EXPORT BARRIERS AND GLOBAL TRADE IN RAW MATERIALS: THE STEEL

INDUSTRY EXPERIENCE

Alan PriceAlan Price

2

Raw Materials

• The global steel industry depends on key raw materials– Iron ore– Steel scrap– Coke– Coal– Ferroalloys– Natural gas

• These raw materials are internationally traded– Over 40% of world iron ore production is traded internationally

• Few countries are self-sufficient in all of these raw materials

3

A Worrisome Trend

• World demand for raw materials for making steel is likely to continue to increase– Increased steel production in China, India, and Brazil– Economic recovery

• But a growing number of countries are imposing restrictions on exports of raw materials– The following slides identify some of the restrictions

that various countries have imposed on exports of raw materials used to make steel

• Rules regarding export restrictions change frequently, making supply even more problematic

4

China• China restricts exports of

– Coke– Steel scrap– Molybdenum– Fluorspar– Magnesium carbonate– Silicon carbide– Tin

• China is among the world’s leading producers of – Coke– Fluorspar– Magnesium carbonate– Molybdenum– Silicon carbide– Tin

5

Russia

• Russia restricts exports of– Ferrous scrap– Aluminum ore and concentrates– Molybdenum ore and concentrates– Tin waste and scrap– Tungsten waste and scrap– Antimony waste and scrap– Nickel waste and scrap– Nickel products– Coking coal

• Russia is the world’s largest producer of nickel

6

Ukraine

• Ukraine restricts exports of– Ferrous scrap– Ferro-chromium-nickel– Unrefined copper– Copper waste and scrap– Nickel waste and scrap– Aluminum waste and scrap– Lead waste and scrap– Zinc waste and scrap– Tin waste and scrap– Tungsten waste and scrap

7

India

• India restricts exports of– Iron ore– Ferrous scrap

8

Indonesia

• Indonesia restricts exports of– Steel scrap– Copper ores and concentrates– Lead ores and concentrates– Tin ores and concentrates

• Indonesia is the world’s second-largest producer of tin

9

Other Countries

• A number of countries impose restrictions on exports of steel scrap– Argentina– Azerbaijan– Egypt– Iran– Kazakhstan– Saudi Arabia– Thailand– United Arab Emirates

10

Forms of Export Restrictions

• Export bans

• Quotas

• Export taxes

• No VAT export rebates

• Licensing requirements

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Conservation of Natural Resources

• Conservation of natural resources is often given as a reason for export restrictions

• The GATT allows trade-restricting measures to conserve limited natural resources “if such measures are made effective in conjunction with restrictions on domestic production or consumption” – But without limits on mining, production, or domestic

consumption, export restrictions do not actually conserve resources

• WTO members must show that measures to conserve resources are not a “disguised restriction” on international trade

12

Environmental Protection

• China has claimed that export restrictions on coke and other energy-intensive inputs protect the environment by reducing greenhouse gas and other emissions

• Because there are no limits on production for domestic consumption, there is no evidence that export restrictions in fact reduce energy use and pollution

13

Orderly Markets

• Some countries claim that licensing of exporters is needed to ensure an orderly market

• There is no evidence that absence of licensing procedures in other countries disrupts the market– To the contrary, licensing procedures can be used as

a disguised restriction on international trade– Licensing procedures can also be used to favor

domestic over foreign traders

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Revenues

• Some countries have claimed that export taxes provide needed revenue

• The amount of revenue raised from export taxes is quite small compared to other sources of government funds

• A tax on production of an input would raise more revenue without discriminating against foreign purchasers

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Effects of Export Restrictions

• Wide spreads between domestic and export prices– This gives an advantage to consuming

industries in the exporting country

• Higher international prices

• Volatile international prices

• Disproportionate impact on developing countries

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Spread Between Domestic and International Prices

Chinese Coke Domestic and Export Prices

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

$1,000.00

$1,100.00

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

$/M

etri

c To

n

Export Prices

Domestic Prices

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Chinese Coke Prices and World Coke Demand

0

1

2

3

4

5

6

7

8

9

10

Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09

20

00

= 1

Reduction of export quota, January 2004

Imposition of export tax, November 2006

Export Restrictions and Coke Prices• Changes in coke prices are not associated with

changes in either steel production or steel prices• Changes do reflect imposition of export

restrictions by China

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Raw Material Prices

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-0

6

Mar-06

May-06

Jul-0

6

Sep-0

6

Nov-06

Jan-0

7

Mar-07

May-07

Jul-0

7

Sep-0

7

Nov-07

Jan-0

8

Mar-08

May-08

Jul-0

8

Sep-0

8

Nov-08

Jan-0

9

Mar-09

May-09

2006

= 1

Coke Imports

Iron Ore Imports

Hot-Rolled Sheet

Volatility in Raw Material Prices

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Impact on Developing Countries

• Restrictions on raw material exports impact developing countries disproportionately– 50% of iron ore that is imported is imported by developing

countries• The steel industries in many developing countries are

heavily dependent on imports of iron ore– Argentina: 100% of consumption– Libya: 100% of consumption– Philippines: 100% of consumption– Serbia: 100% of consumption– Trinidad & Tobago: 100% of consumption– Indonesia: 99% of consumption– Egypt: 68% of consumption– Turkey: 61% of consumption

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Conclusion

• Restrictions on exports of raw materials for steel making– Give domestic producers in the exporting

country an unfair competitive advantage– Increase worldwide costs of production– Do not match up to the justifications given– Place a heavy burden on the steel industry in

developing countries that do not have substantial iron ore reserves or steel scrap supplies