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    Greater China
     Jun 4, 2005
Scrap steel procurement alliance recommended

BEIJING - China should establish a scrap steel procurement alliance to gain the initiative in scrap steel pricing on the international market and avoid huge losses resulting from bull transactions (ie, transactions made when prices are unusually high) and disorderly competition, experts suggest. In recent months, many Chinese steel enterprises have been forced to pay extremely high prices for scrap steel because of upward price pressure on the commodity given the tight supply conditions for scrap and iron ore, which can both be used to make steel. Proponents believe that an alliance would have greater buying power which would enable it to negotiate lower prices for scrap steel imports.

However, it is hard to coordinate between state-owned and nongovernmental enterprises in terms of interest. There are also experts worrying about a monopoly in the scrap steel sector after the alliance is established. Nongovernmental steel enterprises strongly oppose the establishment of such an alliance, regarding it as an attempt by state-owned enterprises to form a monopoly. By contrast, state-owned steel enterprises support the alliance, regarding it as a win-win. Scrap steel traders and suppliers are also against the establishment of such an alliance, believing that it will restrict imports and narrow the profit space of small enterprises.

China Scrap Steel Utilization Association Secretary-General Yan Qiping admitted that the alliance remains only a proposal. Thus far, the association has established a Scrap Steel Trade Coordination Work Commission, which aims to coordinate procurements by different enterprises in such a way as to lower the purchasing cost.

China is not only a large iron ore importer, but also a large scrap steel importer. The China Iron and Steel Association has predicted that after 2005, China's shortage of scrap steel supply will reach 15-20 million tons. China imported 1.6 million tons of scrap steel in the first two months of this year, down 20% year on year, and imports dropped further in March-April as Beijing enacted a series of macroeconomic control policies concerning iron ore and steel products prices. Generally speaking, the level of Chinese scrap steel imports is forecast to continue falling in 2005, with imports lower than the 8.5-9 million tons level reached in 2004.

(Asia Pulse/XIC)

 

 
 

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