The good thing about a truly global market is that it raises the standard of living all around. Richer countries get goods at a cheaper price and poorer countries create more jobs and more competition in their countries and thus, over time, better paying jobs and a better educated people. So, why not just open up all borders of all countries for unrestricted trade? Wouldn’t that in the long run make us all better off? In a world where everyone plays fair, yes.

Unfortunately, some end up taking advantage of the situation and engage in the practice of “dumping.”  China tends to be one country that resorts to dumping, the practice of over-producing goods and selling the excess on the open market at prices well below the competing nations’ products. Their cost of goods is significantly less because they pay their people so much less, which makes competing with them on price on a commodity product impossible.

That’s why, at times, it is good to have a government agency impose duties or tariffs on imported items such as was recently implemented by the United States International Trade Commission against Chinese oil country tubular goods (steel pipe used primarily in the oil and gas industries). Hopefully, the firms affected by this will be able to leverage this decision in constructive ways to build their businesses to be more competitive in the international markets.

I recently wrote an article about why the price of scrap has risen when the demand for steel continues to languish. I offered my take on it and asked others to offer theirs. Well, it seems World Steel Dynamics has responded (ok, so they were probably just responding to a multitude of people asking the same question so shoot me) by asserting most of what I stated and adding additional insight.  We may have to take a closer look at how we go after scrap.

According to this article, the US is exporting steel at levels comparable to the peak of 2008. And yet the overall level of scrap has declined dramatically. Obviously, that would mean the percentage of exported material from the total available in the US has increased significantly.

That, of course is also reflected in the lower steel production rates from US mills. Since they are producing less material, they don’t need as much scrap to feed their production. On top of that, we have seen large inventories of scrap at several steel mills, which seems to indicate they are well stocked for the lower production rates.

Given that scenario, it seemed strange that US steel mills across the country that use scrap recently raised the price they were willing to pay for scrap. The article referenced above might just hold the key to understanding why.

The shortage of scrap iron in the US is only going to be exasperated by the higher rate of scrap exports. The weak dollar not only makes US scrap more attractive, it also makes steel more attractive. So if US steel mills continue to find good export markets for their steel and things start to loosen up in the US, the mills could find themselves short material and having to buy at a huge premium. Keeping more of the flow to themselves now might seem much more attractive than what could come later. They also make it even more expensive for their foreign competitors to import steel into the US.

That’s my take on it – does anybody have another theory about the rise in scrap prices just at a time when we normally see them soften up due to seasonal slowdowns?

According to an article in Recycling Today, the World Steel Association is forecasting growth in the global steel industry of 9.2 percent, resulting in production of 1.206 billion tons of steel. In the US, they are forecasting a growth rate of 18.8 percent. From a US steel distributor’s perspective, that seems like quite a leap.

All across the US, demand appears to be weakening as construction and manufacturing contract in the face of the annual winter slowdown. Across the northwestern US, many fabrication shops are only seeing a 2-3 month backlog of orders, with very little coming on the horizon.  So if the forecasts are even close, the second half of 2010 would need to be pretty good. I guess we’ll see what happens but as positive a person as I am, it seems like quite a stretch to me.

I hope that somehow the forecasts come close. Not only will it affect our steel revenue but probably even more, our scrap revenue. As steel demand heats up, so will scrap demand, which is still experiencing a shortage here in the US. That shortage will likely cause price increases, which bodes well for scrappers as long as we don’t experience a fall-off similar to last year. Either way, I think we are in for an interesting ride.

So, do you see something different than me? Any positive news you have heard that would have long-term consequences?

There is a lot of talk about how the US economy will emerge from recession. One thing is sure, the manufacturing sector in the US is still sluggish. The question is, will it continue to crawl along, fall back into recession or bounce out quickly? According to an article in Recycling Today, over a third of manufacturers and steel service centers surveyed believe we will see a fall back before we see full recovery. So, what are your thoughts?