TPT January 2013

Global Marketplace

phone interview with the Reuters correspondent that the proposed tax is not an action against the scrap sector but an effort to impose “a barrier to countries that block our exports of steel-related products”. According to Mr Lopes, two-thirds of Brazilian scrap metal is exported to countries which – like China, India and Iran – impose restrictions to the entry of Brazilian value-added products. He said, “Our tax proposal is simply a matter of trade reciprocity”. The main constituent of steel produced in electric arc furnaces is widely used by Gerdau SA, the largest Brazilian producer of long steel; Votorantim Siderurgia, a unit of Grupo Votorantim; and the local unit of Luxembourg-based ArcelorMittal. The opposition view to the steel makers’ position was expressed by André de Almeida, a legal director for Instituto Nacional das Empresas de Sucata de Ferro e Aço, a group representing the scrap sector and known as Inesfa. Mr Almeida said that scrap producers export 0.2 per cent of the 10 million metric tons of scrap produced annually in Brazil and sold at a 33 per cent discount to international prices. In his view, the largest steel groups want the government to create the export tax because they are not willing to pay a fair price for the scrap they consume. He posed the question: “Is it fair that millions of people have to pay in order to sustain the profit margins of those groups?” › Grappling as they are with a domestic output glut and rising costs for such raw materials as coal, Brazil’s steel makers seem likely to stand fast in a dispute that Mr Parra- Bernal said underscores the high level of protection that local industrial conglomerates enjoy. He wrote, “President Dilma Rousseff’s administration has stepped up protection of steel and other industrial groups by hiking taxes on imports of some products, slashing taxes on payrolls, and ensuring demand for flat and long steel products by home appliance and auto makers as well as homebuilders.” For his part, IABr’s Mr Lopes denied that his group and the mills in general are against exports of scrap. He insisted, “What is motivating us is a trade issue, nothing else”. Pennsylvania clamps down, hard, on breaches of its Steel Products Procurement Act stipulating 75 per cent domestic content “If you build something with Pennsylvania tax dollars, state law says you have to use American steel.” Summarised by Rich Lord of the Pittsburgh Post-Gazette , this “domestic content rule” governs municipal building projects in a leading iron and steel producing state. Mr Lord would go on to show the rule in action. (“State Sues McKeesport Firm for Not Using Domestic Steel,” 20 October) Pennsylvania’s Steel Products Procurement Act demands that steel products used in state-backed public works be at least

Businessweek (9 October), Michelle Yun quoted Chun Chi Wai, who heads China’s largest scrap dealer, as saying that this increase would displace some demand for iron ore as more recycled material becomes available. Scrap may account for more than 20 per cent of steel production in China by 2015, from 14 per cent now, which will put some pressure on iron ore prices, Mr Chun said by phone from Shanghai the previous day. The company controls about 6 per cent of the fragmented scrap market, he said. “China’s steel production growth is set to slow from double digit gains in the past,” Mr Chun said. “Meanwhile, there will be more and more recycled steel, which will definitely reduce the use of iron ore.” Supplying context, Ms Yun noted that China, the world’s biggest steelmaker, responded to slowing economic growth by cutting production in August to its lowest level in six months. Steel prices fell in September to their lowest level since the 2008 financial crisis. Mr Chun told Bloomberg that, while such suppliers of iron ore to China as the British-Australian producer BHP Billiton and Brazil’s Vale SA have shelved new projects – or plan to cut output – China Metal Recycling is looking to expand as steelmakers demand more scrap. His company plans to set up operations close to Zhanjiang in Guangdong province, where its customer Baosteel Group Corp is building an $11bn plant to produce high-grade sheets for automobilve and appliance applications. China Metal Recycling was also, Mr Chun said, planning to introduce an electronic scrap-trading platform by the end of the year for its network of about 10,000 buyers and sellers. › Ms Yun cited a July report by HSBC Holdings Plc that, by comparison with the 60 per cent scrap usage by American steelmakers, China’s scrap consumption is low. Noting the greater energy- and cost-effectiveness of using scrap, Mr Chun of China Metal Recycling estimated that building a steel mill using iron ore would be at least two-thirds more expensive than one using scrap. Steel producers in Brazil, profits squeezed by rising costs, seek an export tax strongly opposed by the scrap metal industry The Brazilian scrap metal sector, which employs more than 1.5 million people, has launched an initiative to persuade lawmakers and government officials to block a proposal of the steel industry lobby to implement an export tax on scrap. The levy, submitted by Instituto Aço Brasil, or IABr, to the Ministry of Development, Trade and Industry, is perceived as having potential to allow mills to control costs by limiting the pricing power of the scrap producers. Reporting from São Paulo on 6 November, Guillermo Parra- Bernal outlined the dispute. Marco Polo de Mello Lopes, executive president of Rio de Janeiro-based IABr, said in a

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January 2013