite for scrap metal has moderated, Turkey’s has sharply increased. As a result, the country of 74 million has become the world’s largest consumer of scrap metal from U.S. recyclers. Turkey’s consumption of more than 5.6 million tonnes – each tonne equals 1.1 tons or 2,205 lbs. – of U.S. ferrous scrap during 2011 was up 29.2 percent from less than 4.4 million tonnes (4.8 million tons) in 2010, according to a report by American Metal Markets.

As recently as 2009, the picture was very different. With 24.6 tons of scrap metal exported that year, the U.S. was the world’s dominant supplier, producing almost as much as the total of the next two on the list, namely, the European Union with 16.8 million tons and Japan with 10.3 million tons. While in 2009 Turkey was already the top purchaser of EU-sourced scrap metal, consuming a robust 8.3 million tons, it was well behind China when it came to taking U.S. scrap.

In that year, China imported 6.8 million tons of U.S. scrap metal. Turkey was well behind in second at 4.1 million tons, closely followed by South Korea with 3.4 million tons. Taiwan, with 2.4 million tons and India, 1.1 million tons, rounded out the top 5 purchasers of U.S. scrap.

Turkey is headed for a 2012 repeat as the largest offshore buyer of U.S. ferrous scrap, with nearly 1 million tons purchased in the year’s first 2 months. That was up more than 60 percent from Turkey’s take during the same period in 2011.

Most of the change in the rankings of top purchasers of U.S. scrap is due to Turkey’s striking increase in consumption. China’s moderating purchases also played a role. In 2010 the country’s imports of scrap rose sharply to approximately 15.4 million tons, according to a report from the Organization for Economic Cooperation and Development (OECD), before falling almost as sharply during 2010 to about 6.6 million tons. According to American Metal Market, which uses data from the U.S. Department of Commerce. Last year, Chinese demand for U.S. scrap grew strongly again – although still behind Turkey’s expansion – adding 31.5 percent.

Much of the steel scrap sent to Turkey comes back to the U.S. in the form of end products from Turkish mills. And in 2012, this movement of returning steel products is growing even faster than U.S. exports of scrap metal to Turkey.

“For the first three months reported by the U.S. Department of Commerce, U.S. steel imports from Turkey have increased more than threefold from approximately 152,000 tons in 2011, to 493,000 tons in 2012,” according to Thomas Danjczek, president of the Steel Manufacturers Association, a Washington, D.C. trade group of North American steel producers. “This is most certainly a surge.”

For U.S. scrap recyclers, Turkey’s enthusiasm for their materials has meant firm pricing support. American Metals market reported in March that prices for heavy melting steel scrap were around $440 per tonne.

But North American steel industry members like Danjczek are feeling the heat from Turkish steel producers who source their raw materials from U.S. recyclers. “It’s difficult to understand Turkey’s overall steel production costs when they imported over five million tons of scrap from the U.S. last year and had to pay the additional scrap costs associated with handling, freight and inventory charges and then shipped steel products back to the U.S. and again had to pay the additional steel costs for the handling, freight and inventory charges,” said Danjczek. “Freight is not free.”

As Turkey has become a more important consumer of U.S. scrap, the country’s steel industry has become increasingly reliant on North American sources for recyclable metals. The OECD report said ferrous scrap exports from the U.S. to Turkey in 2002 were just three percent of Turkey’s total imports of ferrous scrap. By 2010, U.S. scrap accounted for 26 percent of Turkey’s ferrous scrap imports, with most of the more than eight-fold increase occurring from 2004 to 2008.

Much of the explanation for the flow of scrap metal around the world can be found in differences in national infrastructures for recycling metal and producing new products. For instance, the U.S. has nearly 300 shredders producing recycled scrap metal, the OECD report noted. China, meanwhile, has approximately 30 shredders.

However, as observers like Danjczek suggest, there is more going on here than undirected free market forces. The flows of ferrous scrap are also being altered by national trade policies, the OECD report found. China, for instance, which exports very little scrap metal, especially in comparison with what it consumes, taxes exports of ferrous scrap at 40 percent, one of the world’s highest rates, the OECD noted.

Countries that restrict ferrous scrap trade with such policies see lower domestic prices, but over time the policies may have to be altered. A country’s internal sources for scrap metal are a function of its consumption of metal for domestic products over a period of about 25 years, according to OECD. Investing in steel producing capacity for export purposes, in the expectation of sourcing scrap for mills in other countries, may not be a sustainable policy long term, the OECD analysts warned.

The OECD analysis could use Turkey as its poster child, which is increasing its importation of scrap metal faster than its production of steel. In 2011, American Metal Market reports, the country consumed 30.8 million tonnes (33.9 tons) of scrap, a 22 percent increase from the year before, while producing 34.1 million tonnes (37.6 tons) of steel, up 17.8 percent.

If, in fact, Turkey’s consumption of U.S. scrap metals does decline, it will reverse a long-standing trend that, according to the OECD, has seen its scrap imports increase nearly 40 fold since 1985. If recent trends in Turkey’s imports of scrap metals are any clue, that trend is not likely to slow down soon.