Steel Bends But Doesn't Break; Tariffs, Chinese demand and a weak dollar keep industry off scrap heap.(INDUSTRY SNAPSHOT)(STEEL PRODUCERS)

Byline: JED GRAHAM

A little over two years ago, President Bush threw a lifeline to a steel industry awash in excess capacity and floundering in a sea of red ink.

By imposing tariffs of up to 30% on a range of steel imports, the administration hoped to prop up depressed prices and give struggling steel makers a chance to restructure.

The turn in industry fortunes since then has been swift and dramatic. Bush lifted the tariffs in December, over a year ahead of schedule. As steel prices hit the highest level in two decades, industry players and customers are pressing a new complaint: harmful exports.

Their particular gripe is over soaring prices of steel scrap, the recycled product from junked cars and demolished buildings that steel mills re-melt into finished steel.

The Emergency Steel Scrap Coalition formed in February to push for a curb on scrap exports, which rose from 6.4 million tons in 2000 to 11.9 million tons last year. Over that span, scrap exports to China nearly tripled, jumping from 1.2 million tons to 3.5 million tons. Amid tight supplies, scrap prices in the U.S. have rocketed from about $70 per ton in early 2002 to above $200, reaching as high as $260 in March.

The strength of the industry recovery owes itself to much more than simply a revival of the U.S. economy. Credit is also due to steel demand from China, which surged nearly 30% last year, and the dollar's weakness the past two years. Both of those factors, even more than the temporary import tariffs, have encouraged steel makers in places like Japan and Korea to sell to China rather than in the U.S.