Addressing the Steel Scrap Problem

Prices for steel scrap, the raw material used for producing forging steel, have surged to unprecedented levels. More expensive steel scrap has led to higher prices for forging steel. The author outlines the reasons for this trend and offers a solution.

Why have we formed the Emergency Steel Scrap Coalition, and what do we expect to accomplish? For several months steel consumers have been growing more aware of the problems building in our supply chains because of the rising cost of scrap from our steel suppliers.

As CEO of the Impact Forge Group of four steel forging organizations, and like many other steel-consuming organizations, I can say that our industry is being hit hard by the rising cost of steel. This is a summary of the problem, the cause, the effect, and the solution:

The Problem: The primary reason for the increase in steel prices is the almost-doubling of U.S. steel scrap exports from 6.3 million tons in 2000 to 11.9 million tons in 2003.

This resulted in a rapid escalation of steel scrap prices to more than $300 per ton.

Therefore, prices of American-made steel increased dramatically because of steel scrap surcharges.

The Cause: The rapid growth of U.S. steel scrap exports is the result of a combination of increasing demand from Asia and the decisions by Russia, Ukraine, Venezuela, and now South Korea to restrict exports of steel scrap in order to protect their domestic steel industries.

The Effect: All companies and individuals in North America that produce or purchase steel or steel products are affected. The results are drastically lower profit margins, bankruptcies, or steel pass-through adjustments to customers. Millions of jobs are at stake and many companies will not survive.

The Solution: After several meetings with Senators, members of the House of Representatives, and officials from the Department of Commerce, I helped form the Emergency Steel Scrap Coalition to attack this crisis. The goal of the group is to find methods to lower steel prices by temporarily restricting the export of U.S. Steel Scrap - just as our trading partners have done. We have existing U.S. legislation allowing the Department of Commerce to restrict the export of metallic scrap in the event of either a dramatic increase in the price of scrap or a shortage. We ask companies hurt by these escalating steel prices to join our coalition through our website — www.scrapemergency.com.

One option is to file a petition to restrict the export of steel scrap; the Department of Commerce indicates it will give this petition timely and serious consideration.

Steel scrap is a basic raw material used to make steel in America. To use an agricultural analogy, it is our “seed corn.” If we have a tight supply of seed corn, prices at record levels, and our trading partners not allowing their seed corn to be exported, we would be fools to keep exporting our seed corn, put our farmers out of business, and cause people to go hungry.

We need to protect our steel scrap and restrict the excessive scrap exports from America.

TAGS: QC
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