International Trade and Export Policies in the Ferrous Scrap Market

The United States is the world's largest producer, consumer, and exporter of ferrous scrap, one of the principal raw materials used in steelmaking. Scrap is traded internationally in a market dominated by the world's major steel producers, the United States, Japan, and the countries of Western Europe. In response to a congressional request, GAO examined the interaction of U.S. domestic and overseas scrap markets and the export policies of the United States and other scrap producing and consuming nations.

GAO observed that the United States, as the major ferrous scrap supplier, plays a major role in worldwide trade. Certain countries, such as Japan and Korea, buy large quantities of U.S. scrap. In Europe, other suppliers are available, but the United States is an important supplier, especially to such countries as Italy and Spain. The international scrap market is essentially a spot market; buyers and sellers prefer short-term contracts. The same is true of the U.S. market where an open and complex marketplace exists in which demand governs price. Foreign and domestic demand for scrap contributes to fluctuations in U.S. domestic prices, and a similar situation exists in various markets throughout the world. U.S. export prices, although higher, tend to reflect the same trends as domestic prices. U.S. exporters deal primarily with foreign steel mill customers, with the exception of Japan. In Japan, trade is conducted through Japanese trading companies which act as purchasing agents for Japanese steel mills and handle insurance, banking, and shipping arrangements. Within the European area, export control policies of individual countries and the European Economic Community have until recently impeded trade. Currently, the exporting countries generally have no major barriers to a competitive market. Continuation of unrestricted trade in European countries could generate additional scrap supplies within those countries and contribute to meeting demand by other countries. However, net importers in Europe and the Far East will need to continue to buy scrap from the United States.