Russian, Ukraine tariffs: Trade-distorting practices?

Staff -- Purchasing, 1/13/2005

U.S. steel manufacturers and scrap metal firms have called for trade measures against Russia and Ukraine for imposing taxes and tariffs on exports of scrap, the raw material for two-thirds of American steel. "The lack of a level playing field for steel scrap is harming U.S. steel-producing and consuming industries," says a joint release from the Steel Manufacturers Association (SMA) and the Institute of Scrap Recycling Industries (ISRI).

"Foreign steel-producing countries are restraining their scrap exports in order to subsidize local steel production. At the same time, these export restraints distort the world market for scrap," the trade groups say in combining forces to lobby Washington legislators and Commerce Department officials for action against scrap trade.

The trade groups maintain that the Russian and Ukrainian barriers are to blame for more than doubling the price of scrap in a year. "The combination of export duties or tariffs on exports amounts to trade-distorting practices," says Thomas Danjczek, president of the SMA, which represents North American mini-mills that produce steel mostly from scrap.

"We are opposed to export controls. Our members benefit from free and fair trade and when you have tariffs, it interferes with the marketplace," adds Robin Wiener, president of the ISRI, which represents scrap metal balers, shredders and other companies engaged in recycling steel.

Scrap steel, often obtained from automobile plants (the well-known auto bundles), is used in electric-arc furnaces to manufacture approximately 64% of the U.S. carbon, alloy and stainless-steel output. With worldwide demand for steel soaring, the steel price has soared in the past year.

However, so too has the price of scrap, partly as a result of overseas export tariffs, the SMA and ISRI allege. The composite-steel scrap price more than doubled from $120 per ton in autumn of 2003 to just under $300 at the cyclical peak in late 2004, according to Purchasingdata.com. The U.S., which consumes 70 million short tons of scrap annually to produce fresh steel, imports some 4 million tons of scrap and exports about 10 million tons. "If the scrap stays overseas, that's the equivalent of subsidizing their steel manufacturing—they are getting scrap for less than the market price," says Danjczek. "Scrap is available, but like diamonds, you don't always like the price."