Up from the Ashes: The Rise of the Steel Minimill in the United States

By Donald F. Barnett; Robert W. Crandall | Go to book overview

APPENDIX C
A Model of the U.S. Iron and Steel Scrap Market

A model of the scrap market should include equations for export demand, domestic demand, the supply of home scrap, the supply of prompt industrial scrap, and the supply of obsolete scrap. Because there are no data that distinguish obsolete from prompt industrial scrap, a model of the market must be drawn from only two scrap supply functions, one for all purchased scrap (PS) (including obsolete and prompt industrial as well as scrap destined for exports) and one for home scrap (HS):

(1)


and

(2) HSt = b0 + b1RAWSTEELt + b2FOUNt + b3CONCASTt,
where FABR is sales of steel mill products to domestic users (including net imports), RAWSTEEL is the total production of raw steel, FOUN is foundry output, CONCAST is the amount of raw steel that is continuously cast, P is the real price of scrap, t is the current period, and TIME is a time trend. The price term P includes the possibility of growth in the price responsiveness of scrap supply over time because of the improvement in scrap collection technology and the increasing accumulation of obsolete scrap. Not all obsolete scrap is collected, and the remainder does not oxidize as rapidly as it accumulates; hence, there is the possibility that improving technology increases the recycling of discards from previous years. CONCAST in equation 2 allows for a declining trend of home scrap supply due to better yield performance in steel mills caused by the introduction of continuous casting.

It is conceivable that there are lags in the operation of the supply side of the market, but it is by no means clear that such lags are important. Annual data are used to estimate the model, and because these lags appear to be less than a year, equation 1 utilizes only current values of scrap price and industrial activity.

Scrap is bought by both domestic and foreign buyers, so the analysis of demand is separated into domestic and foreign components. The domestic demand function for scrap should contain variables for steel

-129-

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Up from the Ashes: The Rise of the Steel Minimill in the United States
Table of contents

Table of contents

  • Title Page iii
  • Board of Trustees v
  • Foreword vii
  • Contents ix
  • I- Two Distinct Industries 1
  • Summary 16
  • II- The Competitive Position of Minimills 18
  • Summary 35
  • III- The Decline of the Integrated Sector 36
  • Summary 55
  • IV- Changing Technology and the Minimills 56
  • Summary 70
  • V- Future Scrap and Electricity Supplies 71
  • Summary 94
  • VI- Industrial Policy- The Lessons from Steel 96
  • Appendix A- Tables 115
  • Appendix B- A Simulation Exercise- Scrap Availability for Electric Furnaces 126
  • Appendix C- A Model of the U.S. Iron and Steel Scrap Market 129
  • Index 133
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