Steel: Price and Availability Issues

The end of the steel safeguard tariffs under Section 201 of the Trade Act of 1974 has not led to the lowering of steel prices.This has disappointed many industries that use steel products, and some Members of Congress, who had wanted the tariffs reviewed.Rather, the price of steel mill products has continued to rise.By the end of the first quarter of 2004, prices for steel are double the level of mid-2003.Furthermore, many users complain that adequate quantities of steel are difficult to find, from either domestic or import sources.On March 10 and 25, 2004, Representative Donald Manzullo chaired hearings of the House Committee on Small Business that focused on small and medium-sized steel users' problems relating to prices and supply of steel and other metals.Many of the price increases are labeled as temporary surcharges, which steel producers say reflect higher costs that they must pass on to customers.The rising price of ferrous scrap has been especially notable: almost fourfold between early 2002 and March 2004.As scrap is the main input of minimill operations, its increasing price has especially disfavored them, as against the integrated mills, which produce steel from iron ore and coke.However, rising coke, iron ore, and natural gas prices have had a major impact on the costs of integrated operations.The rapid growth of both steel production and demand in China is widely considered as a major cause of the increases in both steel prices and the prices of material inputs.China is now both the leading producer of steel and the leading steel importer.It is also by far the leading importer of steel scrap from the United States.China is the world's leading exporter of coke and coking coal, including to the U.S. market, but now appears to be limiting its own exports.Meanwhile, there have been disruptions to the U.S. domestic coke supply.This combination has dramatically increased the cost of this critical input for domestic integrated mills.Both integrated steel mills and minimills recorded poorer financial performances in 2003.Some industry participants and analysts argue that a strong steel price recovery is necessary to allow the steel industry to continue to consolidate and modernize its operations.Others have noted restrictions placed on scrap exports by other countries and urged that the Commerce Department should consider similar "short supply" export controls, as provided under Section 7(c) of the Export Administration Act of 1979.Some representatives of steel consuming industries have also urged consideration of the termination of U.S. antidumping and countervailing duties (AD/CVD) on steel imports, citing the "changed circumstances" provision of U.S. trade remedies law.Another option is suggested by supporters of H.R. 3716, a bill that would overturn U.S. policy and allow CVD petitions to be filed against "non-market economies" -a proposal aimed at China.Conversely, Members of Congress critical of President Bush's ending of the safeguard tariffs have introduced legislation to reinstate them (H.R. 3699 and S. 1997).Some Members also supported a change in AD/CVD margins, to include the costs of safeguards remedies, and thus raise penalty tariffs, but the Commerce Department rejected this option on April 6, 2004.This report will be updated as warranted by developments.John Williamson, Technical Information Specialist in the CRS Resources, Science and Industry Division, assisted in producing Figure 1 and Table 1. Figure 2

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