DEVELOPMENTS IN STEEL SCRAP IN 2009 AMERICAN SCRAP COALITION WASHINGTON, DC
DEVELOPMENTS IN STEEL SCRAP 2009 The year 2009 demonstrated that the United States continues to experience a crisis with respect to the availability of steel scrap. Despite a worldwide collapse in steel production, U.S. scrap exports continued to increase at an unsustainable pace. Indeed, in 2009 the United States exported nearly one-third of all the scrap it produced. China is the overwhelming cause of this crisis, as U.S. scrap exports to China have more than doubled, even in a year where both U.S. and global steel production fell sharply. China continued to fuel its overcapacity in steel with U.S. scrap, causing scrap exports from the United States to reach record heights. As a result, scrap prices in the United States reached their highest levels since September 2008. These export and price developments harmed U.S. manufacturers and other consumers of steel scrap. Scrap Exports and Domestic Consumption In 2009, both total and net scrap exports from the United States reached their highest levels ever. Total scrap exports in 2009 were 24.25 million short tons, while net exports were 21.4 million tons. Total scrap exports increased by 4.1 percent from 2008 to 2009, and by 73 percent from 2005 to 2009. It is likely that in 2009 the United States was once again the largest exporter of steel scrap in the world. U.S. imports of scrap, on the other hand, were nearly 17 percent lower in 2009 than in 2008. The increase in exports occurred even as world steel production in 2009 fell 8 percent from 2008. However, China s production of steel actually increased by more than 13 percent from 2008 to 2009. If China is excluded, world production from 2008 to 2009 fell by a staggering 21 percent. In 2009, China was by far the largest importer of scrap from the United States, with total imports of 6.8 million short tons. This was an increase of 121 percent from 2008, despite a - 1 -
global recession and unprecedented declines in global demand for steel. Exports to India also increased sharply, growing by 79 percent. Five countries China, Turkey, Korea, Taiwan, and India accounted for 75 percent of all U.S. scrap exports. The following chart shows exports of scrap from the United States to the top 20 importers from 2005 through 2009. TOP DESTINATIONS OF U.S. SCRAP EXPORTS, 2005 2009 (SHORT TONS) Country 2005 2006 2007 2008 2009 China 3,894,708 3,774,628 2,705,747 3,101,667 6,848,997 Turkey 1,654,855 2,723,891 3,594,929 4,940,345 4,057,243 Korea 1,240,095 1,487,348 1,502,446 2,884,002 3,425,861 Taiwan 312,479 788,850 1,803,911 2,728,012 2,458,711 India 888,814 681,117 860,483 972,850 1,740,160 Canada 2,378,813 1,656,663 1,557,947 1,836,291 1,069,862 Vietnam 28,759 509,318 176,348 341,375 826,287 Malaysia 504,295 999,707 1,335,031 1,384,210 759,853 Mexico 1,654,718 1,219,161 953,232 933,826 736,433 Thailand 371,616 508,360 944,982 1,171,095 506,318 Indonesia 207,134 126,576 239,392 408,614 406,400 Egypt 229,568 432,511 555,337 958,550 398,174 Pakistan 42,624 76,736 239,603 209,040 366,808 Greece 25,020 250,023 375,210 304,424 246,777 Peru 48,288 70,038 82 154,768 170,830 Hong Kong 54,078 150,812 278,315 184,396 109,854 Bangladesh 31,255 271,548 132,862 123,754 100,337 Japan 44,684 56,210 221,610 480,087 76,557 Brazil 11,466 6,607 4,582 2,733 70,517 Switzerland 448 1,124 3,397 103,138 60,358 All Others 654,540 602,927 681,054 524,920 278,736 Total U.S. Exports 14,278,257 16,394,154 18,166,498 23,748,096 24,715,075 Source: U.S. International Trade Commission, DataWeb Service, available at www.usitc.gov U.S. consumption of scrap in 2009, on the other hand, was significantly lower than in 2008. From 2008 to 2009, U.S. production of raw steel dropped by 36 percent. U.S. consumption of scrap also fell, by 27 percent. Scrap exports in 2009 were 46.7 percent of - 2 -
domestic scrap consumption, compared to only 32.6 percent in 2008, and less than 20 percent in 2005. The following chart shows the rapid growth of U.S. scrap exports since 2005. The U.S. Is A Large And Growing Net Exporter Of Ferrous Scrap 25 20 Quantity (Millions of Short Tons) 15 10 Exports Imports Net Exports 5 0 2005 2006 2007 2008 2009 Calendar Year Source: U.S. International Trade Commission, DataWeb Service, available at www.usitc.gov. Scrap Prices Scrap prices peaked in the middle of 2008, before falling sharply. By December 2008, prices in the United States for both shredded auto scrap and #1 busheling had fallen to their lowest levels since mid-2005. Almost immediately, though, prices began to rise again. By December 2009, prices for shredded auto scrap had risen by nearly 42 percent, to $272.63 per - 3 -
ton. Prices for #1 busheling increased by 38 percent over the course of the year, reaching $331.82 per ton. Scrap prices in 2010 have continued to move sharply upwards; the latest AMM price for shredded auto scrap in March 2010 was $350 per ton, while the price for #1 busheling was $443.75. These represent increases of 28 percent and 33 percent respectively over just three months. The following chart shows the extreme volatility in scrap prices in the United States over the last two years. Scrap Prices Have Increased Despite Falling Consumption 900 800 700 600 $/Ton 500 400 300 200 100 0 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Shredded Auto Scrap #1 Busheling Source: American Metal Market, available via subscription at www.amm.com. Restraints on Scrap Exports Steel scrap is exported from the United States without any restrictions. However, a number of countries, including China, Russia, Ukraine, and Argentina impose restrictions on - 4 -
exports of steel scrap. By artificially limiting global scrap supply, these restrictions increase worldwide prices for scrap and draw scrap out of the United States into world markets. This of course drives U.S. scrap prices higher. At the same time, by artificially increasing domestic supply, the restrictions make prices for scrap in these countries lower. Significantly, these countries are all large exporters of finished steel. Conclusion In 2009 U.S. scrap exports continued to grow even as world steel production declined. This increase was largely the result of higher exports to China and India. This in turn resulted in reduced scrap availability and higher prices in the United States. One of the primary causes of both higher scrap exports and higher scrap prices is the imposition of restrictions on scrap exports by major steel producing countries, including China, Russia, and Ukraine. Until these restrictions are removed, periods of tight supply and extreme volatility of prices will be exaggerated and steel producers in markets restricting scrap exports will benefit from these market distorting practices. * * * For more information, please contact Alan H. Price at 202.719.3375 or Timothy C. Brightbill at 202.719.3138. - 5 -