Level best: the abrupt ending of Section 201 tariffs has put steelmakers in the U.S. back into a competitive but possibly healthier global market

Recycling Today, Jan, 2004 by Brian Taylor

Not long after they took effect in March of 2002, the opposition to the Bush Administration's Section 201 tariffs for foreign-made steel came fast mad furious from overseas steel companies.

Most foreign governments (some of which have an economic stake in steelmaking firms) lined up to petition the World Trade Organization (WTO) to rule against Section 201, which the WTO did consistently.

In early December of 2003, the Bush Administration relented to the global tide of opinion, immediately suspending the tariffs, which still had more than a year to be in effect per the original timetable.

What remains to be seen is whether Section 201, during its brief existence, helped solidify the financial footing of U.S.-based steelmakers. In the interim, many North American scrap dealers have become accustomed to addressing the export market, where Chinese steelmakers in particular are melting scrap in record amounts.

THE FERROUS SPIKE. Throughout the 20 months or so that Section 201 was in effect, ferrous scrap prices moved upward, though whether there was a correlation seems unlikely.

Speaking at the Institute of Scrap Recycling Industries Inc. (ISR1) Commodity Roundtables in September, Peter Marcus of World Steel Dynamics, Englewood Cliffs, N.J., presented a forecast through 2010 showing a growing shortfall of ferrous scrap and other steelmaking feedstocks.

In 2003, the price has risen steadily. One benchmark American Metal Market composite shows a $106 per ton mill buying price for ferrous scrap in January of this year followed mostly by steady gains until reaching a $144 per ton price in November.

Marcus believes there are overall supply constraints that, coupled with a booming Chinese steel industry, will make for a lack of steel furnace feedstock relative to global demand.

Marcus said that even though much of the new Chinese capacity consists of blast furnaces, a shortage of iron ore capacity will cause buyers at these mills to seek more scrap from an obsolete scrap reservoir that is already straining to fled the world's electric arc furnace (EAF) mills.

That shortage became apparent in 2003, by Marcus' calculations, with a theoretical shortfall of 36 million metric tons of obsolete scrap in the market in his "most likely" scenario, followed by shortages of 40 million metric tons in 2004, 45 million metric tons in 2005 and 50 million tons by 2010.

Marcus sees higher pricing for both steel and scrap continuing through the decade. "World Steel Dynamics places the odds at 65:35 that steel shortage conditions will recur by early 2004," he stated. "And, if there is a shortage, steel prices may rise 'volcanically.' Steel buyers may fear ongoing metallics shortages."

Marcus did not provide a dollars-per-ton figure on where ferrous scrap price averages might head, hut did note that ferrous grades currently being exported to China for as much as $189 per ton could go even higher. "I could imagine a temporary spike to $220 per metric ton for #1 heavy melting steel" delivered there, he remarked.

Marcus admitted that World Steel Dynamics also predicted such a shortfall for the late 1990s, which did not come to be. "We missed," he acknowledged, citing several factors that forestalled the shortage, including die outpouring of scrap from the former Soviet bloc nations and the Chinese preference for blast furnaces over EAF capacity in its new steelmaking capacity.

CLOSER TO HOME. The overseas demand that has propelled prices upward is clearly welcome, but many scrap suppliers are still concerned for their traditional consuming outlets closer to home.

When reports that the Bush Administration was leaning toward repealing the Section 201 tariffs first circulated, many steel executives in the U.S. issued pleas for the president to keep the tariffs in place.

"Section 201 is a critical component of U.S. trade law. Failure to uphold the steel safeguards would have a devastating impact, not only on the steel industry, but on all industries that depend on American trade law," said Dan DiMicco, vice chairman, president and CEO of electric arc furnace steelmaker Nucor Corp., Charlotte, N.C.

Integrated steelmakers may have been even louder in their support for 201, as were their workers. The United Steelworkers of America (USWA), condemned the decision to repeal the tariffs as "clear evidence of capitulating to European blackmail and a sorry betrayal of American steel workers and steel communities. Bush willfully ignored the fact that damage to the American steel industry and American steel communities continues to this day, even with the tariffs in place," said Leo Gerard, president of USWA.

Much of that initial rancor seems to bc dying down, however, as steelmaking companies instead develop strategies to move on with life after Section 201. If mid-December activity is any indication, raising prices for finished steel products seems to be one important tactic.

Weirton Steel of Weirton, W. Va., was among the first to try this, creating what it is calling a temporary raw materials surcharge on its finished steel, adding $25 per ton to prices starting in mid-December.