1

          1                      BEFORE THE

          2             BUREAU OF INDUSTRY AND SECURITY
                      UNITED STATES DEPARTMENT OF COMMERCE
          3   
              PUBLIC HEARING ON:
          4   A PETITION FOR SHORT SUPPLY EXPORT CONTROLS
              AND MONITORING ON RECYCLABLE METALLIC MATERIALS
          5   CONTAINING COPPER

          6   ___________________________/

          7   

          8           The above-mentioned hearing was held on
              Wednesday, May, 19, 2004, commencing at 10 a.m., at the
          9   Herbert C. Hoover Building, Auditorium, Department of
              Commerce, 14th Street and Pennsylvania Avenue, N.W.,
         10   Washington, D.C. 20230.

         11   

         12   BEFORE PANELISTS:
                               DANIEL O. HILL
         13                    PETER KLASON
                               BERNARD KRITZER
         14                    DAVID HENRY
                               DANIEL EDELSTEIN
         15   

         16   

         17   

         18   

         19   

         20   

         21   Reported by:  Robert A. Shocket


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          1                  P-R-O-C-E-E-D-I-N-G-S

          2               MR. HILL:  Good morning.  I am Dan Hill.

          3   I'm the Director of the Office of Strategic Industries

          4   and Economic Security for the Bureau of Industry and

          5   Security here at the Department of Commerce.  I have

          6   been designated to be the hearing official for today's

          7   hearing.  I would like to welcome you all to the

          8   hearing today.  At this time, I would like to ask that

          9   all cell phones be put on either vibrator or silent

         10   mode, that if you wish to receive or take any cell

         11   phone calls that you would please do so in the exterior

         12   corridor so that in deference, as a courtesy to our

         13   witnesses.  For the media, Gene Cotilli (phonetic), I

         14   believe has met with you.  He will be circulating

         15   around today.  He's not here right now but he will be

         16   available throughout the day to answer any questions

         17   that you have.

         18               For security, as you all know, we live in

         19   different times now than before September 11th.  And,

         20   as result we are now subject to new security rules.  As

         21   you wish to visit the facilities or go to lunch, you


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          1   will have to be escorted.  We have a number of staff

          2   outside that door who are available throughout the day

          3   to do escort duty.  You will see from time to time,

          4   although I have asked them not to come into the hearing

          5   room, you will see security guards as well.  Do not

          6   worry.  That's just standard operating procedure.

          7   There is no increased level of threat.

          8               As many of you know, on April 7th, 2004, a

          9   petition was received by the Department of Commerce

         10   from the Copper and Brass Fabricator Council, Inc., and

         11   its member companies and the Nonferrous Founders'

         12   Society and its member companies requesting the

         13   imposition of monitoring and export controls on copper

         14   scrap and copper-alloy scrap.

         15               The petitioners also requested a public

         16   hearing on the issue.  The review of this petition is

         17   being conducted by the Department of Commerce's Bureau

         18   of Industry and Security, in accordance with provisions

         19   set forth in Section 7C of the Export Administration

         20   Act as amended and section 74.7 of the Export

         21   Administration Regulations.


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          1               Our objective today is to gather

          2   information to assist us in the review of the petition.

          3   For our review the Bureau of Industry and Security has

          4   assembled an interagency team of experts, many of whom

          5   are here today to support this review.  The team

          6   includes representatives from other bureaus within the

          7   Department of Commerce, the Department of State, the

          8   Office of the United States Trade Representative and

          9   the United States Geological Survey.

         10               At this time I would like to also thank

         11   members of my staff who have help put this hearing

         12   together and most of them are outside doing their work

         13   but Bob Nichol, Elsie Carroll, Melissa Green, Lee

         14   Frazier, Leah McNoon (phonetic), Eddy Aparicio and

         15   Petrina Bean, who will be our timekeeper today.  Thank

         16   you all for your very hard work.

         17               I would like to also acknowledge at this

         18   point other staff who are very involved in this

         19   exercise, down on the staff table on my right.  Pat

         20   Huber, senior analyst with the Bureau, Sarah Heidema,

         21   Parvin Huda, who is with our Office of Chief Counsel,


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          1   Mike Vaccaro, another one of our senior analysts,

          2   Marjorie Pavalochek (phonetic), with the International

          3   Trade Administration and Jess Dumagan, an economist,

          4   senior economist with the Economic and Statistics

          5   Administration here in the Department of Commerce.

          6               For our review, we asked, we opened an

          7   initial comment period which closed on May 13th.

          8   During that period, we received a total of fifteen

          9   submissions.  These comments can be found on the BIS

         10   Web site at WWW.BIS.DOC.GOV, G-O-V. We have asked that

         11   written comments to these initial comments should be

         12   submitted to us by May 27th, 2004.  To do that, you may

         13   send them to the e-mail address we set up, which is

         14   coppershortsupplypetition -- all one word -- at BIS.

         15   DOC.GOV or you may send them to the copper short supply

         16   petition in care of the Regulatory Policy Division,

         17   Bureau of Industry and Security, Department of

         18   Commerce, Post Office Box 273, Washington D.C. 20044.

         19   Period for submission of all comments, the final

         20   submission will be 5 p.m., June 7th, 2004.  At that

         21   time, we will not accept any other public comments for


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          1   the record.  I would like to also recognize Kent

          2   Stokes, senior economist with the International Trade

          3   Administration who has just joined us as well.

          4               In addition to the written comments, the

          5   testimony of today's hearing will be considered in the

          6   review of the petition.  A transcript of this hearing

          7   will be posted on the BIS Web site shortly after the

          8   hearing.  I would like to note at this time that only

          9   oral comments presented by preapproved witnesses will

         10   become part of the record.

         11               I would like to introduce our panel today.

         12   To my immediate left is Peter Klason, who is our

         13   counsel for the petition.  To his left is Bernie

         14   Kritzer, Director of the Bureau's Office of National

         15   Security and Technology Transfer Controls.  Next to

         16   Bernie is David Henry, a senior economist with the

         17   Department's Economics and Statistics Administration.

         18   And finally, on the end, is Dan Edelstein, who is with

         19   the U.S. Geological Survey, the Department of Interior.

         20               Today's hearing will be conducted under the

         21   following procedures:  I will invite each witness to


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          1   come forward and be seated at the table before the

          2   government panel over here.  Each speaker had been

          3   allotted up to ten minutes to deliver their

          4   presentation with a subsequent period for questions

          5   from members of the hearing panel.  Our timekeeper,

          6   Trina, if you would raise your hand, Trina will raise

          7   her hand at the three minute warning, and she has a

          8   sign for three minutes left, one minute left, and time

          9   has expired.  I would ask our witnesses to keep their

         10   comments to the allotted time and as short as possible

         11   so that we can spend more time on the questions.

         12               At the call of the chair, I will recess at

         13   approximately 1 p.m. for a lunch break, depending on

         14   where we're at, at that time.  We fully intend to

         15   complete the hearing today.  Without further ado, I

         16   would like to at this time call on our first witness,

         17   Joseph Mayer, President of the Copper and Brass

         18   Fabricators Council, Inc. Mr. Mayer, if you would give

         19   your testimony.  Thank you.  Push the talk button on

         20   your thing.  Thank you.

         21               MR. MAYER:  Good morning.  I want to thank


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          1   you, Mr. Chairman and members of the panel for the

          2   opportunity to appear here today.  I am Joe Mayer and I

          3   am appearing on behalf of the Copper and Brass

          4   Fabricators Council and its 20-member companies.  The

          5   Council is a trade association which represents the

          6   principal copper and brass mills in the United States.

          7   These mills together account for the fabrication of

          8   more than 80 percent of all copper and brass mill

          9   products produced in the United States, including sheet

         10   and strip, plate and foil, bar and rod, and both

         11   plumbing and commercial tube.  These products are used

         12   in a wide variety of applications, chiefly in the

         13   construction, automotive, electrical and electronic

         14   industries.

         15               The brass mill industry is one of America's

         16   vital basic industries.  The industry comprises the

         17   mills which melt and cast cathode and copper and

         18   copper-alloy scrap into billets and slabs which they

         19   then roll, draw or extrude into the various types of

         20   mill products I have listed.

         21               Under normal market conditions, the brass


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          1   mill industry enjoys a plentiful supply of copper and

          2   copper-alloy scrap at prices which encourage the mills

          3   to recycle the scrap as a fully acceptable substitute

          4   for expensive cathode copper in more than 50 percent of

          5   their products.

          6               Unfortunately, today's market is far from

          7   normal.  Currently, brass mills are experiencing steep

          8   increases in scrap prices with unprecedented speed.

          9   This price volatility is directly related to huge

         10   increases in exports of U.S. scrap, particularly to

         11   China.

         12               As a result, U.S. brass mills, despite

         13   improving orders and sales, are enduring severe

         14   stresses on operating income in an industry noted for

         15   narrow profit margins in the best of times.

         16               These adverse economic conditions are a

         17   direct result of shortages in the domestic availability

         18   of scrap supplies.  No other economic factor impacting

         19   the operations of the brass mill industry today

         20   remotely compares to the current short supply of copper

         21   and copper-alloy scrap in its effects.


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          1               This is a broad outline of our case.  We

          2   will now offer a series of witnesses whose knowledge

          3   and experience will provide the data and details which

          4   we believe constitute a compelling case on the merits

          5   of our petition.

          6               Our witnesses today will include:

          7   Mr. James L. Mallory, President of the Nonferrous

          8   Founders' Society, who will present the views of his

          9   members; David Hartquist, our trade counsel; Michael

         10   Kerwin, our economist in this matter; Roy Allen,

         11   President of Hussey Copper; Thomas Baker, Vice

         12   President of Marketing for Olin Corporation's Metals

         13   Group; Jeffrey Burghardt, Director of Metals and

         14   Stores, Outokumpo American Brass; George Dykhuizen,

         15   President of Extruded Metals and Vice Chairman of the

         16   Council; and James Rourke, Vice President and General

         17   Manager of Mueller Brass Company.

         18               On behalf of the co-petitioners, we thank

         19   you for this opportunity to present our views in this

         20   matter.  We thank you, in particular, for your

         21   accommodation of all of our witnesses in today's


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          1   proceeding and for your extraordinary efforts in this

          2   compressed time schedule to acquaint yourselves with

          3   the operations of our complex industry through arduous

          4   site visits and other industry contacts.

          5               Unless there are any questions, I would

          6   call upon Mr. Mallory to continue our presentation.

          7   Unless there are any questions I would call upon Jim

          8   Mallory to continue our presentation.

          9               MR. HILL:  We'll have a couple of

         10   questions.  Let me, I have a couple and then we'll see

         11   what the rest of the panel has.  Thank you for your

         12   testimony.  We appreciate all the hard work that you

         13   and your association are putting into this effort as

         14   well.  In your testimony you talked about shortages of

         15   domestic supplies.  Has that shortage or the

         16   availability of copper scrap affected delivery times

         17   for the copper-consuming industry for your monthly

         18   inventories at this point?

         19               MR. MAYER:  I think the testimony of our

         20   industry representatives will illustrate that point.

         21   The answer, the short answer is yes.


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          1               MR. HILL:  And you may defer to those

          2   people as well.  What specific grades of scrap are

          3   asserted by your members to be in short supply?

          4               MR. MAYER:  We consider all grades to be in

          5   short supply.  There are grades that are particularly

          6   of concern to us and again I think our industry

          7   representatives will point out those specific grades

          8   and, of course, the difficulty really in defining these

          9   grades.

         10               MR. HILL:  Any other questions from the

         11   panel?  Dave?

         12               MR. HENRY:  In accordance with your

         13   statement in your testimony that you are providing a

         14   broad outline of the case and you're going to depend on

         15   your remaining speakers to get into details and data,

         16   but can you give, could you give the panel and the rest

         17   of us the sort of a broad outline of what's going on in

         18   the world market?  I mean, is the world market

         19   experiencing the same sort of price increases in copper

         20   scrap, say, in Europe, in Asia, and the world price in

         21   copper in general?  I'm just trying to get an idea of


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          1   what's going on in the world market as opposed to what,

          2   is it any different than in the U.S.?

          3               MR. MAYER:  Well, the principal sources I

          4   think of exports of scrap are the U.S., and the U.S. is

          5   by far the leading exporter but Europe exports a

          6   substantial amount of scrap also.  And it is certainly

          7   our understanding that they are experiencing

          8   difficulties similar to ours and they have various

          9   counterpart organizations in Europe and have asked

         10   their governments to take similar actions to the one

         11   we've brought to you.

         12               MR. HILL:  Bernie?  Okay.  Thank you very

         13   much.

         14               MR. MAYER:  Thank you.

         15               MR. HILL:  At this time I would like to

         16   call James Mallory from Nonferrous Founders' Society.

         17               MR. MALLORY:  Good morning.

         18               MR. HILL:  Good morning.

         19               MR. MALLORY:  As you know, my name is Jim

         20   Mallory and I am the Executive Director of the

         21   Nonferrous Founders' Society, which we actually


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          1   pronounce as "NFFS."  We are a not-for-profit trade

          2   association representing the aluminum and copper-based

          3   foundry industry.  We are one of the co-petitioners in

          4   the short supply petition on copper and copper-alloy

          5   scrap that was filed with the Commerce Department on

          6   April 7th.

          7               To begin my comments, allow me to give you

          8   some brief background information about our industry

          9   and about brass and bronze foundries in particular.

         10   Nonferrous foundries operate in virtually every state

         11   of the union, producing component parts that are used

         12   in virtually every other manufacturing industry.  The

         13   Nonferrous foundry industry consists of nearly 2,000

         14   foundries, most of whom are small businesses but who

         15   collectively have almost a quarter of a million

         16   employees, contribute more than $20 billion to the

         17   domestic Gross National Product and produce something

         18   over 100,000 distinct products.  Among nonferrous

         19   foundries, NFFS estimates that the current U.S. census

         20   of the brass and bronze foundry industry, Code 331525,

         21   is somewhere around 540 companies employing roughly


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          1   40,000 individuals.

          2               Nonferrous castings are essential to the

          3   lifestyle we have come to enjoy in the 21st century,

          4   and in fact are found in almost everything you come in

          5   contact with in your daily life, everything from your

          6   kitchen sink to key national defense weapons systems

          7   contains nonferrous castings.  They are everywhere you

          8   look and everywhere you go.  I typically tell people

          9   you're never more than 25 feet from a nonferrous

         10   casting.

         11               Nonferrous foundries annually recycle

         12   millions of tons of scrap metal into useful components.

         13   Without those parts, America's production engine would

         14   to a grinding halt.  Moreover, the reuse of these

         15   materials saves natural resources and decreases waste.

         16   More than 95 percent of the feedstock for foundry

         17   production comes in the form of alloyed ingot derived

         18   from scrap metals.  Among ingot-makers in the brass and

         19   bronze foundry sector, number two scrap is their

         20   principal feedstock.  But as I hope my comments today

         21   will reveal, and as the petition we filed has clearly


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          1   demonstrated, foundries and their ingot suppliers are

          2   facing a critical material supply problem today.  But

          3   of course that's certainly happened before.

          4               The Nonferrous Founders' Society was

          5   created in 1943.  At that time, and through most of the

          6   early 1940's, nonferrous foundries found it

          7   increasingly difficult to get material allocations,

          8   namely scrap metal for domestic, non-war related

          9   production.  Most of the metal was rightly being

         10   diverted to the war effort, but foundries also needed

         11   to get scrap metal for other production needs as well.

         12   To find a way to secure those material allocations and

         13   to meet those needs, they established the Nonferrous

         14   Founders' Society.  And part of our initial charter was

         15   to work with the National Security Resource Board, and

         16   later with the Commerce Department's own National

         17   Production Authority Division, to control the flow of

         18   scrap metal.  In fact, for a period in the early 1950's

         19   a member of our Society, who would later go on to serve

         20   as one of our presidents, left his own company to serve

         21   as the Chief of the Casting & Forging Section of the


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          1   NPAD Office of Price Stabilization here in Washington.

          2               So you see, the current short supply

          3   petition for copper and copper-alloy scrap isn't the

          4   first time that we have gotten involved in petitioning

          5   the Commerce Department to intervene in this area.

          6   Nearly a half century ago -- and I found this in our

          7   archives -- representatives of our Society met with

          8   representatives from the Commerce Department to ask

          9   that the amount of scrap metal available for export be

         10   restricted, both aluminum and copper.  Even then,

         11   however, there were those who felt that scrap metal

         12   wasn't essential to the United States and therefore any

         13   and all export controls should be abolished.

         14               Let me pause here for just a moment to

         15   remind you of something I said earlier.  The Nonferrous

         16   Founders' Society actually represents both copper and

         17   aluminum foundries and their ingot manufacturers.  In

         18   fact, our membership is almost evenly divided between

         19   those two materials.  While the petition we filed on

         20   April 7th and that we are here at this hearing to

         21   address, only addresses the situation as concerns the


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          1   exports of copper and copper-alloy scrap, I feel

          2   obliged to note that just a week before the petition

          3   was filed one of our aluminum smelter members testified

          4   before the House Small Business Committee concerning

          5   the situation on aluminum scrap and their export to

          6   China.

          7               Following that hearing, Chairman of the

          8   House Small Business Committee, Don Manzullo, issued a

          9   statement in which he stated his believe that the

         10   administration should, and I quote, "Immediately begin

         11   a study to consider the validity of imposing export

         12   controls on U.S. scrap."  Now, I admit to taking a bit

         13   of license with the Chairman's statement.  He

         14   specifically referred to steel scrap, not copper.  But

         15   the Chairman's statement does not fully reflect how the

         16   scrap metal market today is operating.  Again I refer

         17   to the testimony that our aluminum smelter member gave

         18   at that March 24th Small Business Committee hearing and

         19   I'm sure a copy of that could be made available from

         20   the committee staff upon request.  At that hearing, our

         21   member described visits he had personally made to


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          1   several scrap dealers in the metropolitan Boston area,

          2   both small and large.  He reported that at every

          3   location he visited he saw overseas containers being

          4   loaded with miscellaneous aluminum, copper, nickel, and

          5   stainless steel crap -- scrap, excuse me.  I misspoke.

          6   Most of the material that was being loaded would need

          7   extensive sorting or processing in order to be turned

          8   into useful product.  But that sorting was to be done

          9   on the receiving end, not on the shipping end.

         10               The petition that NFFS and CBFC filed seeks

         11   to impose monitoring and export controls on copper and

         12   copper-alloy scrap.  I'm sure that the Department will

         13   be told that sorting out those particular metals might

         14   impose additional cost burdens on the scrap industry.

         15   But it's important to note that those added costs would

         16   only apply to the materials being sent offshore in

         17   those mixed containers.  The scrap processing industry

         18   already incurs sorting costs for materials being sold

         19   and consumed in the United States.  And frankly I think

         20   factoring sorting back into the cost equation for scrap

         21   metals might actually have some pass-through effect on


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          1   controlling the export of those other materials I

          2   referred to as well.

          3               Returning to the subject of the petition, I

          4   have often described the situation that foundries today

          5   are facing as being cut with both sides of a Chinese

          6   sword.  On one side, China's appetite for scrap metal

          7   has driven prices for those materials up by more than

          8   100 percent and dramatically reduced their

          9   availability.  On the other side, however, when

         10   foundries try to pass on those increased material costs

         11   to their customers, they're often told that if their

         12   component costs go up, those customers will be forced

         13   to begin seriously looking at other sources of supply,

         14   namely offshore, namely China.

         15               In a fair global market, it's nearly

         16   impossible to overpay for raw materials and undercut

         17   price.  And, frankly, even the suggestion of such

         18   manipulative behavior I believe warrants the monitoring

         19   requested in this petition.  I think it will probably

         20   be said that other people who have said the situation's

         21   only temporary and may resolve itself in six months or


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          1   less, and some people may say it's already starting to

          2   correct and there have been reported decreases in the

          3   demand for Chinese scrap.  I think perhaps it suggests

          4   to me, however, if those reported decreases in demand

          5   are real and price adjustments that are being seen are

          6   real and long-term, it only proves the points in our

          7   petition, that China has been playing games with the

          8   U.S. market for materials.

          9               And I would go on further to suggest that

         10   there are a number of defense-related issues that enter

         11   into the equation.  I know that there was a conference

         12   held by the Defense Department in August of 2003,

         13   concerning diminishing manufacturing sources and

         14   materials shortages at which speakers emphasized the

         15   fact that globalization "uber alles" is not a viable

         16   policy where national security is concerned.  And the

         17   representatives of the Commerce Department speaking at

         18   that hearing also emphasized the need to look seriously

         19   at controlling materials where defense implications

         20   occur.  I'll let the rest of my written comments stand

         21   for the remainder of my testimony and I'll take your


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          1   questions.

          2               MR. HILL:  Thank you, sir.  Your entire

          3   written comments will be included in the record and on

          4   our Web site.  I have a couple questions and then I

          5   will turn it over to my colleagues.  So I understand

          6   the economics and dynamics of your industry and your

          7   members, are the increases in price from the rising

          8   cost of scrap, copper scrap, in your industry, do they

          9   pass those increases up the line to the consuming

         10   industry?

         11               MR. MALLORY:  They try to.  We recently did

         12   a survey of our members to determine what effect the

         13   increases in metal prices were having on our business

         14   relationships with their customers and we asked if they

         15   were able to pass on those increases through either

         16   price increases, in the base price of castings or on

         17   surcharges based upon the current metal market prices.

         18   And, in about half of the cases of the responses that

         19   we got, our members said that they did attempt to put

         20   those price, pass those price increases on to their

         21   customers and about half the time their customers would


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          1   accept those price increases with a caveat that if that

          2   situation were going to continue, they would look

          3   elsewhere to source their castings.  In the other half

          4   of the cases, the foundries reported that when they

          5   tried to put surcharges on their invoices, their

          6   customers simply deducted the surcharges from the

          7   invoice when they paid their bill.  And we asked our

          8   members at that point, do you stop selling to that

          9   customer and the answer was no, they don't.

         10               MR. HILL:  Thank you.  A couple more

         11   questions.  For your members has there been any

         12   production slowdowns, work stoppages as a result of a

         13   shortage of copper scrap?

         14               MR. MALLORY:  I don't know that I would say

         15   that there have been shortages that have resulted in

         16   work stoppages exclusively.  You have to remember, Mr.

         17   Chairman, that we are coming out of a very long and

         18   hard economic recession.  That economic recession

         19   resulted in a lot of work stoppages and employment

         20   shortfalls for our industry.  What I think has been the

         21   case in recent months, however, is that the


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          1   availability of materials has retarded the ability of

          2   our industry to recover and to put on additional

          3   production in order to meet increases in demand, and to

          4   hire people to produce those material or those casting

          5   from those materials as a result of the material supply

          6   and price increases that they see.  So the effect

          7   hasn't been one of causation in terms of the actual

          8   employment downturn among foundries but I think it

          9   certainly had a negative effect on spurring of

         10   recovery.

         11               MR. HILL:  Bernie?

         12               MR. KRITZER:  You talked in your remarks of

         13   several examples of your members saying that if they

         14   attempted to pass costs down that their downstream

         15   customers would seek out foreign suppliers for

         16   comparable products, that they would be priced, you

         17   know, somewhat lower.  Can you provide some specific

         18   examples?

         19               MR. MALLORY:  Well, I can tell you that

         20   there are several of my member companies that have been

         21   forced to explore establishing relationships with


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          1   foundries offshore just to maintain a relationship with

          2   their customers.  I can probably do that as an addition

          3   to my testimony in written comments to be cited.  I

          4   don't have that information available me today.

          5               MR. KRITZER:  That would be fine.  Just one

          6   final question.  When several of your members have been

          7   asked to explore offshore business investment with the

          8   foundries, what countries have they occurred in?

          9               MR. MALLORY:  Principally it's happened

         10   with China.

         11               MR. KRITZER:  Okay.  Thank you.

         12               MR. HILL:  Dave?

         13               MR. HENRY:  Yeah, just you had in your

         14   testimony that it's difficult to determine grades of

         15   scrap, in either scrap, in especially a scrap that's

         16   being exported.  And even in the petition itself, in

         17   one of the footnotes in the petition it states that

         18   it's hard to discern what portion of the scrap exported

         19   could be used by the domestic industry.  Is there any

         20   way that we could get information by grade of scrap

         21   what scrap is being purchased domestically?  And then


                                                                       26

          1   later in the field of testimony I plan to ask the scrap

          2   exporters if they can give us a better idea of the

          3   quantity and value of the grade of scrap that's being

          4   exported, to get some idea of the specific type of

          5   scrap that you are interested in that can be used in

          6   the copper and brass mills.

          7               MR. MALLORY:  Well, again, my testimony is

          8   specifically directed toward the foundry industry, not

          9   to the brass mill industry.  And the other panelists

         10   can certainly address the situation for brass metals

         11   much more eloquently than I can.  Among brass and

         12   bronze foundries, as I testified earlier, the primary

         13   feedstock is alloyed ingot that is obtained from

         14   secondary ingot production facilities such as were

         15   visited by members of this panel as part of this

         16   investigation.

         17               And I think you got a good sense, some of

         18   the panel members got a good sense during that visit of

         19   the type of material that's being purchased and

         20   recycled among the ingot producer industries.  But as I

         21   said in my comments earlier, for the ingot suppliers,


                                                                       27

          1   the brass and bronze foundries, that's principally

          2   number two scrap.  Okay?  As far as what materials are

          3   being made available for export, again I think perhaps

          4   the scrap industry itself will be the best source of

          5   information as to the content of those containers and

          6   how much of that material is actually subject to the

          7   petition that was filed by our association and Copper &

          8   Brass Fabricators Council.

          9               MR. HENRY:  Have there been other factors,

         10   price factors that are an issue, freight charges, rail

         11   availability, other inputs to production, energy costs,

         12   other materials and so on that in addition to the price

         13   of scrap have affected the price of your products?

         14               MR. MALLORY:  I won't say there haven't

         15   been other factors that have had an affect but none

         16   have been as dramatic or as substantive as the material

         17   cost increases for metals.  Now, again I refer to

         18   metals because we use ingot in the foundry industry

         19   which is derived from scrap metal.  So the scrap metal

         20   increase prices affect our ingot manufacturers and the

         21   price of ingot passes to the foundry and the price of


                                                                       28

          1   the castings is passed to our customers.  Other costs

          2   have gone up as well but nothing has gone up as much as

          3   100 percent over a three-month period as has the cost

          4   of metal in our industry.  We do provide assistance to

          5   our members in reducing freight costs and reducing

          6   utility costs.

          7               As an organization we have discount

          8   programs for power consumption and gas and electricity

          9   both and discounts for transportation and freight costs

         10   for our castings.  That discount afforded to our

         11   members is substantial and has tried to offset some of

         12   the material cost increases.  But, I think it's fair to

         13   say that in nonferrous casting production the cost of

         14   materials represents more than 50 percent of the value

         15   of the casting produced.  And, so, the change in the

         16   market for that material cost will have the most

         17   significant increase on the cost of that product to our

         18   customers and the impact on the profitability and

         19   production of the industry itself.

         20               MR. HENRY:  And I had one last question.

         21   You talked about the recent recovery in the economy and


                                                                       29

          1   that your industry and all other industries seem to be

          2   on the upturn.  In the petition it talks about decline

          3   in consumption of copper scrap but there's nowhere that

          4   I have seen in the petition or in the public documents

          5   that we received about what's happened in the last year

          6   as far as production in the industry.  You mentioned

          7   that it is coming back off hard times but that, I

          8   didn't want to be putting words in your mouth but it

          9   would have been better if prices were lower.  But,

         10   anyway, I wanted to get your opinion whether your

         11   production is meeting the demand of industries that buy

         12   your products.

         13               MR. MALLORY:  Again, Mr. Henry, I think the

         14   situation for our industry is that we face both sides

         15   of this material supply equation.  We have higher costs

         16   for materials for domestic production.  We also have a

         17   situation where offshore production is being made

         18   available to our customers and prices below, in some

         19   cases, the material cost of the component being

         20   produced itself.  I think that the situation as a whole

         21   has retarded our ability to meet our customers' demands


                                                                       30

          1   and, frankly, has forced a lot of our customers to look

          2   at reducing their domestic production or consumption of

          3   castings and to seek material sources offshore for

          4   their castings.

          5               Again, I think the games that are being

          6   played with the material supply being made available

          7   offshore through value-added tax rebates and other

          8   forms of subsidization, we have heard stories of, but

          9   unfortunately I can't cite specific examples for you

         10   today, you today, all enter into our ability to meet

         11   customer demand and have a very negative effect on the

         12   U.S. ability to produce castings both for commercial as

         13   well as defense purposes.

         14               MR. HENRY :  And again one final question.

         15   In the beginning of your testimony you talked about the

         16   nonferrous sector and how many billions of dollars that

         17   this contributes the nation's GEP.  Do you have a

         18   figure for the copper portion of that?

         19               MR. MALLORY:  Unfortunately, I do not

         20   because most of my sources come from government

         21   statistics and they're not broken down that fine.


                                                                       31

          1               MR. EDELSTEIN:  Thank you.  As we are

          2   certainly well aware, you represent a very complex

          3   industry.  You represent actually two stages in the

          4   production cycle, both the ingot makers and the

          5   foundries.  Copper scrap is ubiquitous to that industry

          6   as well as copper flows first through to ingot-makers

          7   and also is directly consumed by your foundries.

          8               And, can you address at all the degree of

          9   substitutability between the different materials?  Can

         10   your ingot makers substitute for fine copper, for

         11   scrap?  I know you indicated that number two scrap was

         12   clearly the main material but I know having visited the

         13   barrels of barrels of segregated alloy scrap that were

         14   also consumed, are those alloy scrap materials in short

         15   supply as well and is there substitutability for fine

         16   copper and downstream can the foundries substitute

         17   materials for the ingots that they may be purchasing

         18   from the upstage ingot makers?

         19               MR. MALLORY:  Let me take the last part of

         20   your question first and address the ability of the

         21   foundries to substitute refined copper for the alloyed


                                                                       32

          1   ingot.  And the answer I think in most cases among

          2   nonferrous foundries is no, for a variety of reasons.

          3   First of all, castings are produced within the foundry

          4   industry based upon specified alloyed compositions

          5   required by the customers to meet their particular

          6   production requirements.  If we were to substitute

          7   refined copper or to try to substitute refined copper

          8   for the alloyed ingot that we consume as an industry,

          9   foundries would be forced to do their own alloy of

         10   materials.

         11               And in many cases their production

         12   facilities aren't set up to allow them to do the

         13   specific alloy that are required to meet the alloy

         14   composition requirements of their customers, both in

         15   terms of the temperature required within the melting

         16   technology, the mixing technology, the availability of

         17   an on-site metallurgist to perform key materials tests.

         18               By depending primarily on alloyed ingot and

         19   having a certification of the composition of that

         20   material made available upon purchase of that ingot,

         21   they can assure to their customer that the castings


                                                                       33

          1   being delivered are in fact what the customer has

          2   ordered so that they don't always particularly among

          3   smaller foundries have the ability to do their own

          4   alloying which would be required if they were to try to

          5   substitute refined copper.

          6               Within the ingot production industry, yes,

          7   there is sorting of materials done by alloy and that

          8   sorting makes the ingot maker's job of producing

          9   alloyed ingot easier.  When they have use scrap that

         10   they are not sure what the composition is, they must go

         11   through the same alloying process, doing chemical tests

         12   and adjusting the chemical balance of those materials

         13   in order to produce the ingot that is being required or

         14   being demanded by the marketplace.

         15               So, the availability of specific grades of

         16   alloyed ingot or alloyed scrap metal is a concern to

         17   our members.  Those materials are also in short supply

         18   because the other consumers of scrap metal aren't as

         19   sensitive to the need to keep materials segregated.

         20   And when a mixed container is shipped, it can contain

         21   alloyed ingot, number two copper, number one scrap,


                                                                       34

          1   stainless steel, aluminum, and all those materials have

          2   to be sorted before they can be processed on the

          3   receiving end.  When the materials are being sorted

          4   domestically for the scrap maker or the ingot producer,

          5   that price, sorting cost is entered, is factored into

          6   the price for the materials being made available to the

          7   ingot manufacturer.

          8               So, I think that the situation with the

          9   availability of copper or copper-alloy scrap is that

         10   all grades of scrap metal are of concern to our

         11   industry.  As I said earlier, the primary feedstock, we

         12   would call number two scrap.  That doesn't mean it

         13   isn't sorted by alloy.  It does mean that it is not

         14   what other parts of the industry might identify as

         15   number one scrap.

         16               MR. EDELSTEIN:  By number two scrap then

         17   are you therefore lumping in not just a non-alloy, you

         18   know, 96 percent copper but all the various alloys;

         19   you're lumping all of that into number two?

         20               MR. MALLORY:  I think the short answer is

         21   yes.


                                                                       35

          1               MR. EDELSTEIN:  Thank you.  One more

          2   question.  Regarding price structure, there are lots of

          3   series of refined copper prices.  There are a series

          4   for number one, number two scrap, and various other

          5   grades of scrap.  But what we don't have any

          6   information on hasn't been presented and I'm not aware

          7   of a series.  What impact did it have on the price of

          8   ingot; in other words, is there any way of tracking the

          9   alloy ingot either as a collective group, a bellwether

         10   price of some sort, through the market and the flow of

         11   time, is there any series, can one be generated that

         12   would allow us to see what impact this has had on ingot

         13   prices?

         14               MR. MALLORY:  I think the situation with

         15   regard to ingot tracks very closely to the published

         16   prices for materials in the American Metal Market and

         17   on COMEX.  I don't know of any specific tracking that's

         18   done of ingot prices.  Certainly we don't do many on

         19   our own as an organization.  But the law of supply and

         20   demand affects the availability and the price of scrap

         21   metal and that has a direct pass-through effect on the


                                                                       36

          1   price of ingot because that is in fact what ingot is.

          2   It's scrap metal that has been processed and reformed

          3   into a shape and size configuration that's available

          4   for use and consumption within the foundry industry.

          5   As that price of their material goes up, their prices

          6   to foundries goes up accordingly.  So, to be able to

          7   say this is specifically what's happened as far as the

          8   price of ingot is concerned, I don't have that

          9   information at my disposal but I think it does track

         10   very closely to the other sources that were cited in

         11   the petition as far as the cost effect, the

         12   availability of scrap metal on the industries as was

         13   presented.

         14               MR. HILL:  Thank you, Mr. Mallory.  At this

         15   time we would like to call Mr. David Hartquist, counsel

         16   to the co-petitioners.

         17               MR. HARTQUIST:  Good morning.  I'm David A.

         18   Hartquist of Collier Shannon Scott, counsel to the

         19   co-petitioners in this short supply proceeding.  We

         20   appreciate having the opportunity to appear before this

         21   panel today.  In my testimony I'm going to address


                                                                       37

          1   three issues, one, certain legal issues raised by the

          2   Institute of Scrap Recycling Industries, or ISRI, two,

          3   the legal standard applicable to the investigation and

          4   three, our request for relief.

          5               In the first instance, ISRI asserts that

          6   the petition is inappropriate due to its being

          7   inconsistent with overall trade policy.  That claim

          8   overlooks or at least understates the fact that short

          9   supply petitions and relief involving exports of

         10   metallic materials capable of being recycled are

         11   expressly authorized by Sections 7A through C of the

         12   Export Administration Act of 1979, the statutory

         13   provisions governing this case.  Moreover, the

         14   legislative history underlying the short supply

         15   language for recyclable materials is clear that

         16   Congress carefully consider the pros and cons of

         17   permitting short supply measures and found on balance

         18   that such petitions and relief should be authorized.

         19               ISRI has erroneously judged the

         20   short-supply relief by the United States for

         21   copper-based scrap.  They have erroneously judged that


                                                                       38

          1   short supply relief by the U.S. for copper-based scrap

          2   would violate the obligations of the U.S. under Article

          3   XI of the GATT, the General Agreement on Tariffs and

          4   Trade.  Article XI:1 of the GATT does broadly proscribe

          5   export controls, but Article XI:2(a) explicitly permits

          6   export prohibitions or restrictions that are

          7   temporarily applied to prevent or relieve critical

          8   shortages of foodstuffs or other products essential to

          9   the exporting party.  The Argentine Leather case cited

         10   by ISRI is simply not on point.  In that dispute before

         11   the WTO, the World Trade Organization, the focus was a

         12   provision in Argentine law that permitted Argentine

         13   tanners' representatives to be present at the time of

         14   inspections by customs officials of hides destined for

         15   export.  That procedure was found to be a de facto

         16   export restriction proscribed by Article 11:  1 of the

         17   GATT.  Argentina did not establish that its law

         18   qualified for the exceptions under XI:2, which is what

         19   we're talking about today.

         20               In contrast, as demonstrated in our

         21   petition, and in our initial comments, our testimony


                                                                       39

          1   today, we do satisfy the criteria of the GATT.  One,

          2   there is in the United States a critical shortage of

          3   copper-based scrap.  Two, copper-based scrap is

          4   essential to the United States, and three, the relief

          5   we seek is temporary and nondiscriminatory and thus

          6   consistent with Articles XI:2(a) and XIII:1 of the

          7   GATT.  Continued exports of huge quantities of

          8   copper-based scrap will leave the brass mill industry

          9   and the brass and bronze foundries of the U.S.

         10   severely, if not irreparably, incapacitated.  The

         11   repercussions from such a weakening and perhaps loss of

         12   this domestic capability and capacity would be very

         13   far-reaching.

         14               Under the U.S. domestic law and Articles

         15   XI:2(a) and XIII:1 of the GATT, the temporary relief

         16   that we seek appropriate and warranted.  As a result,

         17   there is no need to refer to any exception in Article

         18   XX of the GATT, also raised by the ISRI, which would

         19   come into play only if short-supply relief as to

         20   copper-based scrap were inconsistent with Articles

         21   XI:2(a) and XIII.  As we will underscore in the balance


                                                                       40

          1   of our witness's statements today, the prerequisites

          2   for relief under the statute are satisfied:  One, there

          3   has been a significant increase during a specific

          4   period of time in exports of copper-based scrap in

          5   relation to domestic supply and demand; two, there have

          6   been significant increases in domestic price and a

          7   domestic shortage of copper-based scrap relative to

          8   demand; three, exports of copper-based scrap are as

          9   important as any other cause of this price increase and

         10   domestic shortage; four, an increase in the price and

         11   domestic shortage of copper-based scrap relative to

         12   demand are significantly adversely affecting and will

         13   continue to significantly adversely affect the U.S.

         14   brass mill industry and the brass and bronze foundry

         15   industries; and fifth, monitoring and export controls

         16   are necessary in order to carry out the statutory

         17   policy of protecting the U.S. economy from the

         18   excessive drain of scarce materials and to reduce the

         19   serious inflationary impact of foreign demand.

         20               Lastly, in our petition, we have requested

         21   that exports of copper-based scrap be monitored and


                                                                       41

          1   limited to 380,139 metric tons for a year -- how is

          2   that for precision -- or 31,678 metric tons per month,

          3   with an option of extending this quota beyond a year in

          4   the event of continued supply shortages.  The annual

          5   average of 380,139 metric tons reflects the five-year

          6   period of 1996 through 2000 when exports of

          7   copper-based scrap took place at a historically more

          8   representative and normal level than in the past

          9   several years.

         10               I want to refer also to several questions

         11   raised by the Department.  One, we believe that the

         12   restrictions should be implemented on the basis of the

         13   Harmonized Tariff Schedule's Schedule B classifications

         14   and probably could not be carried out by type or grade

         15   of scrap.  At the same time, monitoring should include

         16   a requirement that the exporter of record and the

         17   shipping party also identify clearly on the Shipper's

         18   Export Declaration, the SED, each type or grade of

         19   scrap by volume being exported, and this information

         20   should be aggregated and placed in a regularly

         21   published report, hopefully on a weekly basis.


                                                                       42

          1               Two, we believe the export controls we are

          2   seeking would result in a domestic market for the

          3   copper-based scrap embargoed from export.  ISRI asserts

          4   that limiting exports would lead to a build-up in the

          5   United States of lower-grade scrap that has no U.S.

          6   market and would be used for landfill.  To the

          7   contrary, we believe the annual limit apportioned among

          8   all export destinations on a historically grounded pro

          9   rata basis, would leave the United States with a

         10   greater supply of higher grades of copper-based scrap

         11   than we have seen over the past several years.

         12               Three, along with the larger supply of

         13   higher grades of copper-based scrap, we anticipate that

         14   prices for these materials in the U.S. would fall, not

         15   rise as ISRI claims.

         16               Four, we also expect that the greater

         17   availability and lower prices of the copper-based scrap

         18   would reduce the costs and thereby improve the

         19   competitiveness of our brass mills and foundries'

         20   customers.

         21               And finally, export controls should also


                                                                       43

          1   assist the processors in the United States that are

          2   central to the domestic scrap collection industry.

          3   These companies have been suffering due to their being

          4   unable to process the increasingly large volumes of

          5   copper-based scrap that is being exported.  Thank you.

          6               MR. HILL:  Thank you, sir.  I have a couple

          7   of questions and I believe you have answered most of

          8   what I was going to ask.  In the petition you ask for

          9   the average, '96 to 2000 average, that we would monitor

         10   and impose export controls to that level.  But, you

         11   have not, and today again, have indicated that it

         12   should be for all scrap?

         13               MR. HARTQUIST:  Yes.

         14               MR. HILL:  Not just number two, not just

         15   number one, and that is your testimony still today,

         16   that it should be all copper scrap and copper-alloy

         17   scrap?

         18               MR. HARTQUIST:  That is correct.

         19               MR. HILL:  Peter?

         20               MR. KLASON:  Thank you.  Mr. Hartquist, as

         21   you know, Section 3-2-C of the Export Administration


                                                                       44

          1   Act requires that the Secretary determine that the

          2   imposition of any export controls be, and I quote,

          3   "necessary to protect the domestic economy."  Can you

          4   explain to the panel why export controls in this case

          5   would be necessary to protect the domestic economy and

          6   secondly, what's your understanding of what the term

          7   domestic economy is as used in Section 3-2-C?

          8               MR. HARTQUIST:  This is an elevatedly

          9   simple statute, as is the Sherman Antitrust Act, the

         10   due process clause, the First Amendment; there's not a

         11   lot of meat on the bones in the statute, which

         12   incidentally I had the pleasure to helping to draft a

         13   long, long time ago.  So, we left a lot for the

         14   regulators to figure out how to implement this statute.

         15               First of all, Mr. Klason, you referred to

         16   part of the statutory language.  The language refers to

         17   an adverse effect on the national economy or any sector

         18   thereof including a domestic industry and so it is

         19   specific to a domestic industry.  In this provision

         20   obviously we're talking about simply the copper-based

         21   industry.  Your second question, if you could repeat


                                                                       45

          1   it, again?

          2               MR. KLASON:  Yes.  Section 3-2-C of the

          3   Export Administration Act, which is the generally

          4   policy in short supplies, which says that necessary to

          5   protect the domestic economy and what your

          6   understanding would be of the term domestic economy as

          7   used in that provision.

          8               MR. HARTQUIST:  Well, as I indicated, while

          9   the term domestic economy is a broad term, when you get

         10   into Section C-3-A-5, I'm sorry, A-4, it is more

         11   naturally defined as beyond the overall economy but as

         12   to a sector or an industry within the economy.

         13               MR. KLASON:  And A5 then goes on to say the

         14   effect where it's necessary to, excuse me, necessary to

         15   protect the domestic economy as a whole, necessary to

         16   protect the domestic economy, which is the word, the

         17   term used in A5 as well.

         18               MR. HARTQUIST:  Well, maybe I'm not

         19   understanding your question because it refers to the

         20   national economy or any sector thereof including an

         21   industry.


                                                                       46

          1               MR. KLASON:  A5 refers back to Section

          2   3-2-C of the Export Administration Act and Section

          3   3-2-C, which is the declaration of policy states that

          4   the President may impose export controls when

          5   necessary, quote, to restrict export goods, where

          6   necessary to protect the domestic economy from

          7   excessive drain of scarce materials and reduce the

          8   serious inflationary impact before it can act.

          9               MR. HARTQUIST:  Right.  I understand that

         10   but you have to take into account that the language

         11   that I have cited essentially amends the broad

         12   statutory language in 3-2-C and brings the examination

         13   of the issues down to a specific industry.

         14               MR. KLASON:  Okay.

         15               MR. HARTQUIST:  So we're not making the

         16   case, although we do believe that there is an effect on

         17   the national economy, broadly, but I don't think we

         18   have to show that the severity of the effect is felt in

         19   the economy as a whole but your examination rather is

         20   directed toward what's happening in this industry.

         21               MR. KLASON:  Thank you.


                                                                       47

          1               MR. HENRY:  Thank you.  Your testimony has

          2   responded to a number of questions I had, in questions

          3   that were posted on the BIS Web site last week but I

          4   did have a couple more.  One, you talked about the

          5   competitiveness of the industry and how it would be

          6   improved.  You talk about your statements regarding

          7   that copper, that scrap regardless of grade of scrap

          8   should be controlled, leads me to an issue that we have

          9   been facing in this case and we may or may not be able

         10   to resolve it.

         11               And that's the, we're finding a lack of

         12   very specific detailed either economic data or just

         13   data in general about the industry and its consumption

         14   of scrap by type of grade so that we can have some idea

         15   if, really if an export control were imposed, that by

         16   controlling the exports to the levels for which you

         17   have stated, whether this would alleviate the

         18   situation.  We would like to know by how much.  We

         19   would like to know by grade.  I mean, there's a lot of

         20   things that would like to know to come to a

         21   determination that we're finding difficult to get to.


                                                                       48

          1               And, I don't know if this is a question.  I

          2   probably sound more like I'm whining about lack of data

          3   but I was wondering if there is any way within this

          4   public comment period that we can either get back to

          5   you or co-petitioners about specific requests for data.

          6   We do have those on our Web site and we would like to,

          7   I guess, scratch out what we could.

          8               MR. HARTQUIST:  I appreciate that,

          9   Mr. Henry, and will be happy to respond further to that

         10   request.  Let me just make a couple of general

         11   comments.  And our industry witnesses can be much more

         12   specific than I can about this.  But, there is a

         13   concern about the lack of specificity in the data, on

         14   the one hand, and we have asked for more specificity in

         15   the way that the export control program would be

         16   implemented than exists in the trade statistics that we

         17   had overall to examine.  But, frankly one of the

         18   concerns that we have is a very practical concern and

         19   we have anecdotal evidence along these lines that we

         20   hope we'll be able to supplement with more specific

         21   evidence but we're hearing reports in the marketplace


                                                                       49

          1   about the nature of the shipments that are going

          2   abroad, particularly to China.

          3               And, we have research that's being

          4   conducted right now to try to develop more information

          5   along these lines.  But one of the concerns is that the

          6   shipments which are going to China may not be

          7   accurately classified in terms of the value or in terms

          8   of the content of the shipments.  For example, we hear

          9   anecdotal evidence that in some of the shipments that

         10   are going to China the good stuff's on the bottom of

         11   the container and the bad stuff's on the top, if you

         12   will, oversimplifying, so that when it comes into

         13   China, it pays a lesser duty because it's valued at a

         14   lower level.

         15               So, we have concern that the export

         16   documents and the import documents going into China may

         17   not accurately reflect the quality of the material

         18   that's being shipped in or the value of the material

         19   that's being shipped in.  There are other similar

         20   issues that are related to this and that is why we feel

         21   that all exports of scrap should be covered by any kind


                                                                       50

          1   of a monitoring or export control program so that

          2   regardless of the value of the material and whether

          3   it's properly classified at a minimum it will be

          4   properly counted.

          5               MR. EDELSTEIN:  Yes, thank you.  I'm not

          6   sure if this is a question for you or for your next

          7   panelists but since you mentioned it very forcefully in

          8   your testimony, your request that export quotas be

          9   rolled back to the '96 to 2000 period average.  ISRI in

         10   their written comments has pointed out that, if I'm

         11   correct, some 330,000 tons of secondary smelter

         12   capacity has exited from the U.S. in that time period

         13   and probably as I understand some of your industry,

         14   brass mill industry has restructured away from scrap

         15   possibly permanently.  What would be the impact on the

         16   market of releasing so much scrap when in fact it may

         17   not be the same capacity that there once was to process

         18   that scrap at that time, using that as the base year?

         19               MR. HARTQUIST:  I think our other witnesses

         20   will be in a better position to comment on that.  I

         21   would say in general in response to your question,


                                                                       51

          1   Mr. Edelstein, that the reason that we chose the 1996

          2   through 2000 period was we were looking back in recent

          3   history for a period that we felt was relatively

          4   representative of normal times, if you can, and

          5   recognizing the difficulty in picking what is normality

          6   given the business cycles and the ups and downs we have

          7   had in the economy, it wasn't easy.  But, it's a recent

          8   period.  It's a five-year period.  Within that period

          9   there have been ups and downs in the industry and in

         10   terms of demand for scrap and therefore we felt that it

         11   was appropriate to pick that period of time.  Certainly

         12   the last few years have hardly been normal in that

         13   respect.  But, as to the availability of smelting

         14   capacity and the effect that that might have on the

         15   situation, I think other witnesses can respond better

         16   than I can to that question.

         17               MR. HILL:  Anything of Mr. Hartquist?

         18               MR. HARTQUIST:  Thank you.

         19               MR. HILL:  At this time we would like to

         20   call our next witness, Michael Kerwin, of the

         21   Georgetown Economic Services.


                                                                       52

          1               MR. KERWIN:  I'm assuming all the witnesses

          2   will have to share this one bottle of water so I'm

          3   going to take a first pick at it.

          4               MR. HILL:  We're actually are a little

          5   better.  We have two bottles of water.

          6               MR. KERWIN:  Either side.

          7               MR. HILL:  But there's a separate bottle

          8   for each witness.

          9               MR. KERWIN:  I appreciate that.  Good

         10   morning.  I'm Michael Kerwin of Georgetown Economic

         11   Services.  The petition and supplemental comments that

         12   have been submitted to you in this case provide

         13   compelling evidence in support of the statutory

         14   criteria laid out by Congress.  Specifically, U.S.

         15   exports of copper-based scrap have increased

         16   significantly, both in relation to volume and in

         17   relation to domestic supply and demand within a

         18   specific period of time.  Further, these increases have

         19   resulted in domestic shortages and significant price

         20   increases for these recyclable materials.  Finally, the

         21   evidence demonstrates that the growing volumes of


                                                                       53

          1   exports of copper-based scrap have been more important

          2   than any other cause of the shortages in supply and

          3   price increases and that these conditions have had a

          4   significant adverse effect on the U.S. brass mill

          5   industry.

          6               As you will hear from your industry

          7   witnesses this morning, copper-based scrap is a

          8   critical raw material to the U.S. brass mill industry

          9   accounting for a significant majority of the industry's

         10   overall metal input needs.  It is no small matter,

         11   then, that a growing portion of the available stock of

         12   these raw materials is going overseas.

         13               Between 1999 and 2003, total exports of

         14   copper-based scrap from the United States increased by

         15   more than 430,000 metric tons, or 138 percent.  In 2003

         16   alone these exports grew by nearly 200,000 tons, or 33

         17   percent.  Because U.S. consumption of copper-based

         18   scrap was declining during this period, exports

         19   increased their share of U.S. scrap more dramatically.

         20   While exports took 16 percent of the total copper-based

         21   scrap supply in 1999, that figure jumped to 31 percent


                                                                       54

          1   in 2002 and 40 percent in 2003.  In comparison to U.S.

          2   consumption of the product, exports of copper-based

          3   scrap were equivalent to 19 percent of consumption in

          4   1999 and grew to 65 percent in 2003.

          5               Nor have exports shown any sign of abating

          6   in 2004.  In each of the first three months of this

          7   year, exports of copper-based scrap reached new

          8   all-time peaks for those months in relation to previous

          9   years.  In fact, the most recently released official

         10   statistics show that in March of this year, the last

         11   month before the filing of our petition, export volumes

         12   of copper-based scrap reached 79,000 metric tons, their

         13   highest level in recent history.  This volume was 27

         14   percent higher than that shown in March of 2003 and 9

         15   percent higher than in the previous all-time record

         16   month.

         17               Thus, the evidence of the official

         18   statistics indicates that there have been massive and

         19   extremely significant increases in exports of

         20   copper-based scrap in recent years, both in volume

         21   terms and in relation to U.S. consumption.  As laid out


                                                                       55

          1   in our submissions, the result of this growth in

          2   exports has been shortages of copper-based scrap in the

          3   U.S. market and increased prices for the commodity, as

          4   measured by reduced discounts for the product in

          5   relation to copper prices on the metal exchanges.

          6   Because domestic brass mills have been unable to pass

          7   through all of their increased costs, these

          8   developments have had a severe impact on industry

          9   profitability.

         10               Our opposition in this case, the Institute

         11   of Scrap Recycling Industries, or ISRI, does not

         12   dispute that there has been a massive increase in

         13   overall exports of copper-based scrap from the United

         14   States in recent years.  Rather, ISRI claims that the

         15   petitioners have glossed over the distinction among

         16   various types of copper-based scrap and that all of the

         17   growth in exports has occurred in relation to forms of

         18   scrap that cannot be used by the brass mill industry.

         19   These arguments fail on a number of accounts.

         20               First, ISRI implies that the

         21   classifications under the Harmonized Tariff Schedule


                                                                       56

          1   can be interpreted as close representations of grades

          2   of copper-based scrap.  This is not true.  In fact, the

          3   HTS distinguishes exports on the basis of the alloy

          4   content of the scrap, distinguishing between scrap of

          5   pure copper, brass, leaded brass, and other copper

          6   alloys.  The HTS makes no mention of the grade or

          7   quality of these materials.

          8               For this reason, ISRI's implication that

          9   the main concern of the brass mill industry is in

         10   relation to product falling under the single heading of

         11   refined copper scrap, while exports classified as

         12   "other" copper alloy scrap are essentially solely of

         13   interest to secondary smelters, is completely off the

         14   mark.  The fact of the matter is that a majority of the

         15   scrap consumed by the brass mill industry is

         16   copper-alloy scrap, not scrap of pure copper.  The

         17   industry actually consumes scrap that falls under each

         18   of the four HTS classifications under which the product

         19   is exported.  Indeed, even ISRI's claim that brass

         20   mills do not consume any number two scrap is not

         21   accurate.


                                                                       57

          1               Even if ISRI's claims as to the brass mill

          2   industry's consumption being limited to scrap of

          3   refined copper were true, ISRI's discussion in this

          4   area is misleading.  While the ISRI comments note that

          5   exports of pure copper scrap declined by 19 percent in

          6   2002, their analysis overlooks what happened to exports

          7   of this product in 2003.  In that year, exports under

          8   this subheading increased by 109,000 metric tons or 42

          9   percent, the highest of any of the four scrap

         10   classifications, both in terms of absolute volume and

         11   percentage increase.  Thus, even if you accept ISRI's

         12   claims as to the true meaning of the HTS

         13   classifications and the consumption patterns of the

         14   brass mill industry, the data do not support their

         15   assertions.

         16               Contrary to ISRI's claims that the

         17   petition, quote, "attempts to gloss over the important

         18   distinction between high-grade copper scrap typically

         19   consumed domestically and the low-grade copper scrap

         20   for which there is inadequate demand," end quote, our

         21   petition provided full data on each of the four


                                                                       58

          1   classifications of copper-based scrap.  The simple fact

          2   is the HTS descriptions do not distinguish among

          3   qualities of scrap, and the petitioners's analysis

          4   could not possibly "get behind" the official statistics

          5   in order to ascertain the quality of the scrap being

          6   exported.  Further, the U.S. brass mill industry

          7   consumes scrap that falls within each of the four HTS

          8   classifications of copper-based scrap.

          9               It is true that consumption of U.S.

         10   copper-based scrap by smelters and refiners has been in

         11   decline in recent years and the petition provided

         12   separate breakouts of the U.S. Geological Survey data

         13   showing scrap consumption among smelters, brass and

         14   wire rod mills and foundries and miscellaneous

         15   manufacturers.  But these data show that consumption of

         16   copper-based scrap by brass mills has long exceeded

         17   that of smelters and refiners accounting for roughly

         18   two-thirds of all consumption of copper-based scrap in

         19   the United States.  Further, while ISRI would have you

         20   believe that increasing exports of copper-based scrap

         21   are attributable to declines in consumption at


                                                                       59

          1   secondary smelters, ISRI's own data show that the last

          2   such closure occurred in 2001.  Thus, all the effects

          3   of smelter closures on U.S. consumption of copper-based

          4   scrap would have occurred in the years leading up to

          5   2001 and these closures are not of relevance in

          6   analyzing the years following 2001.  The fact of the

          7   matter is that the largest increase in the volume of

          8   exports of copper-based scrap occurred in 2003, two

          9   years after the last smelter closure.  Thus, even if we

         10   accept ISRI's claims in relation to the significance of

         11   smelter closures in the U.S. market, there is no way

         12   that this explains the growth of exports in 2003, the

         13   year showing the largest increase in scrap exports and

         14   a huge decline in consumption by brass mills, as more

         15   and more of this key input material was taken from

         16   domestic consumers and sent overseas.

         17               Finally, ISRI has argued that if export

         18   controls are put into place, this is likely to have the

         19   effect of raising prices for copper-based scrap in the

         20   United States.  We believe that this is highly

         21   unlikely, given that there are other sources of copper


                                                                       60

          1   scrap in the world, and that copper cathode can often

          2   be used in place of copper scrap.  Indeed, if ISRI's

          3   claims truly are in earnest, why in the world are they

          4   opposing the current petition, given that an increase

          5   in U.S. scrap prices would be very much in the interest

          6   of scrap dealers?  The plain fact is that ISRI opposes

          7   the petition because it fears that export controls will

          8   result in price reductions for copper-based scrap in

          9   the U.S. market, precisely the result that we are

         10   trying to achieve through this action.  Thank you.

         11               MR. HILL:  Thank you, Mr. Kerwin.  Bernie?

         12               MR. KRITZER:  Mr. Kerwin, in your remarks

         13   and in the work that you have submitted today, you have

         14   made mention of exports as being the largest factor

         15   affecting the price and availability of scrap copper

         16   and scrap copper-alloy.  To what extent does the world

         17   market for pure copper also influence the prices of

         18   copper scrap, is the first question I have.

         19               MR. KERWIN:  Clearly the exchange prices,

         20   the world prices as reflected in COMEX and LME are

         21   essentially world prices.  And what we have seen in the


                                                                       61

          1   last couple years, well, particularly since 2003, mid

          2   2003, is that copper prices have been increasing very

          3   dramatically and the price of scrap essentially keys

          4   off of the, in the United States, the COMEX price.  So

          5   there is no question but that as the world copper price

          6   increases, the price of scrap will generally track that

          7   increase.

          8               But, specifically the U.S. supply and

          9   demand conditions in relation to copper scrap will be

         10   reflected in the discount at which scrap sales in the

         11   United States in relation to the COMEX price and it is

         12   that, that discount is extremely important, as I'm sure

         13   you will hear from our later speakers, to the members

         14   of the brass mill industry, who rely on scrap for a

         15   very significant proportion of their input needs.  And,

         16   it is that, that discount that essentially reflects

         17   the, that allows them the lower cost of using scrap.

         18   And the data indicate that as the supplies have

         19   tightened that discount has essentially disappeared and

         20   in some cases they've actually had to pay scrap prices

         21   that exceed the COMEX prices.


                                                                       62

          1               MR. KRITZER:  To what degree have domestic

          2   and international actions such as mine openings and

          3   mine closings during the last three years, 2001 to

          4   present, have they affected supply?

          5               MR. KERWIN:  Well, from my review of the

          6   literature, my understanding is that into the beginning

          7   of 2003, there was relatively, relative declines in the

          8   price of copper.  And, of course, as the price of

          9   copper declines or remains in relatively depressed

         10   levels, mining companies don't have much of an

         11   incentive to open new mines or do they even have an

         12   incentive to close existing mines.  And, as the price

         13   of copper remained depressed, things became, started to

         14   become back into balance so that supply will actually

         15   start to come more in balance with demand.

         16               At that point, you actually get the point

         17   where demand starts to exceed supply, price starts to

         18   rise, and that gives the incentive to the mining

         19   companies to either open new mines or to bring back on

         20   stream facilities that have been closed.  Currently, so

         21   for the past year certainly there has been a relative


                                                                       63

          1   shortage of refined copper in the world and that has

          2   resulted in the increased prices as reflected in the

          3   COMEX and LME that I just mentioned.

          4               MR. KRITZER:  With the run-up in prices

          5   that you have discussed, do you see new mines, plans

          6   for new mines being brought on for deferral of closing

          7   of mines to enhance recovery, do you have any list in

          8   the next year of what that might be in terms of volume?

          9               MR. KERWIN:  I don't know the precise

         10   volume.  My review of the literature indicates that

         11   there are facilities within the United States that

         12   have, that are in the process of being reopened.

         13   Copper mining obviously is a complex business and is

         14   timed to the whims of nature.  My understanding is one

         15   of the major facilities in Asia had a cave-in and

         16   something like that that's at the force of nature can

         17   have an impact on the world price.  So even when mining

         18   companies intend to take a specific path and increase

         19   supply, it's not always as simple as that.  But my

         20   understanding is that as a general proposition prices

         21   have been high enough over the last year to act as an


                                                                       64

          1   incentive to mining companies to do just that, to

          2   increase their output.

          3               MR. HILL:  Can I just interject a quick

          4   question in this context and in the larger context as

          5   well?  If we were to impose monitoring and/or controls,

          6   what would be the impact of such an embargo on that

          7   dynamic and the other dynamics to the scrap industry?

          8               MR. KERWIN:  Well, I think that's a good

          9   question.  I think the mind-set, the way to examine

         10   that question is to look at the global demand, global

         11   consumption of what the industry calls copper units, a

         12   copper unit being well, you could produce a certain

         13   amount of copper whether it be from cathode or from

         14   scrap, somehow or another you have to get the raw

         15   materials to produce what you need.  And, the global

         16   demand for copper units would not be changed by any

         17   type of export controls that we might put into place.

         18   What we think would happen would be that the current

         19   pressures, the pressures that consumers of copper scrap

         20   in this country have been undergoing over the last

         21   couple of years would decline, those types of pressures


                                                                       65

          1   would decline as our export levels declined.  And the

          2   foreign purchasers who had been purchasing U.S.

          3   generated scrap would then be forced to turn to other

          4   sources of the material, would be that scrap from other

          5   markets or increased purchases of cathode but that

          6   overall demand for, global demand for copper units

          7   would not be affected.

          8               MR. KRITZER:  I have just two other

          9   questions.  To what extent have export control actions

         10   of other nations impacted the availability of scrap

         11   supply and the second question that relates to this --

         12   and several of your colleagues have made mention of

         13   this and I found it very interesting.  Foreign actions

         14   by governments, actions such as loan subsidies or duty

         15   rebates to companies have, how they have impacted the

         16   ability of your members to compete for the scrap?  And

         17   in the case of the latter question, any specific

         18   examples you have obviously would be most helpful as to

         19   that.

         20               MR. KERWIN:  Okay.  I don't like two-part

         21   questions.  Could you repeat the first question again?


                                                                       66

          1   I knew the answer and then you threw me off.

          2               MR. KRITZER:  I think the first question

          3   is, is that in looking at factors that are affecting

          4   the supply and demand in the market, one always has to

          5   take into account what, if any, actions other

          6   governments have taken --

          7               MR. KERWIN:  Right.

          8               MR. KRITZER:  -- that have restricted the

          9   availability of supply --

         10               MR. KERWIN:  Correct.

         11               MR. KRITZER:  -- to the members, that

         12   constitute the petitioner, you know, to buy his imports

         13   and bring in.

         14               MR. KERWIN:  Okay.  First of all, in the

         15   United States traditionally imports of copper scrap

         16   have represented a very, very small proportion of the

         17   overall supply of scrap.  We have been a major

         18   generator of scrap.  There has been a sufficient,

         19   generally been sufficient scrap generated within the

         20   United States that we have not had to import a lot of

         21   scrap.  That being said, if you do look at the import


                                                                       67

          1   statistics over recent years, small as they are, they

          2   have declined in recent years.

          3               And, my understanding is that, I reviewed

          4   the statistics in relation to Russia, which had been a

          5   relatively significant exporter of copper scrap and my

          6   understanding is that Russia did impose some type of

          7   system of limiting exports of their own internally

          8   generated scrap for, I assume, similar purposes,

          9   similar reasons for what we're requesting today, i.e.,

         10   that their domestic producers did not have a sufficient

         11   supply of the product.  And because of those controls,

         12   the exports from Russia have declined very

         13   substantially over, I don't remember the precise period

         14   but the last five or six years, I believe.

         15               So, that the exports of copper scrap from

         16   Russia are almost nonexistent, at this point.  Now, the

         17   United States was never a large importer, I don't

         18   believe, of Russian scrap but of course it is, you

         19   know, the product that had been exported from Russia

         20   was going somewhere and that may have acted as an

         21   incentive for other countries such as China to make the


                                                                       68

          1   United States their major focus in sourcing copper

          2   scrap.  And my understanding is that I believe the

          3   Ukraine also has export controls on copper scrap.

          4               MR. KRITZER:  Could you provide us

          5   separately with some estimates over the last, say, from

          6   2001 to 2004 what the decline in those volumes would

          7   have been --

          8               MR. KERWIN:  Yes.

          9               MR. KRITZER:  -- for each country?

         10               MR. KERWIN:  Sure, we would be happy to do

         11   that.  I don't know what they are right now but, you

         12   know, in our next submission we'll be happy to provide

         13   that.

         14               MR. KRITZER:  With regard to my last

         15   question, I know I've probably taken a bit too long

         16   with these questions.  I am very intrigued by the pound

         17   that you and several of your colleagues raised about

         18   incentives that are given by foreign governments in the

         19   form of duty rebates.  And we have heard about that in

         20   some other areas.  And any specific information you

         21   could give me on that, how it's valued, how it's taxed,


                                                                       69

          1   what happens when it's turned into a final product.

          2               And Mr. Mallory made a very good,

          3   interesting point that one of several members of his

          4   industry has been faced with the fact that they pay an

          5   extraordinarily high price for the scrap but then he

          6   said when it comes to the alloy that comes in that's

          7   made from the scrap, it comes in at a lower-than or

          8   equal-to price over raw material.  You know, I think

          9   this group would very much appreciate any specific, you

         10   know, evidence you could provide us with regard to

         11   that.

         12               MR. KERWIN:  We'll try to do that.  I will

         13   say that we've been making some efforts in that to try

         14   to find out some more information in that regard.

         15   China is a kind of a massive black box and it's not one

         16   of the more transparent systems in the world.  So, a

         17   lot of what we have heard to date has been heard

         18   through the grapevine as to how things are done.  It's

         19   an open issue that obviously China has massive reserves

         20   of U.S. dollars and that it has to spend those U.S.

         21   dollars somewhere.


                                                                       70

          1               And, of course, we have, their currency is

          2   tied to our currency and we are the largest source of

          3   copper scrap in the world .  So, one thing that's

          4   beyond dispute is that the Chinese economy has the

          5   sufficient dollar resources to come into the United

          6   States market and to buy up scrap on that basis.  And,

          7   in fact, as you will hear from our witnesses to the

          8   point where certain scrap dealers may have reported

          9   instances of this product being purchased literally in

         10   cash, people pulling off hundred dollar bills to buy

         11   scrap from U.S. sources to be shipped back to China.

         12   And, what we have heard is that, and, Mr. Hartquist

         13   mentioned, that there are various ruses that may be

         14   going on in terms of what is actually being exported

         15   and what is being put into a container, how it is being

         16   listed to the U.S. customs authorities, how it is being

         17   reported to the Chinese customs authorities, what goes

         18   on with the duties that should be paid on that product

         19   going into China.

         20               And they have a whole system of that

         21   rebates, which is again a large black box that nobody


                                                                       71

          1   really seems to a have good answer as to how it works.

          2   But that somehow or another, as you a mentioned, people

          3   are coming into this, into our market paying top dollar

          4   for the product, shipping it back to China, you know,

          5   refining it there, and turning it into various

          6   manufactured products including brass mill products and

          7   those products are being sent to the United States and

          8   being sold on the basis of prices that undersell the

          9   domestic producers.

         10               So, it's a very efficient system and given

         11   how small of an element labor is in the overall costs

         12   of manufacturing for these items, the cost advantage

         13   that the Chinese may have in relation to labor costs

         14   doesn't explain this.  So, something is not right with

         15   this system.  It is not a market system and as much as

         16   we might like the market to work out its own issues, we

         17   don't consider what's going on to be market-based.  So,

         18   we will try to put together some additional

         19   information.  The information that we do have we would

         20   be happy to forward to you in our next submission.

         21               MR. HILL:  Dave?


                                                                       72

          1               MR. HENRY:  Thank you.  In reviewing the

          2   petition and listening to the testimony there's a

          3   number of statements regarding the economic impact

          4   being made, that it's going to be significant, that

          5   it's going to be adverse, that it's going to hurt the

          6   industry, that it's going to have adverse impacts on

          7   consuming industries.  However, I don't see anywhere

          8   either in the petition or the testimony that I have

          9   heard so far to the extent what the actual, what's your

         10   best estimate of economic impact on the industry if

         11   exports are continued to be increasing and what effect

         12   it might have on employment, what effect it might have

         13   on closures, what effect it might have on

         14   profitability; in other words, I have heard all this

         15   but I have not seen anything specific about the

         16   industry.

         17               MR. KERWIN:  Well, one of the limitations

         18   of the structure of this action is that there are no

         19   provisions for submitting proprietary information.

         20   And, many of these brass mills are privately held.

         21   They do not publish financial statements and even the


                                                                       73

          1   larger companies that do publish financial statements,

          2   in some instances such as Outokumpo American Brass,

          3   that company is owned by the larger corporate entity,

          4   global corporate entity of Outokumpo.  So that the

          5   financial statements that are reported for that company

          6   are massive and obviously would not would not

          7   particularly reflect what's going on specifically with

          8   the operations of OAB in Buffalo and how this has

          9   impacted their performance.

         10               It's a difficult issue to grapple with.

         11   You mentioned some factors.  I don't think that this is

         12   an instance in which would expect that there would be

         13   huge employment effects, from what we have seen to

         14   date.  Obviously, if the situation deteriorates further

         15   or deteriorates to the point where you see brass mills

         16   closing, that that would have been employment impact.

         17   Could you say that those closures were, you know, 100

         18   percent attributable to what's going on in the scrap

         19   market?  That would, even that would probably be a

         20   difficult thing to assess.

         21               I will note that in reviewing the technical


                                                                       74

          1   report of Janice Jolly, the 2003 version that's put out

          2   by the Copper Development Association, she does note

          3   that one of the reasons that there may have been

          4   closures of secondary smelters in the United States,

          5   among other, of course, among other reasons, including

          6   environmental costs, but that one of those, one of the

          7   reasons that may have tilted the balance toward closure

          8   was increased exports of scrap and reduced availability

          9   of materials to these smelters.  I would think that's

         10   evidence that, that that certainly contributed to these

         11   closures.  What we would like to avoid is that the

         12   brass mill industry will end up in the same state as

         13   the smelter industry, the brass mill and the foundries

         14   industry.

         15               So, in terms of, you know, I think that the

         16   price effects of the shortages are fairly well

         17   documented.  There are limitations to the data.

         18   Unfortunately, I wish that there were procedures for

         19   dealing with proprietary information but there are not

         20   in this instance.  And, but certainly if you take a

         21   step back and look at the big picture and you look at


                                                                       75

          1   the reports that have come out from the U.S. Geological

          2   Survey, you look at the reports such as Ms. Jolly's

          3   study, you look at the trade reports of the shortages

          4   that have been occurring in the U.S. scrap market and

          5   the effects on price, and you will hear from the

          6   members of the industry, not only have these, have they

          7   been forced to pay higher prices for the scrap that

          8   they can get, they've also been forced to use more

          9   cathode, which is a more expensive material.

         10               We did outline that in our, on our second

         11   submission, where we noted that the amount of cathode

         12   that's being consumed by the producers that were

         13   reported information was more than twice as much as

         14   what they would have preferred to use under their

         15   preferred recipe.  And the aggregate statistics I think

         16   of the Geological Survey indicate that there is

         17   increased consumption of cathode by the brass mill

         18   industry and reduced consumption of scrap.

         19   Unfortunately, we don't have perfect information and I

         20   think we have to go with, but there is very, extensive

         21   information that I think shows that there are, there is


                                                                       76

          1   a major issue here and that obviously the exports have

          2   increased and that it is having a big impact on the

          3   marketplace and on prices and on the ability of the

          4   foundry industry and the brass mill industry to source

          5   copper scrap.

          6               And, there have been instances where there

          7   have been production outages, where production has

          8   been, we mentioned in our second submission one of the

          9   companies noted that in the first three or four months

         10   of 2004, that they had had an equivalent of

         11   approximately 13 days' worth of production outages due

         12   to an inability to source materials.  It's been a very

         13   difficult thing to sort of put the numbers together in

         14   the aggregate to precisely show what the total effect

         15   of that is but I think the aggregate information leads

         16   in the right direction.

         17               MR. HENRY:  Continuing in the context of

         18   price, in the elasticity of price of copper scrap, do

         19   you think in your opinion and/or if you can point to

         20   studies or other information, what do you think about

         21   the volume of copper scrap in relation to the increase


                                                                       77

          1   in price in scrap; in other words, do you believe it is

          2   going to increase?

          3               MR. KERWIN:  Well, scrap is an unusual

          4   product.  It's not produced per se.  Even in relation

          5   to copper cathode, we talked about the mining issue, it

          6   takes some time but when the right price signals are

          7   there, mining production will increase and ultimately

          8   cathode production will increase.  Scrap is a different

          9   animal.  Scrap is essentially a byproduct or in some

         10   instances what most people would consider a waste

         11   product, i.e., something that's left over when you tear

         12   down a building and you have the copper plumbing tubing

         13   that's left over.  That was not produced.  That just

         14   happened to be left over and were it not recycled that

         15   would end up in a landfill.  Well, fortunately most of

         16   that product is recycled.

         17               But, the largest source of scrap in the

         18   United States is not from tearing down buildings and

         19   yanking out the copper plumbing tubing, it is what is

         20   generated in the production processes of the downstream

         21   users of the product.  So that if a machine, if a bar


                                                                       78

          1   is, a copper bar, a brass bar is machined into nuts and

          2   bolts or hardware or any other such downstream product,

          3   a significant portion of the material that was

          4   purchased is going to be turned into scrap in that

          5   production process and that will either be sold on the

          6   open market or sold directly to the mill that created

          7   the input product.  So, whether you're talking about

          8   new scrap, so-called new scrap or old scrap, neither

          9   one of those are really produced.  You know,

         10   specifically they are byproducts.  They are leftovers

         11   of the production process of something else.

         12               So, given that structure, it's difficult to

         13   believe that the elasticity of supply would be all that

         14   responsive because it's, yes, there's an incentive

         15   maybe to, for people who have copper tubing sitting out

         16   in the backyard or a piece of copper sheet that's

         17   sitting around somewhere to take it down to the scrap

         18   yard because it's now worth twice as much as what it

         19   used to be but that's not really a large source of

         20   scrap.  And, again it's, yes, there will be some

         21   response to an increase in price but it's just not


                                                                       79

          1   going to be substantial given the structure of how

          2   scrap is generated.

          3               MR. HENRY:  Thank you.  Another question on

          4   price.  In your opinion what's the relationship of

          5   price movement of cathode versus price movement of

          6   copper scrap and in your opinion which one leads the

          7   other?

          8               MR. KERWIN:  Which one leads the other?  I

          9   think that the price of copper cathode, the prices

         10   reflected in the LME or the COMEX exchange is a world,

         11   it reflects a world price, not always exactly the same

         12   but reflects a world price.  And, that is driven by

         13   global supply and demand conditions.  But you also have

         14   conditions within the United States that are specific

         15   to our market.  So, the supply and demand within the

         16   United States, both of scrap and of cathode will have

         17   an effect on, in relative terms what we pay for those

         18   products within the United States.  And as I mentioned

         19   before, it is our opinion that the decreasing discount

         20   at which U.S. scrap is sold in relation to COMEX is an

         21   indication of a tightness of supply.  Difficult to


                                                                       80

          1   really come to grips as to what leads what within the

          2   United States.

          3               What we have seen, and talking to the

          4   members of the brass mill industry, is that as they

          5   have been forced to use more cathode as an input

          6   because they have not been able to source scrap, that

          7   has pushed up demand in relation to cathode, which has

          8   had the effect in some instances of pushing up premiums

          9   on cathode within the United States.

         10               So, the whole market situation is a little

         11   unusual at the moment.  If these brass mills could

         12   source sufficient scrap, that would be very much their

         13   preference.  They don't really want to scrap source

         14   cathode but they have been forced to, which has

         15   increased the overall U.S. demand for cathode.  And

         16   cathode supplies are relatively tight as well within

         17   the United States.  Cathode is being purchased also in

         18   large quantities by China and some producers of the

         19   product such as major producers in Chile, for example,

         20   may appear to be preferring to send that product to

         21   China rather than to the United States.


                                                                       81

          1               So, it's an interesting question as to what

          2   pushes what.  And it's a very complicated question and

          3   I think the answer depends on the period that you are

          4   looking at, the market that you're looking at.  Clearly

          5   there is a world price and I think that the COMEX

          6   reflects that and it reflects general, worldwide supply

          7   and demand conditions.  But, our concern is

          8   specifically in relation to the U.S. market and there's

          9   something going on here that doesn't really make sense

         10   in relation to what's going on with world prices.

         11   Certainly the increase in world prices has driven up

         12   the cost of the price of cathode and of scrap within

         13   the United States, there's no question.  But, it's the

         14   incremental difference between that sort of world price

         15   and our specific market conditions that I think is

         16   really at issue.

         17               MR. HENRY:  Thank you.  And another

         18   question on price, in your opinion is, well, you talked

         19   about it, just a few minutes ago about the industry

         20   using more cathode than they would like.  In your

         21   opinion or if you have information to support this


                                                                       82

          1   opinion, is there at some point where the industry

          2   would retool to use more cathode than they would copper

          3   scrap in their mix of material inputs in production if

          4   they could pass the price along to the consumers of

          5   their products?

          6               MR. KERWIN:  Well, I think that the answer

          7   to that would depend on the specifics of the producer,

          8   the mill, the product being produced.  As you will hear

          9   from some of our industry witnesses, they're sort of

         10   all over the map.  Some of them rely exclusively on

         11   scrap for their production needs.  Others rely, you

         12   know, are more skewed toward cathode.  Others can go

         13   back and forth, fairly readily.  But, there certainly

         14   are producers who are solely dependent on scrap.  And,

         15   you know, in theory I guess that they could retool and

         16   reformulate their production process to be set up to

         17   use cathode but it would take a substantial investment.

         18   These production systems are set up to use scrap

         19   exclusively and what would be entailed in modifying

         20   that system would be very substantial.  So, it depends

         21   on the circumstances of the individual company, I


                                                                       83

          1   think.

          2               MR. HENRY:  Could you give us an indication

          3   of the percent of the industry that is totally relying

          4   on copper scrap in their production process?

          5               MR. KERWIN:  Humm, no.  I don't think I

          6   could give you a number off of top of my head.  It

          7   would be difficult to gauge because, as I said, even

          8   within a given company you may have one production

          9   location that uses exclusively scrap and another

         10   location that uses scrap and cathode.  So, I wouldn't

         11   feel comfortable just throwing out a number.  I might

         12   be able to work up something in a later submission that

         13   might be able to estimate that, but --

         14               MR. HENRY:  I'd appreciate that.  And I

         15   have one more question really on supply and demand.  I

         16   read somewhere on supply and demand that there was a

         17   review of determinants of U.S. supply and demand for

         18   copper-based scrap.  This is on page 18 in the petition

         19   which shows that there are no other factors other than

         20   increasing exports that have caused the recent supply

         21   shortage.  I wanted to read that because that's a quote


                                                                       84

          1   in the petition.  Could you supply us with that review?

          2               MR. KERWIN:  Sure.  We would be happy to.

          3               MR. HILL:  Dan?

          4               MR. EDELSTEIN:  Thank you.  One of the

          5   things we're going to have to come to terms with is

          6   what would be the impact of the proposed remedy of

          7   rolling back export levels to the five-year average you

          8   proposed.  Similar to the question I asked previously,

          9   you have made an effort to distinguish what's happened

         10   in the 2002, 2003 time period, rising imports as being

         11   beyond a period when you would see an impact from the

         12   closing of secondary smelters.  Have you done -- yet

         13   your remedy requires or requests a rollback to a period

         14   significantly before that.  Have you done any analysis

         15   of what quantity of scrap that might be reabsorbed into

         16   the marketplace by the brass mill and foundry industry

         17   if in fact quotas were implemented?

         18               MR. KERWIN:  Well, what I can say is that

         19   your own USGS consumption figures show that between

         20   2000 and 2003, the consumption of copper-based scrap by

         21   the brass mill and wire rod mill industry, which


                                                                       85

          1   obviously is a very minuscule percentage of the total,

          2   the wire rod mills, that that declined by, I believe

          3   the figure is about 240,000 tons, 240,000 metric tons

          4   from 2000 to 2003.  So, that's almost two-thirds of

          5   what we're, of the reduction that we're requesting and

          6   in relation to the peak year of 2003.

          7               So, clearly that's a pretty substantial

          8   proportion of the overall decline in exports that we

          9   are requesting.  And it's about commensurate with the

         10   overall percentage of consumption that brass mills

         11   account, of the overall, you know, the overall

         12   consumption of copper-based scrap in the United States,

         13   approximately two-thirds.  We also, of course, have a

         14   foundry industry to be concerned with and despite

         15   what's going on with the secondary smelting industry,

         16   of course, as you well know, the USGS statistics show

         17   that there still is a not insignificant amount of

         18   consumption by smelters and refiners of copper-based

         19   scrap in the United States.

         20               So, we think it's a realistic period to

         21   look at.  Not only has there been a very large decline


                                                                       86

          1   in the consumption of copper-based scrap by brass mills

          2   alone in the last couple years, and not by choice, but

          3   then you also have the other issue that the years 2001

          4   to 2003 were recessionary years and we're seeing signs

          5   that manufacturing is starting to pull out of this

          6   recession.  And, you know, it's certainly likely that

          7   the consumption, production of the brass mill industry

          8   and other consumers of scrap such as the foundry

          9   industry will be increasing in the next year and that

         10   rather than looking at a period of a relative

         11   recession, we need to think in terms of the longer term

         12   trend of, that we may be heading into a significant

         13   expansionary period.

         14               MR. EDELSTEIN:  In your presentation you

         15   noted that new manufacturing scrap is the largest

         16   single consumable, scrap consumable among the brass

         17   mills.  Have you seen export competition for this

         18   material specifically and the export statistics do not

         19   distinguish new scrap from old scrap and led to believe

         20   that a lot of this new scrap comes back to prearranged

         21   deals, has there been an impact of exports on the new


                                                                       87

          1   scrap?

          2               MR. KERWIN:  The simple answer is yes.  Our

          3   discussions with the members of the industry definitely

          4   indicate that, that yes, in some instances they have

          5   agreements, understandings with their customers.  The

          6   brass mills have understandings with their customers

          7   that the scrap generated in the production of the

          8   downstream product will be returned to the brass mill.

          9   But, that is not an exclusive structure and it is

         10   certainly common for companies that produce scrap to

         11   sell it to scrap dealers to put it out on the open

         12   market.  Yes, it is common, and as that scrap has

         13   entered the stream of commerce and the foreign parties

         14   that want to source U.S. scrap have bid up the price,

         15   obviously that becomes more attractive and more

         16   lucrative to what a producer of scrap to sell to a

         17   scrap dealer and to walk away from even a traditional

         18   relationship of selling back to a supplier.

         19               MR. EDELSTEIN:  And just one minor

         20   technical question, your analysis and the rollback,

         21   that period is based on I believe total exports of


                                                                       88

          1   scrap as opposed to domestic exports of scrap.  If we

          2   were to do, why had you selected that as a series which

          3   might affect different transshipments and we see

          4   basically a comparable series if just domestic exports

          5   were used?

          6               MR. KERWIN:  I, my recollection is that the

          7   differential between the two databases is not massive.

          8   The amount of scrap, copper-based scrap that is

          9   imported into the United States is very small.  I would

         10   have to examine the data again but my recollection is

         11   that that differential is not particularly significant.

         12               MR. HENRY:  I just have one more question,

         13   back to my question on economic impact where you talked

         14   about the difficulty of using proprietary information

         15   to present economic impact in detail.  My question is

         16   that if this body, in other words, if the Department of

         17   Commerce were able to hold this information

         18   company-confidential, if there were some agreements

         19   which the lawyers I imagine would have to have to hold,

         20   would it be possible to provide us with an economic

         21   assessment using proprietary data that you could


                                                                       89

          1   provide this body within the public comment period?

          2               MR. HILL:  If I could as the Chair just

          3   indicate that this is a Department of Commerce

          4   rulemaking exercise and on advice of counsel I would

          5   like to just remind everyone that everything that is

          6   submitted for the record is open to the public and we

          7   have no mechanism for protecting the information at

          8   this time.  We would love to change that sometime in

          9   the future but as of today that's not possible.

         10               MR. KERWIN:  It's a little frustrating.

         11   We're not, you know, in other forums, in relation to

         12   other cases, obviously, that's a part of the process.

         13   So, it's a little frustrating to not be able to get at

         14   some of these issues and that, you know, there's just

         15   no guarantees as to the protection of this information

         16   as proprietary information.  So, it's a little

         17   frustrating.  I will say that some of the things, you

         18   know, like employment numbers, I just wouldn't expect

         19   to see much of an impact but in relation to financial

         20   results, I would expect to see.

         21               MR. HENRY:  Just thinking along the process


                                                                       90

          1   of what I would employ to look at economic impact, is

          2   there any way that you could provide this group with,

          3   say, price impacts of products that are sold to

          4   consuming industries?

          5               MR. KERWIN:  Boy, that's very difficult to

          6   quantify.  That's a tough nut to crack, particularly in

          7   the amount of time that we have.  You know, I can try

          8   and do some kind of review of literature but I'm

          9   guessing that's probably not going to be very fruitful.

         10   We may be able to come up with some anecdotal

         11   information of examples where specific producers of

         12   downstream items either turn to foreign sourcing for

         13   part of their product line or close down entirely.  So,

         14   we may be able to provide some anecdotal examples like

         15   that.

         16               MR. HENRY:  Okay.  Thank you.  That's all.

         17               MR. HILL:  Any other questions from the

         18   panel?  Mr. Kerwin, thank you very much and we

         19   appreciate your straightforward answers to a very new

         20   system.  At this point, we would like to dismiss you

         21   and call the next witness.  Take your bottled water


                                                                       91

          1   with you.

          2               MR. KERWIN:  Thank you.

          3               MR. HILL:  I would like to call Mr. Roy

          4   Allen, with Hussey Copper, please.

          5               MR. ALLEN:  I guess it's good afternoon

          6   instead of good morning.  I'm Roy Allen, President of

          7   Hussey Copper, Limited.  We're headquartered in

          8   Pittsburgh, Pennsylvania and we have production

          9   locations in Leetsdale, Pennsylvania Eminence,

         10   Kentucky.  Together these facilities employ

         11   approximately 800 people.  Hussey is one of the oldest

         12   members of the U.S. brass industry, having been founded

         13   in 1848, privately held.  Hussey produces copper and

         14   copper-alloy, flat-rolled copper products and copper

         15   bus bar.  These products are applied by our customers

         16   in five distinct market areas:  electrical and

         17   electronics applications; construction; industrial

         18   equipment, transportation equipment; and consumer and

         19   general products.

         20               MR. HILL:  Sir, if you could turn your mike

         21   on.  I'm sorry.  Sorry for the interruption.  Thank


                                                                       92

          1   you.

          2               MR. ALLEN:  We are the largest supplier of

          3   copper bus bar in North America and our customers

          4   include well known manufacture such as General

          5   Electric, Siemens Electrical, Eaton Corporation, and

          6   Square D Corporation.  Copper and copper-alloy scrap

          7   are crucial input materials for Hussey, accounting for

          8   approximately 80 percent of our raw material needs.

          9   Over the past several years, we have seen scrap

         10   supplies within the United States become increasingly

         11   tight, resulting in shortages of our basic input

         12   materials.  We have also seen major increases in

         13   copper-based scrap prices.

         14               While these rising prices certainly reflect

         15   general increases in world copper prices that have

         16   taken place, as reflected by the commodity exchanges

         17   such as COMEX and the London Metals Exchange, they also

         18   reflect the specific supply and demand conditions of

         19   the U.S. scrap market.  As more and more copper-based

         20   scrap has been exported out of the United States,

         21   demand for the remaining scrap has exceeded supply and


                                                                       93

          1   the discounts at which scrap has traditionally sold in

          2   relation to the COMEX index price has evaporated.

          3               Let me give you some context as to where

          4   our industry has been in recent years and the impact

          5   that the ongoing copper scrap shortage has had on us.

          6   From 2001 through 2003, our industry suffered a large

          7   decline in sales and production, reflecting the

          8   substantial downturn in the U.S. economy, particularly

          9   manufacturing during this period.  Hussey faced

         10   declines in sales volumes of approximately 35 percent

         11   during this period.  This was the most severe downturn

         12   suffered by our company in the past 25 years.

         13               Toward the end of 2003 and into 2004, we

         14   felt like we were beginning to see some light at the

         15   end of this long tunnel.  Unfortunately, it was during

         16   this period that the U.S. market for copper-based scrap

         17   became completely out of balance.  As you have seen in

         18   our petition, exports of copper-based scrap from the

         19   United States expanded by nearly 200,000 metric tons in

         20   2003, an increase of one-third in relation to 2002.

         21   All of this increased volume went to China.  Reflecting


                                                                       94

          1   this growth, exports took 40 percent of the total U.S.

          2   supply of copper-based scrap, up from 31 percent in

          3   2002.

          4               As you can imagine, when a buyer increases

          5   purchases by a third and takes 40 percent of the supply

          6   of anything, the effect will be able to push up prices

          7   for that commodity.  Exports of copper-based scrap have

          8   actually been increasing dramatically since 1999, but

          9   because we were in a recession and the brass mill

         10   industry's output was down so severely, the impact of

         11   the increase in exports was not as severe as it would

         12   have been under a healthy economy.  However, as the

         13   economy and the U.S. manufacturing began to turn around

         14   in the second half of 2003, growing exports of

         15   copper-based scrap had a huge impact on the U.S.

         16   market.  Thus, just as we began to turn a corner and

         17   pull out of years of recession, we were faced with

         18   shortages of copper scrap supply and dramatic increases

         19   in the prices we pay for that scrap, our predominant

         20   raw material.

         21               Simply put, we do not have nearly enough


                                                                       95

          1   raw materials to serve our customers under currently

          2   improving business conditions.  Because of these

          3   problems and our inability to pass through all of our

          4   increased raw materials costs, Hussey has suffered a

          5   loss of approximately 25 to 30 percent of our

          6   bottom-line profit.  After three years of poor

          7   profitability, we are in a very weak condition to

          8   weather the current storm in relation to the short

          9   supply of copper-based scrap.

         10               After U.S.-generated scrap is purchased at

         11   the above-market prices and exported from the United

         12   States, most of it is shipped to China, where it is

         13   processed and turned into raw materials for brass mill

         14   production.  Those Chinese brass mill products and

         15   downstream products from them are then exported back to

         16   the United States.  Somehow, despite paying top dollar

         17   for our scrap and having to pay for the freight to and

         18   from China, these products come back to the United

         19   States and are sold at prices that undercut ours and

         20   those of our customers.

         21               I can tell you from my knowledge of


                                                                       96

          1   Hussey's cost structure and that of my customers that

          2   what the Chinese are doing does not add up.  It is not

          3   based on comparative cost advantages in relation to

          4   labor costs, because labor accounts for a very small

          5   portion of the overall cost of our finished product,

          6   and that is largely true for our customers as well.

          7               It is clear to me that the Chinese have

          8   fostered a system that is set up to grab as much

          9   U.S.-generated copper scrap as possible, and in one way

         10   or other the increased costs are written off or

         11   subsidized by the Chinese government.  Presumably, this

         12   practice makes sense from their perspective, because

         13   along with the relative price advantage of scrap over

         14   cathode, scrap refining allows more value-added in

         15   China.  Our visits to China have shown us that it is

         16   rapidly developing the capabilities to be the world's

         17   largest copper and brass mill industry, and the growth

         18   of that industry is being based on U.S. scrap.

         19               This is not conjecture, as officials

         20   China's MinMetals made public pronouncements to that

         21   effect at a global conference in Shanghai last


                                                                       97

          1   November.  These officials stated that China does not

          2   have nearly enough copper or reserves to meet its needs

          3   and that copper scrap was preferable to cathode as a

          4   source of copper units due to its lower cost.  Further,

          5   75 percent of China's copper scrap needs come from the

          6   United States, despite the fact that Europe as a whole

          7   has a greater production volume of copper and

          8   copper-alloy products than the United States.

          9   Something is not right with this picture.

         10               I'm sure the scrap dealers that sell to the

         11   Chinese will tell you that this problem is already

         12   correcting itself because the Chinese government is

         13   attempting to put the brakes on their economy, and the

         14   result will be excess supplies of copper-based scrap in

         15   China.  However, the Chinese brass mill industry is not

         16   going away anytime soon and over the long haul, their

         17   overall demand for copper units is going nowhere but

         18   up.

         19               Given that copper cathode prices are

         20   forecasted to remain high at least in the 2005, there

         21   will remain a huge incentive for the Chinese to source


                                                                       98

          1   scrap from the U.S. market.  Indeed, even if copper

          2   cathode prices come down significantly, scrap will

          3   remain relatively attractive to Chinese buyers because

          4   it sells at a discount in relation to cathode.  If the

          5   Chinese do actually pull back from the U.S. market, the

          6   request of the U.S. copper and brass industry for a

          7   quota on U.S. exports of copper-based scrap will have

          8   essentially no impact on the Chinese industry.  On the

          9   other hand, if our government does not impose such

         10   controls and the Chinese continue to take an increasing

         11   share of U.S. supply of copper-based scrap our, my

         12   company, and our industry, will not make it over the

         13   long term.  Thank you.

         14               MR. HILL:  Thank you very much, Mr. Allen,

         15   for your testimony.  In your testimony you state that

         16   copper and copper-alloy scrap are crucial input

         17   materials accounting for about 80 percent of your raw

         18   material needs?

         19               MR. ALLEN:  That's correct.

         20               MR. HILL:  Two questions on that.  Our

         21   previous witness had indicated that he thought that in


                                                                       99

          1   his opinion that most of the imports would be home

          2   scrap or new scrap.  When you talked about copper and

          3   alloyed scrap as crucial input materials, what type of

          4   scrap are you talking about?

          5               MR. ALLEN:  We have two types of scrap.

          6   One is our self-generated scrap, which we're not

          7   talking about.  The scrap that we buy on the outside

          8   market consists of two types.  It's traditionally known

          9   as number one copper.  We buy a lot of that and we buy

         10   a second item that's called number two copper, which is

         11   generated from wire and cable that goes through our

         12   friends in the scrap industry.  So we actually buy one

         13   and two.

         14               MR. HILL:  If you could just give me an

         15   estimate for home scrap or new scrap, number one scrap,

         16   number two scrap, what are the percentages?

         17               MR. ALLEN:  We probably buy 70 percent,

         18   number one, and 10 percent to 12 percent number two.

         19               MR. HILL:  And the rest would be home?

         20               MR. ALLEN:  Yeah.

         21               MR. HILL:  Okay.  Bernie?


                                                                      100

          1               MR. KRITZER:  In your comments you talked

          2   about the ability of foreign purchasers to pay a

          3   premium.  Couple of questions I have in this regard.  I

          4   would assume that a foreign purchaser would pay an FOB

          5   price for the scrap in the United States that would be

          6   adjusted to transportation so that by the time that

          7   scrap was landed five to ten thousand miles away, the

          8   two would be equal.  Based on the remarks you've made,

          9   you are basically saying that a foreign buyer, there

         10   have been instances where foreign buyers are paying

         11   almost equal to the price the U.S. mill would pay and

         12   on top of that a transportation premium to take it five

         13   to ten thousand miles to their home country to process.

         14   Is than accurate statement?

         15               MR. ALLEN:  No, not exactly.  First of all,

         16   they're paying above market.  And number two, they're

         17   paying cash either in true currency or letter of

         18   credit.  And on the freight side, my company shipped to

         19   China for three years, and when we shipped to China,

         20   the freight rate was nine and half cent a pound, which

         21   is a lot of money.  Today the freight charged to China


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          1   is somewhere near a penny and a half because in our

          2   country we have tremendous excess of containers that

          3   need to get back from China.  So, there are costs to go

          4   back.  It's costing less than it does for me to ship to

          5   Charlotte, North Carolina.

          6               MR. KRITZER:  Are a number of the firms in

          7   China that are purchasing this scrap, are they public

          8   or private owned firms or some combination of both?

          9               MR. ALLEN:  Well, when our people were in

         10   China, what we found out -- and I think there will be

         11   some information coming out on that -- what we found

         12   out when we were there, they were basically all

         13   government-owned companies, and there was ten of them.

         14               MR. KRITZER:  Do you know if any of these

         15   firms receive any type of subsidy in terms of operating

         16   loans, subsidies in terms of duties, once the product

         17   is manufactured; do you have any examples you could

         18   provide us with?

         19               MR. ALLEN:  Well, the only thing I can

         20   provide you, and, is that our understanding is that

         21   when the material comes in to China, to at least ten


                                                                      102

          1   companies, there's a VAT tax of 17 percent of the value

          2   of the contained, material in the container.  Of that

          3   17 percent, 30 percent is rebated back to the person

          4   that's importing it.  The whole catch in the whole

          5   thing, though, is that when the material comes in, it

          6   could be high grade, low grade, and our understanding

          7   is it's declared at low grade and rebated at high

          8   grade.  Our estimate is they're picking up six cents in

          9   a pound of what we pay in the United States.

         10               MR. KRITZER:  Are there any further rebates

         11   when a producer takes that ore and turns it into a

         12   product at a higher level?

         13               MR. ALLEN:  I can't, I don't know that for

         14   sure.

         15               MR. KRITZER:  And I have one final

         16   question.  The price of labor, how much would you

         17   estimate the price of labor, figuring the price of your

         18   products in the United States?

         19               MR. ALLEN:  I would say it's

         20   approximately -- and I could be off about one

         21   percent -- I would say 5 percent.


                                                                      103

          1               MR. KRITZER:  Thank you.

          2               MR. ALLEN:  You're welcome.

          3               MR. HENRY:  Continuing in on looking at

          4   your cost structure, and labor being 5 percent, what

          5   percent of that is your scrap cost going into the

          6   prices that you charge?

          7               MR. ALLEN:  Well, our generated scrap goes

          8   right back into the furnace, of course.

          9               MR. HENRY:  Right.

         10               MR. ALLEN:  And, no, that's hard to

         11   calculate.  Our scrap price, our metal cost is probably

         12   about 78 percent, 76 percent of our total cost.

         13               MR. HENRY:  And what are some of the other

         14   costs?  I mean, you mentioned freight, that would be

         15   another cost?

         16               MR. ALLEN:  Well, typically the cost you

         17   have in there, you have your labor costs, you have your

         18   energy costs, you have your environmental costs,

         19   freight, and sales and general administration costs.

         20               MR. HENRY:  And is there any possibility of

         21   retooling to accept cathode only or do you do that now?


                                                                      104

          1               MR. ALLEN:  Well, financially it's

          2   something you would never want to do but in our

          3   operation -- and our operation only, I can't speak to

          4   my associates here -- we have four furnaces in our

          5   company.  Three of them are designated for scrap only.

          6   One is designated for scrap and/or cathode.

          7               MR. HENRY:  And, what proportion of your

          8   production is just scrap only?

          9               MR. ALLEN:  Scrap only is probably about 20

         10   percent.

         11               MR. HENRY:  About 20 percent?  And, I

         12   thought of something I wanted to ask and it's left me.

         13   I'll pass it on to Dan.

         14               MR. EDELSTEIN:  Thank you.  You indicated

         15   that your, or a large segment of your industry is bus

         16   bars?

         17               MR. ALLEN:  That's our largest product.

         18               MR. EDELSTEIN:  Correct, which is very

         19   specific product, very specific to the consumer.  At

         20   the same time, you also indicated that you lost about

         21   30 to 35 percent of your market in the recent


                                                                      105

          1   recession?

          2               MR. ALLEN:  That's correct.

          3               MR. EDELSTEIN:  Has that in part been due

          4   import penetration; are you seeing imports of bus bar

          5   competing directly with your product?

          6               MR. ALLEN:  We have, about 15 percent of

          7   all bus bar use in North America is imported.  We have

          8   about 65 percent, and we have another competitor.

          9               MR. EDELSTEIN:  Thank you.  Also, a lot of

         10   the analysis has been done on COMEX price versus number

         11   one scrap or number two scrap prices.  Is the COMEX

         12   price a fair representation of what you pay in tax for

         13   your copper cathode that you buy?

         14               MR. ALLEN:  Well, basically our situation

         15   is this.  Yes, COMEX is a factor and we pass on to our

         16   customer the price of copper off of COMEX.  The problem

         17   we have is the discounts that we receive from COMEX, or

         18   the premium we pay on COMEX, for example, in normal

         19   times, if it ever did exist or it would exist again, we

         20   paid three and half cent a pound premium on cathode.

         21   We paid from three to five cent discount on number one


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          1   scrap.  Today, it has been typically we pay two to five

          2   cents over on scrap and cathode we are paying

          3   four-fifty and if you want to spot, it's nine-fifty to

          4   ten cent a pound.

          5               MR. EDELSTEIN:  And are those premiums

          6   passed on to the customer at all or is that to --

          7               MR. ALLEN:  It is extremely difficult to

          8   date to pass on.  We passed on, had very little

          9   success.  We are floating maybe a up-charge in June.

         10   We'll see, but it's very, very difficult to pass on to

         11   these large corporations who will simply tell you we

         12   are not accepting increases.  Very difficult.

         13               MR. EDELSTEIN:  Thank you.

         14               MR. HENRY:  Yes, I remember what I was

         15   going to ask.  You talked about, there have been some

         16   delays in production as a result of shortages.

         17               MR. EDELSTEIN:  Yes.

         18               MR. HENRY:  Could you expand on that, just

         19   how long these delays are and how much of a shortage in

         20   terms of quantity that you are missing to meet the

         21   demand that you have for recycled scrap products?


                                                                      107

          1               MR. ALLEN:  Well, basically, our problem

          2   has been getting our material when we need it.  And so

          3   consequently when you have these big melting

          4   operations, you need to run it continuously without

          5   stopping.  If you stop, cost's still there.  So

          6   typically we are losing, and up until recently and

          7   probably still going on, about 15 percent down time on

          8   this melting and casting operation due to not having

          9   the raw material on the scheduled time.  It's

         10   expensive.

         11               MR. HENRY:  All right.

         12               MR. HILL:  Thank you, Mr. Allen.

         13               MR. ALLEN:  You're welcome.

         14               MR. HILL:  At this time I would like to

         15   call Mr. Thomas Baker to the witness stand.

         16               MR. BAKER:  Good afternoon.  My name is Tom

         17   Baker, and I am the vice president of Marketing, Metals

         18   Group, Olin Corporation, which is headquartered in East

         19   Alton, Illinois.  Olin Brass is one of the largest

         20   producers in the world of copper and copper-alloy sheet

         21   and strip.  We have been in business since 1914 and


                                                                      108

          1   employ approximately 4,000 people.  We also produce

          2   high-performance copper alloys, copper-alloy stampings,

          3   tubing and, through our subsidiary, Chase Brass,

          4   produce free-machining brass rod.

          5               Olin Brass produces more than 60 different

          6   copper alloys that are used for the manufacture of

          7   sheet and strip, thin-gauge treated copper, tubing, and

          8   a variety of stamped products.  Olin Brass' products

          9   have end-uses range from electronic devices for

         10   telecommunications, data, and automotive to decorative

         11   hardware, coinage, and ammunition.  Olin has been a

         12   long-time, major supplier to the U.S. Mint and to

         13   government-owned arsenals.

         14               Copper scrap, copper-alloy scrap, and

         15   copper cathode are the primary raw material inputs

         16   utilized at Olin's production facilities.  Of these

         17   inputs, Olin uses a significant amount of copper

         18   cathode because of the requirements of the end-use

         19   markets in which we participate.

         20               Increasingly so since early 2003, Olin has

         21   experienced a significant and steady increase in the


                                                                      109

          1   price of our raw material input costs for all

          2   copper-based feedstock, whether in the form of scrap or

          3   cathode.  This raw material price increase has had an

          4   impact on Olin's production operations across the

          5   board.  Surging exports of copper scrap and copper

          6   alloy-scrap, triggered by increased Chinese demand for

          7   these products, have resulted in decreased domestic

          8   availability and have been the driving force behind the

          9   price increases for this important primary input.

         10               Although Olin relies heavily on copper

         11   cathode, the lack of availability of the high grades of

         12   copper scrap, such as number one and number two copper

         13   scrap, has increased the input cost for our operations.

         14   For example, decreased availability of scrap materials

         15   forced the closure of a secondary U.S. refinery that

         16   supplied Olin with copper ingots produced from number

         17   two copper scrap.  As a result this secondary

         18   refinery's closure, Olin had to switch to use of copper

         19   cathode, at a significantly higher cost, as a

         20   substitute for the less expensive copper-based scrap

         21   raw material input.


                                                                      110

          1               In addition to increasing costs for

          2   production operations that typically would utilize

          3   scrap, costs have increased for those production

          4   processes that depend wholly on copper cathode inputs.

          5   Premiums of copper cathode have doubled in the last

          6   four months and have tripled over the last 18 months.

          7   Importantly, these input cost increases cannot be

          8   readily passed on to consumers.  For example, we have

          9   fixed contracts with the U.S. Mint and the

         10   government-owned arsenals.

         11               The significant increase in these premiums

         12   for raw material inputs, and the difficulty of passing

         13   through these added costs, has significantly impacted

         14   our profitability.

         15               I thank you for the opportunity to speak

         16   before you today, and I welcome any questions that you

         17   may have.

         18               MR. HILL:  Thank you, Mr. Baker.  I just

         19   have a couple and I will turn it over to my colleagues.

         20   For your inputs, you talked about copper cathode number

         21   one and number two.  Are you still using number two


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          1   scrap and number one scrap?

          2               MR. BAKER:  We use number two in our chase

          3   brass, which is a free-cutting brass.  They survive on

          4   number two.  The strip mill, which I have

          5   responsibility for, uses number one and cathode.  We

          6   don't use number two there.

          7               MR. HILL:  For the corporation at large,

          8   how would you put down the percentage for number two,

          9   number one and cathode.

         10               MR. BAKER:  In normal times maybe a third

         11   for each.

         12               MR. HILL:  Third for each?

         13               MR. BAKER:  Yeah, roughly.

         14               MR. HILL:  When did the U.S., the secondary

         15   U.S. refinery close that was supplying you with ingots?

         16               MR. BAKER:  That was last year.  I believe

         17   -- I don't know the exact date.  I can get that for

         18   you.

         19               MR. HILL:  As a result of the shortage in

         20   scrap, have you had any slowdowns, shutdowns or other

         21   impacts?


                                                                      112

          1               MR. BAKER:  What it's done to our strip

          2   operation, it's kind of retarded our cycle time

          3   somewhat.  You know, we have sixty different alloys and

          4   there's a sequence that we go through to cast those.

          5   And as we get to an alloy, some of the more

          6   commodity-type alloys, we want to use all scrap and if

          7   we don't have it, we have a choice, either move on or

          8   use cathode for it.  So, in some cases we have moved on

          9   and kind of got behind on that particular alloy.  Has

         10   it caused us to miss orders yet?  Not yet but we're

         11   getting nervous and we're using more cathode in those

         12   type alloys just to make sure we don't miss that,

         13   deliveries.

         14               MR. HILL:  Are you also burning in your

         15   furnaces home scrap and new scrap?

         16               MR. BAKER:  Sure.

         17               MR. HILL:  Do you export any of that?

         18               MR. BAKER:  No.  We have had requests to do

         19   so but we haven't done it, obviously.  We need it all.

         20               MR. HILL:  I know you can't speak for the

         21   industry but what's your sense in the industry, is


                                                                      113

          1   there a lot of firms like yours who are exporting home

          2   scrap and new scrap?

          3               MR. BAKER:  I don't think anybody is

          4   export.

          5               MR. HILL:  I'm sorry?

          6               MR. BAKER:  You asked me if our

          7   competition, if we or our competition are exporting

          8   scrap.  I don't know of anybody who is.

          9               MR. HILL:  Okay.  Thank you.  Bernie?

         10               MR. KRITZER:  You talked of some downturns,

         11   in production cycle time with the strip mill?

         12               MR. BAKER:  Right.

         13               MR. KRITZER:  Could you talk a little bit

         14   about impacts, have you had to do any layoffs, at this

         15   point?

         16               MR. BAKER:  No, we have not.

         17               MR. KRITZER:  How about your sales volume,

         18   has it increased, decreased?

         19               MR. BAKER:  Our sales volume is up this

         20   year.  The economy has picked up.  Our volume has

         21   picked up.


                                                                      114

          1               MR. KRITZER:  How about your profit as

          2   relative to the increased sales?

          3               MR. BAKER:  Well, it's better than it was

          4   last two years but those were record lows, so, we're a

          5   long way from being where we used to be, you know, in

          6   the late nineties.

          7               MR. KRITZER:  So there's a recovery going

          8   on, you're still short, scrapped to meet expanding

          9   orders?

         10               MR. BAKER:  Yes.  The cost of raw materials

         11   is impacting our profitability at this point or it

         12   would be a lot better than it is right now.

         13               MR. KRITZER:  How much is the increased

         14   cost of raw materials having an impact if you had to

         15   measure in percentage?

         16               MR. BAKER:  Millions and millions.  I have

         17   to stop doing -- just say millions and millions right

         18   now.  It's what the impact was to us last year.

         19               MR. KRITZER:  Okay.  Thank you.

         20               MR. HILL:  Dave?

         21               MR. HENRY:  You have indicated that you


                                                                      115

          1   converted some operations to cathode only.  And can you

          2   tell us a little bit more about that, what factors

          3   other than, well, other than the price increase of

          4   course but what factors led you to convert to cathode;

          5   do you see it in your future that you will be using

          6   more cathode than you will scrap.

          7               MR. BAKER:  We have two casting facilities.

          8   One is on the rod side and they cannot convert without

          9   a great deal of cost and they have converted.  Okay?

         10   They have to rely on scrap.  The strip operation, the

         11   conversion to be able to cast scrap is not that great

         12   in terms of equipment or retooling, as you asked

         13   earlier.  The cost, big expense really is just the

         14   difference in what cathode costs you from what scrap

         15   costs you.

         16               And our cathode consumption is up

         17   significantly from where it should be because we don't

         18   have the scrap available to us to use it.  And for

         19   example, an alloy, very commodity-type alloy is 260

         20   brass.  It goes to the government-owned arsenal in

         21   Kansas City.  Just buy them either strip or per shell


                                                                      116

          1   case and for light and medium gauge ammunition.  Okay?

          2   That in the past would be a hundred percent scrap, we

          3   would put into that product.  It's not anymore.  So,

          4   the actual retooling in our strip operation doesn't

          5   cost much.  It's the cost of making the product.  And

          6   we're trying to pass that on to the government and

          7   haven't been successful so far.

          8               MR. HENRY:  In earlier testimony there was

          9   an allusion made to the imports of scrap into the U.S.

         10   from foreign countries.  Is that an option for your

         11   company, to import?

         12               MR. BAKER:  Import scrap?

         13               MR. HENRY:  Import scrap.

         14               MR. BAKER:  I don't think so.  I don't

         15   think so.  I'm not an expert but I think Europe's got

         16   their own issues.  And I'm not sure who, and obviously

         17   China is paying some premiums for it.  You know, if we

         18   wanted to bring it back from China, we'd have to, they

         19   don't have it available, so, no, I don't think

         20   importing from other countries is an option.

         21               MR. HENRY:  That's it.


                                                                      117

          1               MR. EDELSTEIN:  Thank you.  As a company

          2   that's both a consumer of scrap and cathode, I'm

          3   hoping, you've been around along enough to possibly

          4   address the difference between this upward cycle in

          5   copper costs and its impact, the cathode costs on your

          6   company versus previous cycles.  Cathode has been as

          7   high, as we know, a dollar-sixty a pound, above where

          8   we are today.  And in previous cycles, have you run

          9   into the same cost issues and costs vis-a-vis scrap;

         10   can you possibly address that?

         11               MR. BAKER:  Sure, I'll try.  I'll try to

         12   answer that.  When a previous run-up in COMEX got to a

         13   dollar-sixty, there's a difference between a run-up in

         14   COMEX and a run-up in a premium we pay for the cathode.

         15   When they got to a dollar-sixty, three or four years

         16   ago, and it's there, a dollar-forty, dollar-fifty, over

         17   previous, you know, going back twenty years, we have

         18   had these kind of run-ups, premiums for cathode did not

         19   get to nine cents.  Okay?  It may have -- I don't even

         20   know if we got much above three and half cents.  Okay?

         21   So this is, from my perspective -- and I've got 26


                                                                      118

          1   years in -- I think this is uncharted waters paying

          2   that kind of a premium for cathode.  And I think, and

          3   it's the same kind of unchartered waters we're paying

          4   for scrap.

          5               So, when COMEX ran up before sometimes it

          6   was related to supply and demand things.  Sometimes it

          7   was the Sumatomo (phonetic) issue, you know, but the

          8   premium that you paid for the cathode didn't escalate

          9   up to nine cents nor did you pay a premium for number

         10   one at that time.  You're still paying a discount for

         11   the scrap.  So, did I answer your question?

         12               MR. EDELSTEIN:  Yes, you did.  Thank you.

         13   Now, do you have any feeling as to whether that relates

         14   to a reduction in our own domestic production of

         15   cathode, that we're now much more highly import

         16   dependent on cathode and therefore you are going more

         17   to brokers rather than domestic suppliers, producers?

         18               MR. BAKER:  Yeah, I think there's got to be

         19   some impact on the supply side of the cathode but I

         20   think a bigger impact on that is everybody is moving up

         21   the food chain.  People who were buying number two are


                                                                      119

          1   now buying big number one.  People who were buying

          2   number one are now buying cathode.  And as they move up

          3   the food chain, demand is pushing that premium more

          4   than I think the supply side of it.

          5               MR. EDELSTEIN:  Nothing further.

          6               MR. HILL:  Thank you, Mr. Baker.

          7               MR. BAKER:  Thank you.

          8               MR. HILL:  At this time I would like to

          9   call Mr. Jeffrey Burghardt to the witness stand.

         10               MR. BURGHARDT:  Thank you.  Good afternoon.

         11   I'm Jeff Burghardt of Outokumpo American Brass, or OAB

         12   for short.  We produce a wide variety of semifinished

         13   brass mill products, including copper and copper-alloy

         14   sheet, strip and tube.  I have 27 years of experience

         15   in the brass mill industry and have been involved in

         16   metal procurement for approximately the last 20 years.

         17   I am responsible for all the metal procurement at OAB's

         18   facility in Buffalo.  In addition, I am responsible for

         19   coordinating metal procurement for all of Outokumpo's

         20   copper operations in the U.S.

         21               In the brass mill industry, a steady


                                                                      120

          1   availability of copper-based scrap at reasonable prices

          2   is critical, so much so that, as you heard, some of our

          3   production processes are designed to need 100 percent

          4   scrap.  Those operations that can alternately use

          5   copper cathode incur a segmentally greater production

          6   cost to do so.

          7               It is important to understand the basic

          8   pricing structure for copper units, as copper cathode

          9   and copper-based scrap are often called.

         10               On the one hand, copper cathode, which is

         11   the end product of the mining, smelting and refining

         12   process, is traded on three major exchanges:  the New

         13   York Mercantile's COMEX division, or COMEX for short,

         14   the London Metal Exchange, or LME, and the Shanghai

         15   Commodity Exchange.  The price for copper cathode as a

         16   fungible commodity is essentially a global price.

         17   COMEX is the benchmark for establishing the price of

         18   copper in the U.S., while the LME serves this function

         19   in Europe and much of the rest of the world.  These

         20   COMEX and LME prices are close to one another and track

         21   each other.  The price for copper cathode in China is


                                                                      121

          1   set by the Shanghai Commodity Exchange.  How that

          2   exchange is structured and operates are not clear to

          3   me; however, its prices for cathode typically are

          4   significantly higher than those of the COMEX and LME.

          5               In the United States, prices for copper

          6   cathode are negotiated to reflect the COMEX price plus

          7   a premium that includes freight and insurance for

          8   delivery to the buyer's location, overhead and a market

          9   adjustment.  The market adjustment is determined by the

         10   availability of supply.

         11               On the other hand, there is copper-based

         12   scrap of various grades of purity, such as number one

         13   copper scrap, which is the highest grade of scrap and

         14   is the most common form purchased for OAB's operations.

         15   There are other lower grades of copper-based scrap,

         16   some of which are processed by the U.S. scrap industry,

         17   upgraded to number one, and then purchased by the brass

         18   mill industry.  As ISRI points out, we recognize there

         19   are some lesser grades of scrap that are no longer

         20   processed in the U.S. and that are exported.

         21               As far as metal pricing is concerned, while


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          1   copper-based scrap is not itself traded on the COMEX,

          2   LME or Shanghai exchanges, the prices of copper-based

          3   scrap are determined with reference to the price of

          4   copper cathode.  Thus for example, copper-based scrap

          5   in the U.S. is priced at a negotiated discount or

          6   premium relative to the COMEX price for copper cathode.

          7   The pricing of copper-based scrap varies by grade, but

          8   is almost always priced below that of copper cathode.

          9               The amount by which the price of

         10   copper-based scrap is discounted from the COMEX price

         11   is extremely important.  As would be expected, the

         12   discount decreases and the price of the copper-based

         13   scrap increases -- both absolutely and vis-a-vis the

         14   COMEX price -- as the supply of scrap dwindles.  When

         15   is recalled it that a brass mill's production is

         16   measured in many millions of pounds a year, it is

         17   evident that a price differential of even a penny per

         18   pound or less in the price paid for copper-based scrap

         19   has a considerable impact on the brass mill's total

         20   cost of manufacture.

         21               Over the past several years and carrying


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          1   forward to the present, the U.S. brass mill industry

          2   has seen a dramatic drop in the volume of available

          3   copper-based scrap, especially number one copper scrap.

          4   The adverse repercussions of this trend have been felt

          5   throughout the U.S. brass mill industry.  All

          6   indications are that the higher prices and reduced

          7   availability of copper-based scrap are due principally

          8   to the burgeoning exports of these materials to China.

          9   The Census Bureau's official export data and my own

         10   experience confirm this conclusion.

         11               In personally visiting and speaking with

         12   many of our suppliers, I have learned directly that the

         13   copper-based scrap that previously was sold to the U.S.

         14   brass mills such as OAB has been going to China.  While

         15   China had already been purchasing considerable

         16   copper-based scrap prior to 2003, I believe that most

         17   of this scrap was of lower grades.  In roughly the last

         18   year and a one half, China mass has also been targeting

         19   number one copper scrap and other grades that have been

         20   and can be processed in the U.S. into number one scrap.

         21   Insulated copper wire is a prime example of such


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          1   material.  These higher grades are the type of material

          2   on which U.S. brass mills historically have relied to

          3   source many of their copper units in lieu of copper

          4   cathode.

          5               The increased demand for U.S. copper-based

          6   scrap, particularly from China, has seriously disrupted

          7   our ability to secure a steady supply of this critical

          8   raw material at reasonable prices.  We are not only

          9   unable to purchase as much volume of copper scrap as we

         10   have historically, but what amount we are able to buy

         11   is at prices with less of a discount from the COMEX

         12   price.  Moreover, we are being forced to rely more on

         13   higher-priced copper cathode than we would otherwise.

         14   In this last regard, the premiums in certain parts of

         15   the U.S. for copper cathode have nearly tripled over

         16   the last 18 months and now up to as much as nine and

         17   nine and a half cents a pound.

         18               In conclusion, the increasing exports from

         19   the United States of copper-based scrap, especially to

         20   China, have been having a debilitating effect on the

         21   U.S. brass mill industry.  The shortage of this scrap


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          1   has resulted in the striking jump in OAB's cost and has

          2   caused OAB to rely on copper cathode more than would be

          3   the case were copper based scrap not in short supply

          4   and at a time when premiums for copper cathode are at

          5   or near historic highs.  This situation is not

          6   sustainable for OAB and the U.S. brass mill industry.

          7   Thank you very much for your time today.  I'll be glad

          8   to take any questions.

          9               MR. HILL:  Thank you.  Again, the same

         10   question for your company, what types of scraps do you

         11   use as inputs and what's the percentages?

         12               MR. BURGHARDT:  We use several different

         13   types of scrap.  The largest, as I mention understand

         14   my testimony, is what we would consider a number one

         15   copper scrap.  Besides that, we also consume

         16   copper-alloy scrap.  The percentages, probably the

         17   majority, maybe two-thirds are more of the copper,

         18   number one copper, with the minority being the

         19   copper-alloy scrap.

         20               MR. HILL:  And the shortages, have you seen

         21   an equal proportion of the shortages for number one and


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          1   the copper-alloy scrap?

          2               MR. BURGHARDT:  I would say what we've

          3   seen, the largest impact has been on the number one.

          4               MR. HILL:  And, what's the percentage for

          5   copper-alloy scrap, number one scrap and cathode for

          6   your inputs?

          7               MR. BURGHARDT:  Those vary quite a bit with

          8   the availability and alloys.  We would like to run over

          9   50 percent scrap in our operations and we're well below

         10   that today.

         11               MR. HILL:  Have the shortages caused any

         12   slowdowns or other disruptions in your production?

         13               MR. BURGHARDT:  The world market I believe

         14   is in significant short supply of copper in total,

         15   particularly in the U.S., and while we have not been

         16   forced to curtail operations because of this issue, I

         17   believe particularly in the second half of the year

         18   that is certainly a reality, not only for ourselves but

         19   for much of the rest of the industry because of the

         20   shortage of copper that we have seen throughout the

         21   world and throughout the U.S. in particular.  And I


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          1   think it's going to get worse in the second half of

          2   this year.

          3               MR. HILL:  Bernie?

          4               MR. KRITZER:  I have two questions for you.

          5   With regard to the cost increases, could you explain in

          6   the last couple of years, 2003 and to year to date, in

          7   2004, how much of an increase as a percentage there has

          8   been in your material acquisitions cost for scrap?  And

          9   my second question is with these cost increases, have

         10   you been able to realize any ability to pass through

         11   any of that and higher product prices to your

         12   downstream customers?

         13               MR. BURGHARDT:  Let me take the first one.

         14   As far as the scrap increase, we've really, with the

         15   cost increase we've really been hit very hard in our

         16   material cost in total.  What we have seen is, number

         17   one, we're buying less scrap than we have been able to

         18   in the past, and the scrap that we are buying, we're

         19   having to pay significantly more for.  So, less volume

         20   of scrap and the small amount we're getting is at high

         21   prices.  Second, because we're getting less scrap, we


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          1   have had to buy more refined, and we have had to buy

          2   that refined, as you have heard from myself and others,

          3   at a time one when we are looking at maybe all-time

          4   high premiums.  So this has had a very, very dramatic

          5   impact on our cost.

          6               As far as the second part, as far as

          7   passing it on, you know, for last year basically we

          8   absorbed all of that, and I think even if we are

          9   successful in passing that on, it's an increased cost

         10   that's absorbed by U.S. manufacturing.  And I say "if"

         11   with a major "if" because we haven't been able to do

         12   that.  But if we were, that's still increasing the cost

         13   to U.S. manufacturing; we're just pushing it

         14   downstream.

         15               MR. KRITZER:  Thank you.

         16               MR. HENRY:  Do you perceive this problem as

         17   a short-term spike or a long-term trend; do you

         18   anticipate this is going to continue into the future?

         19               MR. BURGHARDT:  I think first all the data

         20   we have shows that it is continuing.  I think second, I

         21   believe it is going to continue because I think one of


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          1   the issues behind it is that China is short of copper

          2   units and I don't see that changing in the months or

          3   years to come.  I see them being very aggressive.  I'm

          4   not sure how their market operates in total but they

          5   certainly seem to have built in a system where they

          6   want to utilize our scrap over here.  I believe they're

          7   going to need substantial copper units, that they're

          8   not going to be able to produce by mining in their own

          9   country.  So I do see this as a long-term problem, not

         10   a short-term situation.

         11               MR. HENRY:  Do you think that in 2004 or

         12   2005 that the world supply of copper inputs, both

         13   cathode and recycled copper would increase as a result

         14   of increased demand worldwide and that eventually

         15   copper inputs, both cathode and recycled copper prices

         16   would come down?

         17               MR. BURGHARDT:  I think as far as

         18   availability on the scrap side is certainly tied to

         19   industrial activity so I would expect to see that scrap

         20   generation should increase as industrial activity

         21   increases.  I would think at the copper prices we're


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          1   seeing today I certainly hope that there's more

          2   production worldwide because we're in a significant

          3   deficit last year and all indications that I see is

          4   that that deficit is continuing into the first half of

          5   this year.  So, I do expect, we have had some restarts

          6   in mines.  I do think that there will be more

          7   production.

          8               MR. HENRY:  How long do you think that

          9   might take?

         10               MR. BURGHARDT:  I am concerned that because

         11   we have had low copper prices, and low being mostly in

         12   the seventies, okay, I think most producers would

         13   consider those to be low prices, really even back into

         14   the late nineties when things were fairly good for, you

         15   know, much of manufacturing, I think during that time

         16   period we had low investment by the mining industry

         17   because of the low prices.  So, I am concerned that

         18   because we have had this lag in capital expenditure and

         19   exploration that there could not be significant new

         20   projects coming downstream until maybe even 2007 or '8.

         21               MR. HENRY:  Thank you.


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          1               MR. EDELSTEIN:  Historically in a growth

          2   market, which you are in now, hopefully a sustained

          3   growth market --

          4               MR. BURGHARDT:  I agree with that.

          5               MR. EDELSTEIN:  -- and, in fact with a lot,

          6   large part of your scrap coming back as new or

          7   manufacturing scrap, historically have there been, has

          8   there been a lag, essentially, since in fact your

          9   demand for raw materials increases leads to generation

         10   of new scrap; have you seen shortages before in growth

         11   markets of scrap?

         12               MR. BURGHARDT:  No, scrap, what you say is

         13   correct and we have seen shortages but nothing that

         14   compares to what's going on today.  You know, in the

         15   past the scrap availability may remain steady for a

         16   short period of time, as business picks up, okay, and

         17   that we have seen and for the reason that you stated.

         18   But here what we have seen is that with business

         19   remaining the same, the scrap availability has

         20   deteriorated dramatically.  So, as I mentioned, I have

         21   been involved for 20 years.  I have never seen


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          1   anything, you know, to this magnitude, where business

          2   remains steady and the scrap availability to ourselves

          3   an the industry has basically declined by a dramatic

          4   percentages.

          5               MR. EDELSTEIN:  Asking a similar question

          6   to previous, we have seen a shift in this country from

          7   a, either a net exporter or certainly a more balanced

          8   self-sufficiency for copper cathode, with a fall-back

          9   on our domestic mining industry and we're now, I think,

         10   importing more than 30 percent or a third of our

         11   refined copper.  Do you think with your 20-year history

         12   have you seen that impact, that shift from producer

         13   pricing possibly or producer supplier, you may be more

         14   dependent on traders or brokers even in refined copper;

         15   has that affected your costs in this current run-up?

         16               MR. BURGHARDT:  No, we've certainly seen,

         17   you know, what you have described on the refined side.

         18   Certainly I think the fact that we're more, much more

         19   dependent on imports has hurt us.  We're now competing,

         20   if you look at the major consuming areas, U.S., Europe

         21   and Asia, we're all essentially major importers of


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          1   copper cathode competing with one another.  So, I think

          2   the fact that we have less domestic production here has

          3   certainly impacted the premiums that we're paying for

          4   copper negatively, you know, as for us there .

          5               MR. EDELSTEIN:  Thank you.

          6               MR. HILL:  Thank you, sir.  At this time,

          7   in a couple minutes we're going to take the lunch

          8   break.  I have a clarification from counsel on the

          9   confidential information issue, Mr. Kerwin, that came

         10   up earlier.  If you are able to aggregate information

         11   up to a certain level, that would be useful to us,

         12   again, we are not able to protect the confidentiality

         13   of the information that's provided to us as we set

         14   forth in our Federal Register notice but if there's a

         15   way to aggregate that information up so you cannot

         16   track it back to individual companies, that would be

         17   very helpful to us in our review and I would ask for

         18   that to be done.

         19               At this point we are going to take a break

         20   for lunch.  I apologize that we have had to go straight

         21   through but it's been a good morning and we want to


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          1   continue in the afternoon.  For the break, we will have

          2   people outside to escort groups to the cafeteria,

          3   downstairs, one floor.  I suspect we'll be going

          4   through the front elevator down here, Bob?

          5               MR. NICHOL:  I prefer that we go around the

          6   corner.

          7               MR. HILL:  Okay.  Bob's in charge of that,

          8   or if you would like to go across the street, the

          9   Reagan Food Court is on the concourse level of the

         10   Ronald Reagan building.  And both places have excellent

         11   food.  Commerce's cafeteria is rated one of the top

         12   three in the government.  So, feel free to go either

         13   place on that recommendation.  We will convene back

         14   here promptly at 2 o'clock.  We have five remaining

         15   witnesses.  I fully intend to finish the hearing this

         16   afternoon.  So, we will move quickly and we will begin

         17   promptly at 2.  I would ask all the witnesses to be

         18   available about ten minutes before.  With that, the

         19   hearing is in recess.

         20               (There was a break in the proceedings.)

         21               MR. HILL:  Good afternoon.  Welcome back.


                                                                      135

          1   I would like to call the hearing to order.  As this

          2   morning we will proceed with the witnesses, we have

          3   five remaining.  I fully intend to finish this

          4   afternoon and to proceed expeditiously.  With having

          5   said that, I would like to call our next witness,

          6   Mr. Dykhuizen.

          7               MR. DYKHUIZEN:  Thank you.  Excuse me.  My

          8   name is George Dykhuizen.  I am the president of

          9   Extruded Metals, which is located in Belding, Michigan.

         10   Extruded Metals produces several alloys of high quality

         11   brass rod and bar for a wide array of manufacturers.

         12   We have been processing brass for our industrial

         13   customers since 1938.  Our large facility, which is big

         14   enough to house to 13 football fields, utilizes

         15   state-of-the-art continuous casting, indirect

         16   extrusion, drawing, straightening and material handling

         17   equipment.

         18               The brass rod and bar that we produce is

         19   used by a multitude of international manufacturers to

         20   create several types of brass products, including

         21   industrial fittings and valves, electrical equipment,


                                                                      136

          1   lock components, decorative fasteners and a wide

          2   variety of faucet parts.  Extruded Metals has long been

          3   known as a dependable source for high quality brass

          4   products.  That reputation, however, is being

          5   threatened due to the current out-of-the ordinary U.S.

          6   market conditions with respect to the supply of our

          7   primary raw material input, copper-based scrap.

          8               This point should go without saying, but it

          9   is important to note that copper-alloy scrap as used in

         10   the production of brass rod and bar, is not a waste

         11   material.  Rather, it is 100 percent recycled metal

         12   that is of significant value to those of us who use it

         13   as a raw material input.  Extruded Metal's current

         14   brass rod and bar production facilities are designed to

         15   utilize copper-alloy scrap inputs only.  This means

         16   that copper-alloy scrap cannot be replaced with prime,

         17   or higher end material, such as copper cathode due to

         18   the physical structure of our production facilities.

         19               Based on Extruded Metal's sole reliance on

         20   copper-based scrap as a key material feedstock, we are

         21   particularly sensitive to any market disruptions


                                                                      137

          1   involving the price or supply of this product.  Having

          2   said that, the current market situation has given us

          3   cause for tremendous concern.

          4               It is a well-known fact that the price of

          5   copper scrap and copper-alloy scrap has increased

          6   dramatically over a relatively short period of time.

          7   In 2004, the cost of our copper-alloy scrap has

          8   increased to 175 percent of the price we paid just a

          9   year ago, in 2003.  This price increase, in our

         10   opinion, was triggered by shortages, which in turn were

         11   caused by abnormal purchases of this product for

         12   export.  In particular, as several of my colleagues

         13   have already noted, we have experienced situations

         14   where purchases of U.S. scrap were made by Chinese

         15   buyers in cash.  These purchases were reportedly made

         16   at the point of delivery and at prices well above the

         17   market average.  Given that metal values account for

         18   over 80 percent of the cost of rod and bar, it has been

         19   difficult, it if not impossible, for Extruded Metals to

         20   compete on these same terms.

         21               Unlike other similarly situated copper and


                                                                      138

          1   brass mills, Extruded Metals has been fortunate in that

          2   it has been able to pass on at least part of these

          3   increases to customers.  It is unclear, though, how

          4   long or how much of this price increase our customers

          5   in the end will be willing to accept.  What is certain,

          6   however, is that this practice is not sustainable

          7   because it also increases the material input costs of

          8   our customers who produce downstream copper-based

          9   products from our rod and bar.  Thus, overall, the

         10   current market situation is having a negative impact on

         11   the overcall competitiveness of American made products.

         12               Very interestingly, we have observed that

         13   the high price of U.S. copper scrap and copper-alloy

         14   scrap has not had a similar effect on the price of

         15   imported copper-based products that were formerly, some

         16   of which were formerly made by our customers.  For some

         17   reason imported products from China that have been

         18   manufactured from the same expensively priced U.S.

         19   copper-based scrap are underselling similar U.S.

         20   products.  Some have attributed this phenomenon to

         21   subsidies provided by the Chinese government for


                                                                      139

          1   copper-based scrap.  We believe that there is some

          2   credibility to this theory, at least from our

          3   perspective as a rod and bar producer, because other

          4   factors, such as the cost of labor cannot possibly

          5   explain the inconsistency.  In rod and bar production

          6   direct labor costs are a relatively low proportion of

          7   the end market price.

          8               For our products we are talking about less

          9   than 5 percent for labor and over 80 percent for raw

         10   materials.  Therefore, cheap foreign labor, as in the

         11   case of China, or even free labor, would have very

         12   little effect on the comparative values of imported

         13   versus domestic-made products.  For copper-rod and bar

         14   based products, the driving force is the cost of the

         15   raw material metal input.  Only by forcing domestic

         16   U.S. prices to the high levels that we are currently

         17   experiencing, can foreign products leverage an

         18   advantage.  This is what we believe is happening in the

         19   present market.

         20               I thank you for the opportunity to present

         21   these comments and look forward to answering any


                                                                      140

          1   questions that I can.

          2               MR. HILL:  Thank you, sir, for your

          3   testimony.  I have a few questions.  In your testimony

          4   you state that the majority of your input if not 100

          5   percent of your inputs are from copper scrap.  By grade

          6   what types of copper scrap does your company use?

          7               MR. DYKHUIZEN:  It's all number two.

          8               MR. HILL:  It's all number two, no number

          9   one?

         10               MR. DYKHUIZEN:  It's two.  No number one.

         11   That, occasionally in the past when a load or two might

         12   have come in, that might have been number one but it is

         13   essentially all a hundred percent number two except

         14   there's some prime zinc that goes into this mix, too,

         15   to make up for real losses.

         16               MR. HILL:  So is it that you cannot use

         17   number one scrap or cathode because --

         18               MR. DYKHUIZEN:  We cannot use cathode.  We

         19   could use number one.  It's just a more expensive input

         20   than number two.  But, I mean, we can use number two to

         21   make this product.


                                                                      141

          1               MR. HILL:  I'm sorry.  For your customers

          2   you would, the products that you are making and selling

          3   to your customers, the number two scrap is sufficient?

          4               MR. DYKHUIZEN:  I'm sorry.  Is --

          5               MR. HILL:  The number two scrap is

          6   sufficient --

          7               MR. DYKHUIZEN:  That's correct.  That's

          8   correct.

          9               MR. HILL:  If we were to place export

         10   controls on all scrap, do you believe there would be a

         11   sufficient U.S. market appetite for that, for the extra

         12   scrap that would not be exported?

         13               MR. DYKHUIZEN:  Oh, absolutely, absolutely.

         14   It's metal values again.  Although we are disconnected,

         15   if you will, from the cathode market in the rod and bar

         16   end of this, of this manufacturing process, because we

         17   don't use cathode but there's a home for all that now

         18   for sure.

         19               MR. HILL:  What percentage of the scrap you

         20   use would be characterized as home scrap or new scrap

         21   versus number two scrap?


                                                                      142

          1               MR. DYKHUIZEN:  Well, we would have about,

          2   of the end product, center of brass plant, roughly

          3   customer in the machine, process, will turn about 60

          4   percent of it into scrap.  Some of that comes back

          5   through the open market.  They will sell it to dealers

          6   or sell it on the open market.  We'll buy it from that

          7   channel.  The majority of that probably comes back

          8   directly to us as a mill return from our customers.

          9   So, in the end 40 percent -- 60 percent of the metal

         10   has to come back; 40 percent ends up in parts.

         11               MR. HILL:  Bernie?  Dave?

         12               MR. HENRY:  Yeah.  In your testimony you

         13   just gave you mentioned that your facility operates on

         14   copper scrap only.  Is that typical of all rod and bar

         15   manufacturers?

         16               MR. DYKHUIZEN:  Yes.  The rod and bar

         17   portion of, some of the operations, some of the

         18   companies have, you know, more than rod and bar in

         19   their facilities but of mills that are strictly rod and

         20   bar mills, we'll use 100 percent scrap and almost all

         21   of it is number two.


                                                                      143

          1               MR. HENRY:  Of the total production of the

          2   industry, just the brass mill industry, what portion of

          3   that is rod and bar.

          4               MR. DYKHUIZEN:  Round numbers, off the top

          5   of my head, 30 percent to 33 percent, something like

          6   that.

          7               MR. HENRY:  In the process of getting

          8   copper scrap, is there a bidding process that goes on

          9   for that scrap with the recyclers and is it an auction

         10   type?  I'm just trying to get my head around the

         11   Chinese buying it.  You're claiming that the Chinese

         12   are buying it at higher than market rates and that you

         13   apparently don't wish to go to the price that they're

         14   paying.

         15               MR. DYKHUIZEN:  Well, as I say, the price,

         16   the scrap comes back in two different ways, one,

         17   directly from customers who are machining the rod that

         18   we sell and a lot of that is done at the negotiation at

         19   the time that the rod is sold.  The roughly maybe 30,

         20   40 percent of it doesn't come back in that way and we

         21   have to buy it on the open market.  And it's not an


                                                                      144

          1   auction process.  It's indirectly, it is I guess

          2   because, we tried to find the dealers or the sources

          3   that have free market scrap available and you will

          4   quote a price and if it's good enough, you will get the

          5   metal but a certain percent you won't.  And most of

          6   this metal is bought on roughly the 30-day cycle and

          7   since there is none in the futures market, you're not

          8   in a situation where you can hedge on the financial

          9   gain that will protect you from these increases.

         10               MR. HENRY:  Are you given the opportunity

         11   to outfit the Chinese for copper scrap?

         12               MR. DYKHUIZEN:  In some cases, yes.  But,

         13   there are many cases where it's not.  For example, we

         14   sell customers in two different ways.  We do toll for

         15   some accounts and, for example, we have had cases in

         16   the last few months where customers have called and

         17   said we're unable to buy metal, can you buy for us and

         18   in some cases we have been able to do that, in other

         19   cases we haven't been able to do that and they have to

         20   go off and total it at that point or do business with

         21   somebody else.


                                                                      145

          1               MR. HENRY:  Thank you.

          2               MR. EDELSTEIN:  Now, first I have a

          3   definitional question.  You said that you used number

          4   two scrap and you are, in fact, heavily dependent on

          5   returned scrap and you are a brass producer.  I guess

          6   there's a traditional definition of number two scrap

          7   that I grew up with, is based on the history

          8   classification where number two scrap refers to

          9   basically an unalloy copper, you know, above 96 percent

         10   copper, not quite number one scrap.  I assume when you

         11   refer to number two scrap you are using the broader

         12   definition, that you refer to alloy copper scrap.

         13               MR. DYKHUIZEN:  It's a mixture.  Basically

         14   we define it by what it isn't.  We define it when we're

         15   bidding as a copper-based product with the maximum

         16   impurities of A, B and C and they put together a

         17   package which we refer to and they refer to as number

         18   two-based package.  It's not straight copper all the

         19   time.  Sometimes it is alloy in these, maximum limits

         20   on aluminum or, you know, impurities.

         21               MR. EDELSTEIN:  Okay.  But in fact if


                                                                      146

          1   you're getting return scrap, if you're producing, you

          2   know, a 60 percent copper or, you know, an alloy that

          3   has 30 percent zinc in it and you are getting returned

          4   scrap for 30 percent zinc in it, you are considering

          5   that a number two copper?

          6               MR. DYKHUIZEN:  No.  That's no return.  I'm

          7   talking about free market purchases.

          8               MR. EDELSTEIN:  Okay.  So that's the

          9   confusion then.  So it's free market purchases?

         10               MR. DYKHUIZEN:  Right.

         11               MR. EDELSTEIN:  For number, or close or all

         12   number two?

         13               MR. DYKHUIZEN:  Right.

         14               MR. HILL:  Could you turn on your mike,

         15   please?

         16               MR. DYKHUIZEN:  Oh, I'm sorry.  Yes.  The

         17   major portion of our scrap because in the process of

         18   machining generated such a high percentages of scrap

         19   comes back from our customers.  We sell a rod.  We cut

         20   it up.  They return the scrap to us.  So that's a

         21   circular run-up.  But in addition to that, of course,


                                                                      147

          1   we have to make up for the amount of metal that they

          2   leave in their parts which is about 40 percent.  So the

          3   40 percent in looking at the overall picture, 40

          4   percent is purchased on the open market.

          5               MR. EDELSTEIN:  Okay.  Thank you.  Also, in

          6   terms you said that when you, in terms of returned

          7   scrap when you sell a rod product or bar product, you

          8   negotiate it at the time, you know, what you're paying

          9   for the return scrap; is that a correct interpretation?

         10               MR. DYKHUIZEN:  No.  We'll negotiate with

         11   them for what, for the percentage that we will allow

         12   them the return.  There's a published price for the

         13   price of the mill return scrap which is not related to

         14   the COMEX.  That's an additional complication but

         15   basically it's a price at which you see, it's based,

         16   there's an artificial or a mill published selling price

         17   to a metal and a mill published buying price to a

         18   metal, for those customers who we deal with and who are

         19   allowed to return metal to the mill and that buy and

         20   selling arrangement.  This is not related to the free

         21   market price of metal.


                                                                      148

          1               MR. EDELSTEIN:  When you say published, is

          2   it published by you or --

          3               MR. DYKHUIZEN:  By us.  Every mill has just

          4   a different, different arrangement, a different price

          5   for that buying arrangement, buy-sell arrangement, if

          6   you will.

          7               MR. EDELSTEIN:  And does that take effect

          8   at the time the scrap is returned or at the time --

          9               MR. DYKHUIZEN:  Usually the price at the

         10   time the scrap is returned and that price may change

         11   over time but the arrangement for the returns is done.

         12   It's advantageous for the customer who has that

         13   arrangement to return it to the mill.

         14               MR. EDELSTEIN:  Okay.  So I guess the time

         15   lag between, what I'm getting at, or trying to

         16   ascertain is if the time lag between shipment of the

         17   product out of the mill and the return of the scrap is

         18   effect -- if you're caught up in a volatility issue

         19   with copper prices being highly volatile, and so do you

         20   ever get caught behind the eight ball because of the

         21   volatility of the cathode which is the driving force or


                                                                      149

          1   does your pricing account for that volatility?

          2               MR. DYKHUIZEN:  We don't get caught up in

          3   the cathode issue at all because we don't use any

          4   cathode except to the extent that it would reflect back

          5   on this, on the type of scrap that we do buy on the

          6   open market.  And, there are two issues here.  One is

          7   the relative value of those copper units and the second

          8   issue is what is the supply-demand situation for the

          9   pile of scrap that's out there itself.  And, for us the

         10   price is more related to the supply-demand that's there

         11   in that pile of scrap.  But, because scrap has been in

         12   such short supply, because it's all going out of the

         13   country, that pile is very small, and the price has

         14   gone up dramatically.

         15               MR. EDELSTEIN:  So, at least in one aspect,

         16   if I'm correct, then your customers actually get to

         17   benefit to a certain extent from the high value of

         18   scrap because they get a higher value for their return

         19   so they're paying more for the initial rod, are they

         20   benefiting from the high value of return?

         21               MR. DYKHUIZEN:  No.  Because, they bought


                                                                      150

          1   the rod in the first place to make parts out of it and

          2   the metal value in the parts, 80 percent stayed in the

          3   parts, they, no, the cost of their parts has gone up

          4   dramatically.  That's why they're doing this and

          5   they're in the main competing with the imported parts

          6   that are coming back from the same people that are

          7   buying the scrap in the first place.

          8               MR. EDELSTEIN:  And just one follow-up.

          9   Are you able to use any of the scrap that was formerly

         10   used by the secondary smelters?  I don't know if you --

         11               MR. DYKHUIZEN:  To the extent that it's

         12   number two scrap, yes.

         13               MR. EDELSTEIN:  Okay.  Thank you.

         14               MR. HENRY:  Are you an exporter of rods and

         15   bars?

         16               MR. DYKHUIZEN:  No.  Well, let me just

         17   correct that.  We service North America.  We export to

         18   Mexico and to Canada but not, not, nowhere else.

         19               MR. HENRY:  And do you find the market to

         20   be growing, you know, abroad or even domestically?  I'm

         21   just trying to get an idea of the demand versus what


                                                                      151

          1   you're able to produce.  Is there a gap there.

          2               MR. DYKHUIZEN:  A large gap.  The market

          3   peaked in 2000, about a billion, two hundred million

          4   pounds.  Last year was 800 and some odd million and

          5   this year the demand is I would say up slightly from

          6   last year but there's a good 30 percent capacity.  And

          7   interestingly enough, I comment, at least our

          8   projections and our analysis which we have done for,

          9   going back to into the 1970's would indicate our

         10   product is largely used in home construction and

         11   plumbing industry and the industries that we're tied to

         12   have been extremely accurate in terms of being able to

         13   predict the market size for the last 25 years.  And all

         14   of a sudden back in 2001, these things went haywire.

         15   It's not because the housing was curtailed.  Housing

         16   and construction has been up for the last three years,

         17   but, and it's also that they're not putting plumbing

         18   and faucets and fittings into those homes; they are.

         19   It's just increasingly not being made in the United

         20   States.

         21               MR. HENRY:  Thank you.


                                                                      152

          1               MR. HILL:  Thank you, sir.  At this time I

          2   would like to call to the witness table Mr. James

          3   Rourke.

          4               MR. ROURKE:  Thank you.  My name is Jim

          5   Rourke.  I am the Vice President and General Manager of

          6   Mueller Industries, Inc., Industrial Products Division.

          7   I would first like to thank the Department for the

          8   opportunity to speak before this panel on a topic that

          9   is of most urgent concern to my company.  That, of

         10   course, is the alarming rate at which copper scrap and

         11   copper-alloy scrap have been leaving the United States

         12   and the impact this has had on the cost and

         13   availability of the type of scrap we consume.  Mueller

         14   Industries is a leading manufacturer of copper tube and

         15   fittings, brass and copper-alloy rod, bar, and shapes,

         16   and also copper impact extrusions, among many other

         17   products.  Our manufacturing operations are located in

         18   the United States and Canada, in Mexico, and also in

         19   Great Britain.  As I will describe in more detail, the

         20   success of Mueller's facilities depends on a steady,

         21   reasonably priced supply of copper-based scrap


                                                                      153

          1   materials.

          2               Mueller's brass rod facility, which is

          3   located in Port Huron, Michigan, has been in operation

          4   since 1917.  The Port Huron mill produces a broad range

          5   of brass rounds, squares, hexagons, and special shapes

          6   in free machining, tread rolling, and forging alloys.

          7   The brass rod manufactured at Mueller's Port Huron mill

          8   has a variety of end uses that include plumbing

          9   products, hardware, valves and fittings, just to name a

         10   few.

         11               Mueller's brass mill operations in Port

         12   Huron are designed to use copper-based scrap as the

         13   primary feedstock.  In fact, all the copper units used

         14   to produce brass at Mueller begin as scrap.  We use

         15   scrap in many forms and grades to produce our product.

         16   The type of material we use is determined by what's

         17   available in the marketplace.

         18               Mueller also has two domestic copper tube

         19   mills that produce copper water tube in straight

         20   lengths and coils, copper refrigeration and air

         21   conditioning tube in dehydrated coils and nitrogen


                                                                      154

          1   charged straight lengths.  We also produce industrial

          2   tube and line sets.  Our tube mill in Wynne, Arkansas

          3   is designed to run utilizing copper scrap as its

          4   primary feedstock.  Our mill in Fulton, Mississippi,

          5   however, is designed to run either on copper scrap or

          6   copper cathode or a combination of both.

          7               Over the past several years, we have seen a

          8   sizeable and growing amount of scrap being exported

          9   from the United States to China.  Will the increase in

         10   exports was certainly an anomaly based on historic

         11   trading patterns for similar economic periods, it was

         12   common knowledge that China's appetite for copper scrap

         13   was growing rapidly.  As U.S. stocks of copper-based

         14   scrap began to dwindle, we recognized that this

         15   shortage was causing serious upward pressure on the

         16   availability of this scrap.  As exports increased, our

         17   normal sources of supply could not support us,

         18   discounts declined and we sought other, higher-cost

         19   sources of supply.  This has had an increasingly

         20   negative impact on Mueller and its customers from year

         21   to year.  Indeed, the strong demand from China for


                                                                      155

          1   these strategic metals has structurally changed the

          2   marketplace.

          3               In particular, since 2003, our rod mill has

          4   experienced an increase in the cost of its copper scrap

          5   feedstock, and the discounts for the high-grade scrap

          6   we use have decreased in relation to the COMEX price.

          7   It is our understanding that the Chinese government

          8   applied a value added tax or VAT tax of 17 percent on

          9   imports into China of copper-based scrap but then

         10   refund 30 percent of that tax, and it is our

         11   understanding that this is on product that is exported

         12   back to the United States.  This arrangement has

         13   enabled Chinese scrap purchasers to bid and pay higher

         14   prices for U.S. copper-based scrap.  In some instances,

         15   Chinese buyers have been able to pay U.S. scrap sellers

         16   a premium on unprocessed copper-based scrap that

         17   oftentimes has been equal to what domestic consumers

         18   previously paid after processing.

         19               As a result, previous forms of

         20   higher-quality, what we call a select number two scrap

         21   such as wire chops and pucks that were that we


                                                                      156

          1   previously used in large volumes to produce our

          2   products are no longer available.  In 2002 and 2003,

          3   some of these processors ceased to operate, and the

          4   feed profile for our mill has changed in two

          5   significant ways -- discounts for the copper-based

          6   scrap has decreased and also the availability and the

          7   quality of the scrap we're able to acquire has

          8   declined.

          9               In addition to price increases for

         10   feedstock, we're also experiencing more melt loss and

         11   increased material handling because of the type of

         12   packages of scrap we're able to procure.  For example,

         13   wire chops and pucks are dense.  When they're loaded in

         14   a Gaylord container, they have a lot of weight.  They

         15   take up a lot less space than many of the forms of

         16   lower-quality product that are available to us today.

         17   When we can find a reasonable supplier of feedstock,

         18   reliable supplier, it's usually of lower quality, we

         19   feel overpriced for its grade and it's available in

         20   looser packages that increases our handling costs.

         21               Mueller attributes these rising costs and


                                                                      157

          1   shortages to a combination of increased exports and

          2   Chinese buying practices, which typically include

          3   either one or a combination of both.  One, paying on

          4   delivery to U.S. shipping points, in effect paying

          5   cash, and paying at higher than market-value prices.

          6   This has been especially true with respect to the forms

          7   designated as number two or low grade, which are used

          8   by processors to produce the more desirable grades and

          9   more compact packages sold as select number two or even

         10   can be number one bare bright that we have used in the

         11   past.

         12               Mueller's rod mill has been hurt

         13   significantly as well by import penetration of

         14   downstream component parts and products that were

         15   previously produced by brass rod consumers in the

         16   United States.  Most of the components and assemblies

         17   lost to imports are of a high-volume nature and were

         18   produced by numerous "job shop" machining companies,

         19   screw machine houses located across the country.  Our

         20   customers expect to be under continued pressure due to

         21   the difference in labor costs.  They should not,


                                                                      158

          1   however, be disadvantaged by China's apparent subsidies

          2   for copper-based scrap that is imported into China and

          3   returned to the U.S. as finished product.  These

          4   policies put our U.S. downstream customers and us at a

          5   disadvantage relative to the availability and the cost

          6   of the raw material, namely, copper-based scrap.

          7               As George Dykhuzien alluded previously, our

          8   cost of goods sold is highly impacted by a material

          9   cost, over 80 percent.  Our customers' material costs

         10   range from 50 to 75 percent of their products selling

         11   prices.  With these levels of material content, it is

         12   difficult to compete when the Chinese manipulate the

         13   marketplace through the use of tariffs and VAT rebates.

         14   The volume of brass rod sold in the U.S. in 2003 was

         15   over 20 percent below industry norms at a time when

         16   traditional markets that consume our products were

         17   strong.

         18               In our industry, the availability of

         19   competitively priced quality scrap is vital to our

         20   success.  The viability of our industry is dependent

         21   also on our customer's ability to compete on a


                                                                      159

          1   worldwide basis.  When the Chinese employ tariffs and

          2   rebates that allow them to secure a disproportionate

          3   share of the scrap available in the U.S., and turn that

          4   material into finished products for sale in our markets

          5   with a material cost reflecting the VAT rebate which

          6   lowers their material cost, it puts our customers and

          7   the domestic rod producers at an unfair disadvantage.

          8               The advantages in raw material costs the

          9   Chinese have been able to provide themselves has

         10   allowed them to sell their products into the U.S.

         11   market at prices lower than our customers' materials

         12   costs.  This advantage all starts with scrap.  If this

         13   continues, the impact on employment at brass mills and

         14   screw machine shops and people producing these types of

         15   parts will continue to worsen.

         16               The increasing price and copper-based scrap

         17   has had a similar negative impact on our tube mills.

         18   The shortage of scrap during the last three years has

         19   caused Mueller to use a higher percentage of cathode in

         20   its tube operations at Fulton, Mississippi than it

         21   normally would.  Since cathode is more expensive than


                                                                      160

          1   scrap, this shift has resulted in an increase in our

          2   raw material costs.  Thank you for the opportunity to

          3   address this issue.

          4   START8

          5               MR. HILL:  Thank you, sir.  And, my record

          6   goes on.  What, can you tell me what types of copper

          7   scrap you use as inputs, number two, number one?

          8               MR. ROURKE:  We, our feed profile is made

          9   up approximately of 55 to 60 percent of the scrap we

         10   get returned from our customers and we call that

         11   turnings or borings.  The balance is made up of what we

         12   call a select number two or internally we refer to it

         13   as grade B. We do purchase some number one but I would

         14   say it's about four to five to one, the select B versus

         15   number one.  And we define select B or select number

         16   two or B more by, it's high copper content, it's

         17   high-quality material but it's defined by the

         18   impurities.  It can only have a certain amount of

         19   aluminum, a certain amount of tin, a certain amount of

         20   other elements.  But it's, that's basically the way we

         21   define it.  And most of the people that we do or the


                                                                      161

          1   people that we do business with know the kind of scrap

          2   that we expect and that's what they supply us.

          3               MR. HILL:  Thank you.  If export controls

          4   were imposed -- let me ask the question a different

          5   way.  Have you in the last four or five years or in the

          6   last two years when there has been a run-up in price in

          7   the exports, have you had an inventory shortage issue

          8   that has prevented you from supplying your customers?

          9               MR. ROURKE:  We haven't had any supply

         10   limit.  We haven't had any limitations that have

         11   prevented us from supplying our customers.  We have had

         12   some days where we haven't been able to cast when we

         13   would have intended to cast because of lack of material

         14   and we have had concerns about material and have

         15   operated at very low inventory levels, mostly in the

         16   fourth quarter of last year.

         17               MR. HILL:  Thank you.  Do you export your

         18   product?

         19               MR. ROURKE:  Only to Canada.

         20               MR. HILL:  And, finally, do you export

         21   copper scrap?


                                                                      162

          1               MR. ROURKE:  No, we do not.

          2               MR. HILL:  Thank you.  Bernie?

          3               MR. KRITZER:  You mentioned the premia.

          4   How high have some of the premia gone for the purchase

          5   of the scrap by foreign competitors; have they been 120

          6   percent of the price that your company would pay, has

          7   it been more than that?

          8               MR. ROURKE:  I'm not sure.  I'm not sure.

          9   I think, it seems to me that we were not always offered

         10   the opportunity to buy some of the material that's

         11   available and the better material that we used to

         12   secure, the people that supplied that to us no longer

         13   either have that product or they're not in business

         14   anymore.

         15               MR. KRITZER:  You also mentioned on the

         16   other side that the high price scrap is sent to foreign

         17   countries.  It comes back, remanufactured products that

         18   display some of your former customers.  Could you

         19   elaborate on that in terms of, you know, company

         20   examples, product lines, what trends have occurred?

         21               MR. ROURKE:  I would say it's, where we


                                                                      163

          1   have seen it most often is with our screw machine

          2   customers.  And many of these companies are still in

          3   business and they've lost some of their work primarily

          4   in the plumbing area, high volume, easy to manufacture,

          5   commodity-type products where they may have run a job

          6   for several years, their customer went offshore, sought

          7   bids on these products and were able to procure them at

          8   prices similar or the same as or lower than what our

          9   customers' material costs would be.  And this is, I've

         10   seen this primarily in the Chicago area, two or three

         11   large screw machine operations there, some in Michigan,

         12   companies that produce part products for the

         13   large-faucet OEMs.

         14               MR. KRITZER:  To the extent it would be

         15   possible, would you at later date be able to provide

         16   some written information?

         17               MR. ROURKE:  Yeah.  I would talk to these

         18   companies and if they agreed I certainly would.  I have

         19   talked to a couple of them and they would.

         20               MR. KRITZER:  Then my last question would

         21   be, as a percentage of your costs, the increases in


                                                                      164

          1   price that you discussed very eloquently in your

          2   written testimony, would you rate those as 20, 30

          3   percent increase in costs over the last year, 40

          4   percent increase?  How would you --

          5               MR. ROURKE:  Well, the material has gone up

          6   over 30 percent.  And our, the rest of our costs have

          7   been very flat for the last two or three years, labor,

          8   energy.  Freight has seen some increase because of the

          9   fuel crisis but metal is by far and away the cost

         10   leader.

         11               MR. KRITZER:  Have you been able to recover

         12   through a pass-through or surcharge any of these

         13   increased costs or have they gone to your bottom line?

         14               MR. ROURKE:  No, we have been able to pass

         15   through some.  In a rising market it's difficult to

         16   pass them on and keep up with the increases that you

         17   are receiving but we have been able to pass through a

         18   lot of the costs.  It's difficult.  It's difficult for

         19   our customers to pass through the costs, especially to

         20   their customers, the larger OEMs, of the automotive

         21   OEMs, plumbing OEMs.  They have a lot of buying power


                                                                      165

          1   and can exert a lot of pressure on these companies,

          2   especially smaller companies that lack leverage to

          3   fight against them.

          4               MR. KRITZER:  Thank you.

          5               MR. HENRY:  I just have a question or two

          6   regarding claims about Chinese subsidies.  And in your

          7   testimony you go on to say, it is our understanding

          8   about this.  Is there any way to substantiate the

          9   understanding of Chinese actions regarding copper scrap

         10   purchases?

         11               MR. ROURKE:  The numbers I referenced I've

         12   seen published in the American Metal Market, in

         13   articles.  One of the difficulties as has been

         14   mentioned previously, how they do things is not very

         15   transparent so it's hard to determine exactly what's

         16   going on and how they operate.  They have talked about

         17   rebates.  They announced last fall that the rebate was

         18   going to, I had heard was going to go away and then I

         19   heard was going to decline and that seemed to stimulate

         20   a lot of buying of scrap on their part.  And I

         21   attributed that to an effort procure this material


                                                                      166

          1   before the rebate either decreased or was modified in

          2   some manner.  But specifically, you know, just based on

          3   what I hear in the marketplace and what I read.

          4               MR. HENRY:  I'm just trying to get my mind

          5   around it then.  If, what you have in your testimony,

          6   whether it can be verified or not and it's based on

          7   your limited knowledge of what's going on in China,

          8   your understanding is that 17 percent, there's this 17

          9   percent value-added tax on the value of product going

         10   into China.  So say if we have a million dollars worth

         11   of scrap -- just to use a round, easy number -- going

         12   into China, then the tax, the import tax on that scrap

         13   would be $170,000, which their importers would have to

         14   pay.  And then according to the rest of the statement

         15   in your testimony, 30 percent of that tax is provided

         16   back in forms of subsidies or rebates or somehow gets

         17   back to the industry.  So, that would mean if 30

         18   percent of the $170,000 then is put back into their

         19   pockets, that would be close to around $50,000, so the

         20   net on the industry would still be a negative $120,000.

         21               MR. ROURKE:  I agree with the math.  I'm


                                                                      167

          1   not sure the value that's declared when the scrap

          2   enters the country and how the tax is assessed.  Those

          3   are things we don't know.  Because if you look at the

          4   numbers that are reported on the value of the scrap

          5   that goes into their country, they pay less than

          6   anybody in the world.  But they are able to acquire

          7   more; they're terrific buyers.

          8               MR. HENRY:  Are the other foreign

          9   countries' purchases of scrap other than China at this

         10   higher rate than China is paying, in other words, is

         11   this somewhat of a world price?  I mean, if China is

         12   paying a premium for their, for the scrap purchases,

         13   there are other countries buying the U.S. scrap, are

         14   they paying the same rate, to your knowledge?

         15               MR. ROURKE:  I can't, I can't, I can't

         16   answer that.  I really don't know.  I mean, if you look

         17   at numbers that we have seen, what the other countries

         18   are paying is a more reasonable price relative to our

         19   perception of the world values, where the data you look

         20   at, the Chinese appear to be paying a lower price,

         21   based on data that's collected, I think by the Commerce


                                                                      168

          1   Department.

          2               MR. HENRY:  Further in your testimony you

          3   talk about price and that metal is 80 percent of your

          4   cost.  And that's not, is it 80 percent of your cost or

          5   80 percent of your price that you're talking about?

          6               MR. ROURKE:  It's 80 percent of our selling

          7   price.

          8               MR. HENRY:  Okay.  What are the other

          9   factors, price, in, what's the other 20 percent

         10   composed of?

         11               MR. ROURKE:  Labor, utilities, overhead,

         12   SG&A.

         13               MR. HENRY:  Have those factors caused any

         14   alarm over the last six months as far as increases in

         15   price?

         16               MR. ROURKE:  No.  Increase in cost, no.  I

         17   mean, our labor has been very stable.  Our utility

         18   costs have been reasonably stable.

         19               MR. HENRY:  And, finally, you go on to

         20   claim that your customers' materials cost range between

         21   50 and 75 percent of their total selling price, is your


                                                                      169

          1   input to their product; what customers are you talking

          2   about?

          3               MR. ROURKE:  People that are fabricating

          4   valves, fittings, hardware parts, just everyday brass

          5   components that you might see that are used in

          6   construction and industry.

          7               MR. HENRY:  Thank you.

          8               MR. EDELSTEIN:  Thank you.  Just a

          9   follow-up, similar vein.  Have you seen any impact on

         10   your productivity because of material supplied and

         11   therefore would that possibly have boosted your

         12   nonmaterial costs?

         13               MR. ROURKE:  We have seen, there's, the

         14   scrap that we're able to acquire today is not as good

         15   as the scrap that we were able to acquire two or three

         16   years ago, for approximately the same value.  And that

         17   has had some impact on our operations because it

         18   doesn't melt as quickly, it takes more handling, but

         19   it's very difficult to define the impact of that.  I

         20   would say it's a marginal, it's not a material

         21   difference.


                                                                      170

          1               MR. EDELSTEIN:  You have indicated that you

          2   have not been able, you have not seen your industry

          3   benefit from the recent strength or the strength over

          4   the last several years, the construction, housing

          5   market, in large part because of import competition for

          6   the downstream customer product, if I'm correctly

          7   interpreting what you're saying, and we have heard that

          8   from other presenters.

          9               MR. ROURKE:  I would say that's over the

         10   last couple of years.

         11               MR. EDELSTEIN:  Yes, a similar sort of

         12   situation from some of the other presenters.  And I

         13   guess the question to help us understand and ferret

         14   this out, it may be more of a question for Mr. Kerwin

         15   but are there trade statistics or industry statistics

         16   from downstream that would sort of indicate this

         17   greater import penetration and in fact is putting the

         18   squeeze on your customers?

         19               MR. ROURKE:  I think there are statistics

         20   available that would support the theory that our

         21   products are continuing to be used when you look at the


                                                                      171

          1   average size of a home and the number of bathrooms per

          2   home and that would support that the demand should be

          3   there.  We've struggled as an industry over the past

          4   couple of years, through various trade organizations we

          5   belong to, to determine what the impact on our industry

          6   has been, the economic conditions versus the amount of

          7   material imported and taking work from our downstream

          8   customers.  And, because of the variety of our

          9   customers and the variety of industries they're in and

         10   the parts they produce, we haven't been able to figure

         11   out a way to do that.  But I think we could provide

         12   data that would support that the demand continues to

         13   exist for the products we produce in this country based

         14   on housing starts and the things I mentioned earlier.

         15               MR. EDELSTEIN:  Thank you.  And once again,

         16   I guess I'm a stickler for definitions and I want to

         17   understand what I'm talking about here.  When you refer

         18   to the Chinese paying higher than market price, aren't

         19   they, in fact, establishing the market price, any more

         20   than pushing up the market price, and not actually, I

         21   mean, stable --


                                                                      172

          1               MR. ROURKE:  I think that's a fair way to

          2   look at it but I also think they're buying products

          3   that in the past stayed here, were processed and put

          4   back in the supply chain here, that now are going over

          5   there.  And, we are, because we're a step or two

          6   removed from that, we are not, we don't have the

          7   opportunity to bid on that material.  But your point, I

          8   understand where you're coming from.

          9               MR. EDELSTEIN:  I guess one final question.

         10   We were introduced to something, I'm not sure we have

         11   quite heard before, now you're actually having to use

         12   lower-grade scraps and sorting them, doing sorting and

         13   manipulating yourself?

         14               MR. ROURKE:  Well, that's, sorry to

         15   interrupt.

         16               MR. EDELSTEIN:  Okay.  You can correct me.

         17   We've only been talking about substituting higher-grade

         18   material like cathode for scrap.  Is there a

         19   possibility of going the other direction within your

         20   industry, actually taking on the ability to deal with

         21   lower-grade scrap within your industry that's


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          1   available?

          2               MR. ROURKE:  I suppose you could do that

          3   but speaking from Mueller's perspective, we're not

          4   interested in getting into the scrap processing

          5   business.  Our business is to make brass rod and copper

          6   tube.  That's not an area we would, a direction we

          7   would go.  And we wouldn't, it seems to me that if you

          8   use cathode in place of some of these other grades,

          9   it's an inefficient use of cathode as a resource to

         10   make products that don't require the purity that you

         11   can produce products that require that with cathode.  I

         12   just think it's an inefficient way to manage these

         13   resources that are limited.  And our products, the

         14   specifications permit a certain level of impurities and

         15   you need to produce those products from scrap, to take

         16   advantage of that, and conserve the cathode to be used

         17   to produce the tube and the plate and the sheet and the

         18   things that require that level of purity.

         19               MR. EDELSTEIN:  Okay.  Thank you.

         20               MR. HILL:  Thank you, Mr. Rourke.

         21               MR. ROURKE:  Thank you.  At this time I


                                                                      174

          1   would like to call Robin Wiener to the witness table.

          2               MS. WIENER:  Good afternoon.  My name is

          3   Robin Wiener and I'm the President of ISRI -- the

          4   Institute of Scrap Recycling Industries.  Chairman

          5   Hill, panelists, I wish I could say I'm pleased to here

          6   today but unfortunately I'm not.  The copper and brass

          7   industry has wasted precious time and money on the part

          8   of industry and government alike on a frivolous

          9   petition in an attempt to shortcut the more appropriate

         10   means of gaining relief for alleged unfair trade

         11   practices through a Section 301 action because.  Some

         12   in the copper and brass industry can't or really won't

         13   deal effectively with foreign competition, this

         14   exercise will likely cost the scrap recycling industry

         15   over a quarter million dollars in unneeded research and

         16   legal expenses.

         17               Allegations of a shortage of copper and

         18   copper-alloy scrap and that the price of scrap is

         19   threatening the existence of the copper and brass

         20   industry are completely without merit.  Further, we

         21   believe that the industry's efforts to short-circuit


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          1   the proper channels and to have the U.S. government

          2   artificially interfere with a long-established

          3   marketplace is not only misguided but it is dangerous

          4   with respect to the future trade of the commodities at

          5   issue today.

          6               For the record, ISRI has publicly stated

          7   and does so again today that we would support a 301

          8   action to address documented unfair trade practices.

          9   ISRI is an organization founded upon both free and fair

         10   trade.  When we were advised last spring of alleged

         11   unfair trade practices being conducted by the certain

         12   foreign countries, ISRI came to the Commerce Department

         13   seeking ways to help some of our ingot-maker and wire

         14   chopping members address unfair trade years.  We also

         15   sent a delegation to China to discuss these issues

         16   directly with the Chinese government.

         17               I would like to begin answering questions

         18   posed by the government this afternoon by first

         19   discussing the scrap recycle industry's role in the

         20   nation's economy.  Our industry directly employs over

         21   30,000 individuals and processes over 125 million tons


                                                                      176

          1   of recyclable materials each and every year, including

          2   more than two million tons of copper.  ISRI members

          3   process and/or produce products worth at least 30

          4   billion dollars a year.  The use of these recycled

          5   materials generates tremendous environmental benefits

          6   and energy savings, a crucial point given the current

          7   energy situation.  Last year the industry contributed

          8   more than 5 billion dollars to the U.S. balance of

          9   trade.

         10               But scraps contribution to the economy goes

         11   much deeper since the feedstock that our industry

         12   provides to the mills, foundries, refiners and others

         13   does not originate in our facilities.  Tallying the

         14   economic impact of the scrap industry requires

         15   consideration of peddlers and collectors who provide

         16   materials to our processing yards each and every day.

         17   For many of these tens of thousands of individuals,

         18   selling their wares to the scrap recycling industry

         19   keeps them from dependency on welfare and other social

         20   programs.  Please keep in mind the potential for

         21   calamitous ripple effects for determining what, if any,


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          1   actions to take on this petition.

          2               Now, as I mentioned at the outset, the

          3   copper and brass industry's petition should be denied

          4   and we believe the reasons are clear.  Section 7C

          5   allows for consideration of controls due to price or

          6   shortage of materials caused by exports.  Neither

          7   applies at this time.  First and foremost, there is no

          8   shortage of copper scrap in the United States.  The

          9   petitioners have offered no evidence of shortage.  In

         10   fact, many processors are reporting to us that mills

         11   are currently delaying receipt of purchased scrap for

         12   as much as eight weeks due to excess inventories of raw

         13   materials on hand.  In its comments, the copper and

         14   brass industry state their belief the copper-based

         15   scrap supply is unresponsive to price increases;

         16   however, the opposite is true.  History shows a

         17   significant amount of elasticity of supply based upon

         18   price.

         19               As prices for scrap materials increase, the

         20   volume of material brought to our yards increases as

         21   the cost of recovery and collection of these materials


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          1   becomes more cost-effective at these higher prices.  We

          2   have seen this phenomenon time and time again.  But the

          3   key point with respect to supply concerns the domestic

          4   industry's capability to consume all of our

          5   domestically produced copper scrap.  The petitioners

          6   incorrectly contend that exports have lead to

          7   diminished consumption of scrap in the United States,

          8   while the data shows the exact opposite to be true.

          9               The petitioners state that exports of

         10   copper began their rise in 1999.  They acknowledge that

         11   the demand for brass mills has been flat -- not

         12   growing -- since 1999, but they fail to note that the

         13   secondary copper smelting industry had been in

         14   significant decline for several years prior to that

         15   point, accelerating in 1997 and resulting in a complete

         16   shutdown by 2001.  In fact, the loss of this domestic

         17   capacity, which amounts to nearly 450,000 tons, is in

         18   large part responsible for the historic lows in copper

         19   scrap prices seen in the late 1990's.

         20               Their petition also dramatically overstates

         21   the volumes of copper scrap exported by including


                                                                      179

          1   foreign-based scrap that was subsequently re-exported.

          2   Last year's total of 754,000 tons was overstated by

          3   nearly 65,000 tons or 90 percent, not an insignificant

          4   amount.

          5               With the loss of U.S. demand for 450,000

          6   tons annually in copper scrap, particularly the lower,

          7   less pure grades of copper scrap, our industry was

          8   forced to find a home for this material.  Fortunately,

          9   over the last several years demand that foreign

         10   smelters begin to grow for this material.  Should these

         11   export markets now be cut off and with no domestic

         12   market available anymore, much of the scrap in question

         13   would likely end up in landfills.  Incidentally,

         14   despite Mr. Kerwin's comments to the contrary this

         15   morning, the CDA report that he referenced actually

         16   supports ISRI's points on this matter by stating that

         17   -- and I'm quoting now from the court -- "exports are

         18   expected to make up for the loss of U.S. capacity."

         19   And that's on page 18 of the CDA report.

         20               The lack of evidence of a short supply of

         21   copper scrap suggests that this export control petition


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          1   is actually an effort to control the price of scrap.

          2   But suggesting that export controls would resolve the

          3   problem for the copper and brass industry is not only

          4   incorrect, but history shows that it could make the

          5   problem significantly worse.

          6               We know this from the most recent case on

          7   which export controls were imposed some 30 years ago on

          8   ferrous scrap.  A 1977 study published in the Business

          9   Economist determined that the domestic steel industry

         10   spent more than 2 billion dollars additional for

         11   ferrous scrap in the period 1973 to 1974 than they

         12   would have had the export controls not been imposed.

         13   Clearly this was the result of a global marketplace

         14   being thrown into disarray.

         15               We believe the same dynamic would apply to

         16   copper export controls and could perhaps cause an even

         17   stronger global price reaction.  While ferrous prices

         18   are based on direct trades between buyer and seller,

         19   copper's price, which is set on world markets such as

         20   COMEX and the LME can also be impacted by speculators

         21   and investors.  Removing hundreds of thousands of tons


                                                                      181

          1   of copper material from the global market place would

          2   certainly send prices up and not down.  Put simply,

          3   copper has never operated in a vacuum of the U.S.

          4   economy.

          5               In a recent letter to the National

          6   Association of Manufacturers concerning steel prices,

          7   Commerce Secretary Donald Evans stated, "I share your

          8   concerns that the controls that some of our trading

          9   partners have placed on the exports of key raw material

         10   inputs, especially steel inputs, may be contributing to

         11   higher prices and leading to supply constraints.  By

         12   implementing export controls on copper scrap, the U.S.

         13   will engage in the exact conduct that the Secretary

         14   recognizes in his letter may violate WTO obligations.

         15   The U.S. government will be much better served by

         16   working with these other governments to remove barriers

         17   to free and fair trade than making the problem worse by

         18   imposing its own artificial market barriers.

         19               At least one of the petitioners used to

         20   agree.  Back in 1987, when certain European countries

         21   had placed export restrictions on copper scrap, Joseph


                                                                      182

          1   Mayer, the then and current president of the Copper &

          2   Brass Fabricators Council, sent a letter to ISRI that

          3   stated, and I quote, "We do not in any way wish to

          4   restrict the activities of the U.S. scrap industry and

          5   in fact feel that ending distortions in the world scrap

          6   market caused by foreign restrictions will benefit the

          7   scrap industry as well as scrap consumers."

          8               Thank you for the opportunity to present

          9   our views on this very important matter.  I would be

         10   happy to answer any questions you have but as I

         11   conclude let me point out that ISRI did not seek

         12   federal assistance or protection when scrap prices were

         13   at record lows a few years ago.  ISRI firmly believes

         14   in free and fair trade.  ISRI understands the cyclical

         15   nature of the industry, where price peaks are often

         16   quickly followed by price drops.  We knew in the year

         17   2000 that scrap prices would not stay low forever, just

         18   as we know that times of high prices are very

         19   temporary.

         20               In fact, prices for copper scrap have

         21   already declined over 20 percent from their highs in


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          1   early March.  Prices for number two have declined more

          2   than 25 percent from a high of $1.26 in early March to

          3   a market that's closer to 95 cents today.  Prices for

          4   number one -- the favored feedstock for the brass mills

          5   -- have dropped from a high in the low one-thirties to

          6   do a dollar-ten today.  And the spreads between COMEX

          7   and scrap have widened to levels not seen in more than

          8   two years.

          9               We have had good years and we have had bad

         10   years, but we strongly believe in the free market

         11   system.  Thank you.

         12               MR. HILL:  Thank you.  How many scrap yards

         13   or scrap recycling facilities, may be a better way to

         14   describe it, are in the United States?

         15               MS. WIENER:  We represent approximately

         16   1200 member companies, which we estimate that's about

         17   3,000 facilities and we represent probably about 80 to

         18   90 percent of the volume.  So the number could be a

         19   little bit higher than 3,000.

         20               MR. HILL:  Taking the 3,000 number, of

         21   those 3,000 facilities, how many are in the export


                                                                      184

          1   business?

          2               MS. WIENER:  That's a good question.  On

          3   the copper side the figure is -- we can actually, I

          4   don't want to take a guess because I'm afraid I may

          5   give you a wrong number.  We'd be happy to supply that

          6   number to you at later date.

          7               MR. HILL:  I would appreciate that.  And

          8   finally drilling down here a little bit --

          9               MS. WIENER:  Sure.

         10               MR. HILL:  -- of the 3,000 who export, what

         11   percentage of their business is export dependent?

         12               MS. WIENER:  Again, I would be happy to

         13   give you that answer at a later time.  I would think

         14   that for a lot of our members they are, there's

         15   probably a handful that are mostly export but the

         16   majority are probably doing both the domestic and

         17   export business but we can try to get you some more

         18   exact figures.

         19               MR. HILL:  Thank you.  To drill down just a

         20   little bit further --

         21               MS. WIENER:  Sure.


                                                                      185

          1               MR. HILL:  -- what are they exporting; what

          2   grades copper, copper scrap are they exporting?

          3               MS. WIENER:  Which grades are they

          4   exporting?

          5               MR. HILL:  Yes.

          6               MS. WIENER:  The vast majority of scrap

          7   that's being exported is number two.  And I think we

          8   have a definitional problem, to be honest here, in

          9   listening to all the presenters today.  When we're

         10   referring to number two, we're referring to the grades

         11   that Mr. Edelstein was referring to earlier.  And I

         12   think that some of the consumers may be calling number

         13   two what we would call a lower-grade number one or

         14   ordinary number one.  And, so, I think we're having a

         15   definitional problem.  And we're fortunate to have with

         16   us this afternoon, Sheldon Tauben, who will be speaking

         17   after I do or two people after I do and he can give you

         18   also some more detail on that.

         19               MR. HILL:  Several of the witnesses today

         20   have, I believe two have mentioned they have some

         21   concerns about the exports and the proper


                                                                      186

          1   classification of the exporters, especially as they

          2   relate to China, the VAT issue.  Have you heard any of

          3   those stories or other evidence that would tend to

          4   point to the fact that good scrap is out on the bottom,

          5   bad scrap is put on the top?

          6               MS. WIENER:  Yeah.  As I mentioned at the

          7   beginning of my testimony, we did hear some concerns

          8   from some of our members about some perhaps unfair

          9   trading practices in China, including some problems

         10   with valuation of scrap and some problems with the

         11   application of the VAT.  And, we actually presented

         12   some information related to those issues last summer

         13   when we came to the Commerce Department and we would be

         14   happy to supply that information back to Commerce to

         15   supply the information we'd supplied last summer and to

         16   include it as part of this testimony.

         17               MR. HILL:  I would appreciate that.  Thank

         18   you.  Just to follow on a little bit different vein

         19   now.  Have you had any reports from any of your members

         20   that they have been unable to supply the domestic

         21   consumption requirements because they have been


                                                                      187

          1   exported?

          2               MS. WIENER:  No.  No.  As a matter of fact,

          3   we have asked our members that question and no one has

          4   reported any problems with scrap availability.

          5               MR. HILL:  Have you seen -- and thank you.

          6   In your testimony I believe you alluded to this but

          7   have you seen an increase of the inputs for your

          8   recyclers now that the manufacturing sector is starting

          9   to improve?

         10               MS. WIENER:  I'm sorry.  Are you asking

         11   whether or not our members have received more scrap,

         12   the availability of scrap to our members?

         13               MR. HILL:  Yes.

         14               MS. WIENER:  Yes, there's definitely been

         15   in the last several weeks as a result of the previous

         16   higher prices of scrap, there's definitely been a

         17   loosening of supply.  We have seen that throughout the

         18   country.

         19               MR. HILL:  And you think that's in the last

         20   couple of weeks, though?

         21               MS. WIENER:  Yeah.  As I mentioned earlier,


                                                                      188

          1   despite what we said earlier, supply does respond to

          2   the rise in prices and it is an elastic market.

          3               MR. HILL:  As we have asked other

          4   witnesses, what would be your view on the impact of

          5   such an embargo that would be caused by export controls

          6   or more monitoring being imposed?

          7               MS. WIENER:  Well, again, as I mentioned

          8   earlier, based on a study that was done back in the

          9   seventies after the experience we had with the ferrous

         10   expert controls, we would expect something very similar

         11   to happen, where there would be unfortunately a control

         12   reversal prices go up rather than down.  Because, by

         13   placing artificial restrictions into the marketplace,

         14   it throws the marketplace into disarray and there would

         15   be increased demand for a limited supply.  And, so,

         16   there would be certainly a, more of a price war for the

         17   materials globally and this is a global marketplace,

         18   that would ultimately affect the price of the material

         19   here in the United States as well.

         20               MR. HILL:  Thank you.  As we said earlier,

         21   in response to Mr. Kerwin's concern about


                                                                      189

          1   confidentiality of information, if that is an issue, if

          2   you could, as we said to him, if you could aggregate

          3   the numbers upward so that there's no identifiers, that

          4   would be very helpful in your submission.

          5               MS. WIENER:  That's no problem.

          6               MR. HILL:  Appreciate that.  Thank you.

          7               MR. KLASON:  Thank you.  As we talked about

          8   briefly this morning, the Department of Commerce is

          9   required to look at five factors, five determinations

         10   that we have to make.  And the fifth determination

         11   permits us only to impose controls when it's necessary

         12   to protect the domestic economy.  Can you explain just

         13   how, why export controls or monitoring is in your view

         14   not necessary to protect the domestic economy and what

         15   your understanding of the term domestic economy would

         16   be?

         17               MS. WIENER:  Sure.  I will attempt to do so

         18   and, sure, I'll also state that we have submitted into

         19   the record some comments that actually expand on some

         20   of these issues as well and we can do that, we can

         21   further do that as well.  As I stated earlier, the U.S.


                                                                      190

          1   scrap industry is a vital part of the U.S. economy and

          2   employs over 30,000 people directly, and, there are

          3   also, subsequently we have to be very concerned about

          4   not only the recycled stream effect on consumers but we

          5   would point out that it's important when looking at the

          6   domestic economy as a whole to look at all segments,

          7   including the peddlers and collectors who rely on the

          8   health of our industry for their own health and

          9   stability.  And, so, you have to look at the entire

         10   recycling stream and that would all be inclusive within

         11   the nation's economy, have an effect on the nation

         12   economy.

         13               MR. KLASON:  Thank you.  And, yeah we would

         14   appreciate it if you could expand on that further.

         15               MR. HILL:  Can I just add to that?  That

         16   would be very useful and I know you are represented by

         17   counsel who is not testifying today, if you could have

         18   that in writing to us.

         19               MS. WIENER:  Absolutely.

         20               MR. HILL:  As Mr. Hartquist will be giving

         21   us that in writing as a well.


                                                                      191

          1               MR. KLASON:  And Mr. Hartquist would be

          2   interested in your views and the Department of Commerce

          3   as well.

          4               MR. HILL:  Thank you.

          5               MR. KRITZER:  You talked about reports that

          6   certain mills were delaying receipt of purchased scrap?

          7               MS. WIENER:  Yes.

          8               MR. KRITZER:  Could you provide for the

          9   record some examples, you know, information on the

         10   compilation of that?

         11               MS. WIENER:  Sure.  We have, just to

         12   clarify that has been, that information is based on an

         13   informal supply of a wide range of our members and we

         14   would be happy to go back to them and see who would be

         15   willing on the record to share that information and

         16   then submit that to you.  But, we have heard that from

         17   a large number of members.

         18               MR. KRITZER:  That would be useful.

         19               MS. WIENER:  Yeah, be happy to do that.

         20               MR. KRITZER:  The second question I have

         21   is, with the imposition of controls, your statements


                                                                      192

          1   about controls would have a negative effect on supply.

          2   In addition to supply, what would happen to the

          3   infrastructure right now that is developed around the

          4   export market, would that infrastructure be

          5   compromised, would that infrastructure have to be

          6   reoriented to supply the copper domestically; what kind

          7   of effects would that have, would there be costs?

          8               MS. WIENER:  Well, certainly it would have

          9   the effect of throwing the market into disarray because

         10   there would be a huge dislocation.  There are some

         11   members who are dependent, much more dependent on the

         12   export market than others.  And, for those, as I stated

         13   earlier, we don't believe based on the fact that, well,

         14   again we believe that the vast majority of material

         15   being shipped right now is number two and that material

         16   we believe does not have a market.  The vast majority

         17   of that does not have a domestic market and therefore

         18   there would be a group of companies that rely on the

         19   sale of that material overseas that would not have a

         20   market for that material and would be hurt economically

         21   would be hurt, may result in shutdowns, layoffs, et


                                                                      193

          1   cetera.

          2               MR. KRITZER:  Would that extend to

          3   companies that essentially have export infrastructure

          4   but if they were not able to export they would not have

          5   the rail cars, highway transportation or other

          6   logistics to supply domestic markets or domestic

          7   markets would be located at great distances where

          8   transportation would become an element?

          9               MS. WIENER:  Well, there certainly are

         10   regional issues.  And one of the presenters earlier

         11   talked about the relative cost of transportation, and

         12   how it's much more, it's significantly cheaper to ship

         13   from LA to China than it is from LA to San Francisco.

         14   And so, and we have the same experience within our

         15   industry.  And, so, specially on the West Coast, that's

         16   a particular concern of ours because there are a large

         17   number of exporters on the West Coast and if their

         18   markets were to disappear, the transportation cost to

         19   ship that material domestically might be prohibitive

         20   and may not allow for the disposition of that material.

         21               MR. KRITZER:  Thank you.


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          1               MR. HENRY:  In the beginning of your

          2   testimony you talked about suggesting a Section 301

          3   case --

          4               MS. WIENER:  Yes.

          5               MR. HENRY:  -- in place of Export

          6   Administration Act investigation.  Can you elaborate on

          7   that more and why you think that would be a more

          8   appropriate forum for this case?

          9               MS. WIENER:  Absolutely.  My understanding

         10   is that there some of the presenters have alleged

         11   unfair trade practices with them.  Specifically China

         12   has been named a number of times.  And as I mentioned

         13   earlier, we have also heard some of those same claims,

         14   information about some of those similar practices or

         15   same practices from some of our members.  However,

         16   Section 7C was not designed to address those types of

         17   problems.  The remedy in an export control ban, as we

         18   understand it our reading of the statute and the

         19   legislative history, is that it's simply not the

         20   purpose of 7C to deal with unfair trade practices; it's

         21   to deal with supply shortages.  And, if what we are


                                                                      195

          1   facing, we believe this is what we're facing is non a

          2   supply shortage but potential unfair trade practices,

          3   then the proper remedy is a 301 action.

          4               MR. HENRY:  And again I'm trying to

          5   understand how purchases are made, both foreign and

          6   domestic.  In the cases where you have maybe not bids

          7   but you have purchases foreign or purchases domestic,

          8   is there a bidding process that goes on that the

          9   highest price buys the product or are there some, is

         10   there some portion of the industry such as you say out

         11   in Los Angeles out in the California area that may be

         12   cost prohibited because of freight into the Midwest?

         13               MS. WIENER:  What I would like to suggest,

         14   if it's, with the permission of this panel, is that for

         15   questions regarding commercial practices, how purchases

         16   work, et cetera, I think that to give you the most

         17   comprehensive answer it would be probably most

         18   appropriate if I deferred those questions to Mr. Tauben

         19   because he's in the business.  He's one of the largest

         20   brokers for copper scrap in the United States and I

         21   think he can probably give you the most accurate


                                                                      196

          1   answers to those questions.

          2               MR. HENRY:  And one final question.

          3   Regarding scrap, apparently copper is a small portion

          4   of the scrap which you sell.  And, I am just wondering

          5   that are there, has it been a general trend that other

          6   commodities such as ferrous scrap or other types of

          7   scrap have prices increased at the same rate as the

          8   copper crap; in other words, has it been a general case

          9   that prices have risen for other types of scrap?

         10               MS. WIENER:  All of the scrap commodities

         11   are cyclical in nature and so we have experienced peaks

         12   and drops in most of the commodity areas if not all of

         13   them, and most recently as has been reported in the

         14   general press.  Certainly we have seen it in ferrous

         15   scrap as well.  But similar to what's happened in

         16   copper prices, as we expected, the price peaks were

         17   followed by price drops.  And, so, several weeks ago if

         18   not several months ago actually ferrous scrap prices

         19   started turning around and they have declined.  I

         20   believe they declined at a bit more rapid rate than

         21   even copper has.


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          1               MR. HENRY:  Thank you.

          2               MR. EDELSTEIN:  In just looking at your

          3   statement earlier that the scrap recycling industry

          4   employs 30,000 people or 125 million tons, and the

          5   potential impact on that industry it might have, I

          6   assume in that you are including as part of your

          7   industry, it goes well beyond copper, to steel,

          8   includes the paper recycling industries and plastic

          9   recycling industries so copper is only a small portion

         10   of that, is that correct?

         11               MS. WIENER:  It is correct that that

         12   employment figure includes all of the employees of the

         13   scrap recycling industry and we represent companies

         14   that process nonferrous and ferrous metals, paper,

         15   plastic, glass textiles; however, with many of our, the

         16   vast majority of our members and from representing a

         17   vast number of those employees, are companies on the

         18   metal side of the business and many of our ferrous

         19   processors, the vast majority of them handling ferrous

         20   are often handling nonferrous as well, instead of

         21   handling copper, in varying quantities but it would be


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          1   throughout the industry.

          2               MR. EDELSTEIN:  So would it be possible to

          3   isolate the copper portion?

          4               MS. WIENER:  It's a good question and I, we

          5   could try.  I haven't seen published figures that

          6   actually state how many, what percentage of those

          7   employment figures would represent copper.  And again I

          8   would think it would be difficult because the industry

          9   is much more integrated than you might think in terms

         10   of the handling of this material although certainly

         11   there are some specialists in the industry who may only

         12   handle copper.  I think the majority of those members

         13   that are handling copper also handle other materials as

         14   well.

         15               MR. EDELSTEIN:  And this may be a question

         16   you want to defer but I will ask anyway.  We've heard

         17   testimony that there has been a shift in the practice

         18   of the scrap industry in that they are not upgrading,

         19   processing, sorting, chopping scrap to the same extent

         20   that they were possibly and, in fact, this may be also

         21   contributing to the shortage of the higher grades or


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          1   the alleged shortage of higher-grade scraps available

          2   to the brass mill and foundry industry.  And, but

          3   because the scrap is being exported as a rough mixture

          4   or a bulk for their greater profits in doing that

          5   because of the higher prices being offered, could you

          6   address that?

          7               MS. WIENER:  I think I will defer to

          8   Mr. Tauben on that; otherwise, though, I would like to

          9   state one thing about that, which is that our members

         10   work very closely with their consumers to try to

         11   deliver the highest quality product.  And, therefore, I

         12   don't believe that there is, I don't believe that there

         13   is a problem with lower quality materials going into,

         14   being sold to the consumers; however, with regard to

         15   different grades of, the availability of different

         16   grades of the material that could be shipped to

         17   consumers, I would like to defer that question, that

         18   issue directly to Mr. Tauben.

         19               MR. EDELSTEIN:  And similarly if, in fact,

         20   remedy, offer, suggest, implemented in scrap exports be

         21   rolled back to the previous average by about half, are


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          1   there copper scrap or is there copper scrap that would

          2   not have a home here in the U.S., that would be the

          3   languishing, so to speak?

          4               MS. WIENER:  Absolutely.  And that is one

          5   of our primary concerns with this petition.  As I

          6   stated in my comments, in my testimony, the shutdown of

          7   the domestic copper smelting industry has resulted in a

          8   loss of capacity of approximately 450,000 tons

          9   annually.  And it is interesting to note that the

         10   period petitioners are using for calculation of what's

         11   considered a normal period of time for export levels,

         12   the '96 to 2000, is a time period when some of that

         13   domestic capacity was still in existence.  And, as a

         14   CDA report notes and I noted, the problem that exists

         15   is that the, after this capacity was lost this material

         16   did not have a home here in the United States and we

         17   were fortunate when there was a buildup of demand

         18   overseas, that that could eventually take the material

         19   but if we were to now have those markets cut off again,

         20   then there would be material with no place to go.  But

         21   it's a significant number.  Again, we're talking about


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          1   nearly 450,000 tons, which is greater than the amount

          2   that petitioners are looking to cut exports by.

          3               MR. EDELSTEIN:  Thank you.

          4               MS. WIENER:  Thank you.

          5               MR. HILL:  Thank you.  At this time I would

          6   like to call Robert Damuth to the witness table,

          7   please.

          8               MR. DAMUTH:  Thank you, Mr. Chairman.  Good

          9   afternoon, gentlemen.  My name is Robert Damuth.  I'm a

         10   vice president and economist Nathan Associates,

         11   Incorporated.  Nathan Associates is an economic

         12   consulting firm, founded in 1946 by Robert Nathan.

         13   Before beginning, I want to thank you for giving me

         14   this opportunity to comment on behalf of the institute

         15   for scrap recycling industries.  Mr. Henry, you asked a

         16   question, made a comment a moment ago that reminds me

         17   that now more than twenty years ago when Bob Nathan, it

         18   reminds me when Bob Nathan before the Senate Banking,

         19   Housing and Urban Affairs Subcommittee on International

         20   Finance to comment on behalf of the Institute in

         21   support of expanding exports of scrap iron.


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          1               Today, though, I will be presenting

          2   findings of a recent Nathan Associates' study of

          3   inventories of obsolete copper scrap.  This study was

          4   completed under my direction.  I am submitting today

          5   the executive summary of the summary report and figures

          6   and tables that present the calculations and data in

          7   the analysis.  I will submit the final full study

          8   report within a week, which will obviously have more

          9   explanation of the methodology.

         10               In addition to presenting the inventory

         11   estimates, I want to also discuss a few concepts that

         12   are relevant to the definition of inventory obsolete

         13   copper scrap and highlight the importance of the

         14   economic relationship between scrap supplies and scrap

         15   prices.  The estimates I will present are derived from

         16   statistics that have been collected in the U.S.

         17   Geological Survey.  It's interesting because my

         18   estimates are actually downward revisions, downward

         19   adjustments to these statistics.  So, as a surprising

         20   as some people might find the numbers, they actually

         21   are smaller than published statistics in the public


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          1   domain.

          2               As you can see in table one of my

          3   submission, the U.S. inventory of obsolete copper scrap

          4   has grown steadily since 1982.  1982 is the first year

          5   of our analysis.  Net additions to the inventory

          6   through 2003 totaled 36 and a half billion pounds, or

          7   1.7 billion pounds per year.

          8               Each year enough obsolete copper scrap is

          9   generated in the U.S. economy to more than adequately

         10   meet the demand of domestic consumption.  The U.S.

         11   inventory of obsolete copper scrap has been and will

         12   continue to be a more than adequate source of supply

         13   for copper scrap demand.  In the end of 2003, the

         14   inventory reached 112.4 billion pounds.  Recycled,

         15   prompt, or new, recycled prompt and obsolete copper

         16   scrap in 2003 was equivalent to only 3.6 percent of the

         17   inventory of obsolete copper scrap.  This percentage is

         18   also equivalent to the average percentage over the

         19   entire period of our analysis, 1982 to 2003.

         20               Based on the total amount of recycled scrap

         21   of prompt and obsolete in 2003, and the year-end


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          1   inventory of obsolete scrap, there's enough obsolete

          2   scrap in the inventory today to meet total demand for

          3   recycled scrap through the year 2030.  Obsolete copper

          4   scrap consists of copper contained or installed or

          5   placed in products in the economy.  These products

          6   which can be grouped into five end-use product

          7   categories, and are grouped that way in published

          8   statistics, are manufactured by at least 35 industries

          9   defined at the six-digit level North American

         10   Industrial Classification System.  These industries are

         11   identified for you in figure one of my submission.

         12               Whether in the form of wiring in a personal

         13   computer plumbing pipes and fixtures, sheet roofing, or

         14   other products, the defining characteristic of obsolete

         15   copper scrap is that it is used and in a position to be

         16   recovered.

         17               Generally, the inventory of obsolete copper

         18   scrap can be thought of as a pool of copper-containing

         19   products, the size of which fluctuates according to

         20   rates of additions to and withdrawals from the pool.

         21   Additions to the pool occur as products containing


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          1   copper reach the ends of their useful economic lives.

          2   Withdrawals occur as the copper in these products is

          3   removed and recycled by industries that utilize copper

          4   as a manufacturing or fabricating input.

          5               In the normal business sense of the word,

          6   inventory is a stock of immediately available materials

          7   or products used to even out market fluctuations and

          8   supply and demand.  But not all obsolete copper scrap

          9   is immediately available for use.  Products containing

         10   copper must first reach the ends of their useful lives

         11   and then their copper content must be extracted and

         12   recycled.

         13               For determining the size of the inventory

         14   of obsolete proper scrap, the narrow notion of business

         15   inventories must be broadened by incorporating geologic

         16   concepts like resources and reserves.  In geology,

         17   resources are concentrations of elements in the earth's

         18   crust or under the sea existing in such form that they

         19   may be extracted and used.  Reserves are masses of rock

         20   whose extent and grade are known to a lesser degree and

         21   whose physical natures are such that they may be


                                                                      206

          1   extracted at a profit with existing technology and

          2   present price levels.

          3               These concepts have technical discovery and

          4   economic dimensions, but only the latter, the economic

          5   dimension is especially relevant to defining the

          6   inventory of obsolete copper scrap.  In geology,

          7   resources are presumed to exist but must be discovered.

          8   They must be measured as proved in terms of

          9   composition, grade and quantity and then they can be

         10   employed, held for future use, or abandoned.  But this

         11   technical discovery dimension is not relevant to copper

         12   scrap.  Copper scrap exists in and can be derived from

         13   copper-containing products that reach the ends of their

         14   useful economic lives.

         15               So, focusing on the economic dimension

         16   leads to a three-part classification that provides

         17   insight into the different ways in which the inventory

         18   of obsolete copper strap can be defined.  First,

         19   resources of copper scrap are copper-containing

         20   products located on the earth's surface or in

         21   landfills, existing in form that allows extraction and


                                                                      207

          1   use.

          2               Second, potential reserves of copper scrap

          3   are concentrations of known or inferred quantity in an

          4   immediately useful condition that can be recovered

          5   within the constraints of high but realistic prices,

          6   that is, prices possibly several times higher than

          7   current prices.

          8               And finally, reserves of copper scrap are

          9   concentrations of known extent and quality economically

         10   recoverable at generally prevailing prices using known

         11   technology.

         12               From these three choices clearly the most

         13   appropriate definition of the inventory of obsolete

         14   copper scrap is potential reserves.  As a concept

         15   potential reserves include only material that is

         16   relatively accessible and that offers the advantage of

         17   scrap that exists in a metallic state not needing

         18   further reduction.  Therefore, potential reserves of

         19   obsolete copper scrap can be drawn from within a short

         20   time frame when scrap is demanded by the economy and

         21   prices reach appropriate levels.


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          1               In contrast to potential reserves, a

          2   measure of the larger pool of resources includes

          3   material that is economical to access only in emergency

          4   situations, such as wartime conditions.  A measure of

          5   the smaller pool, reserves, inadequately accounts for

          6   the relationship between scrap price fluctuations that

          7   occurred during the past and movements of obsolete

          8   copper scrap from the pool of resources to the pool of

          9   potential reserves.

         10               Inventory defined as potential reserves of

         11   obsolete copper scrap recognizes the economic

         12   relationship between the availability and price of

         13   copper scrap.  Measuring potential reserves reflects

         14   the reality that additional scrap will be available at

         15   higher than current but still realistic prices.  The

         16   quantity of copper scrap recycled varies with the price

         17   of copper scrap.  As price increases, the amount of

         18   copper scrap recycled increases and additional scrap

         19   moves from the resource base to the potential reserve

         20   or inventory of scrap.

         21               Based on historical and expected scrap


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          1   prices, the inventory of obsolete copper scrap is more

          2   than adequate to meet the domestic demand for scrap.

          3   In the statistics I find no evidence of a shortage of

          4   copper scrap in the U.S. economy.  Thank you very much.

          5   If you have questions, I will be happy to answer them.

          6               MR. HILL:  Thank you for your testimony.

          7   This is the first that we have seen of this so we would

          8   be happy to study it.  I do have just some initial

          9   questions that may be uneducated because I have not had

         10   a chance to review this.  But, if copper scrap prices

         11   have risen, you would intuitively believe that the

         12   draw-down of the quote-unquote pool of potential

         13   reserves of copper scrap would increase as well; have

         14   you seen that in the statistics?

         15               MR. DAMUTH:  Well, there are two things

         16   going on, actually.  There's the transition from

         17   reserve, I mean from resources to potential reserves.

         18   As the price of scrap goes up, additional copper scrap

         19   moves from the larger pool to the smaller pool.  Then

         20   the second thing is as the price of copper scrap goes

         21   up, the potential reserve is actually drawn down and


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          1   recycled through the economy.

          2               MR. HILL:  I understand.  But have you seen

          3   statistics that show that movement?

          4               MR. DAMUTH:  Those statistics are reflected

          5   in the aggregate level, in table one of what I

          6   submitted.

          7               MR. HILL:  Okay.  Table -- well, again we

          8   need to spend some time studying this.  When I looked

          9   at table one --

         10               MR. DAMUTH:  Table one shows the net change

         11   in the potential reserves.  So, that's reflecting

         12   resource moving from, I'm sorry, copper scrap moving

         13   from resources into the potential reserve and from the

         14   potential reserve into the recycled stream.

         15               MR. EDELSTEIN:  Mr. Hill, can I proceed on

         16   this?

         17               MR. HILL:  Sure.

         18               MR. EDELSTEIN:  Thank you.  I guess keeping

         19   to form, I have some definitional questions so I

         20   understand what it is that you are presenting here.

         21   What you are calling obsolete copper scrap, is that in


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          1   fact not obsolete material but material actually in

          2   use; does that actually, not actually reflect the pool

          3   of material that is currently in use in our electrical

          4   distribution line, in our plumbing and so forth;

          5   therefore, it is not obsolete but actually material in

          6   current use?

          7               MR. DAMUTH:  No, not, not exactly.  If you

          8   look at table three -- if you look at table three, in

          9   column six, what we have presented for you there is

         10   newly obsolete copper scrap.  So, that is the amount of

         11   obsolete material that is newly created each year.  And

         12   it is created because products containing scrap have

         13   come to the end of their useful lives.  Now, some share

         14   of that is recoverable but some is not.  And, the share

         15   that is recoverable is the addition to the potential

         16   reserve.

         17               MR. EDELSTEIN:  So what you are showing is

         18   the cumulative additions to potential reserve of, I

         19   guess, 72.76 billion pounds there?

         20               MR. DAMUTH:  Yes, since 1982.

         21               MR. EDELSTEIN:  Okay.  So, versus the --


                                                                      212

          1   what you're saying is there's almost 73 billion pounds

          2   of material that has reached the end of its useful

          3   life?

          4               MR. DAMUTH:  And has been recovered.

          5               MR. EDELSTEIN:  Has been recovered?

          6               MR. DAMUTH:  Right.

          7               MR. EDELSTEIN:  Well, what about the

          8   material that has reached the end of its useful life

          9   and has hot been recovered?

         10               MR. DAMUTH:  That is still in the pool of

         11   resource.

         12               MR. EDELSTEIN:  Okay.  In the pool of

         13   resource, but that pool is what you're calling obsolete

         14   scrap, is that correct?

         15               MR. DAMUTH:  No.  I'm calling the inventory

         16   of obsolete scrap the pool of potential reserves.  It's

         17   what's been recovered, what is recoverable and in the

         18   pool of potential reserves.  Once there, it can be

         19   used.  It can be recycled.

         20               MR. EDELSTEIN:  But in this case the most,

         21   a lot of it may still be in use, is that correct?


                                                                      213

          1               MR. DAMUTH:  No.

          2               MR. EDELSTEIN:  Or is that just the

          3   obsolete, this is just the obsolete scrap?

          4               MR. DAMUTH:  Right.  Right.

          5               MR. EDELSTEIN:  Okay.

          6               MR. DAMUTH:  If you look at table two,

          7   you'll see the additions, potential reserves and you

          8   will see in column three the actual withdrawals, the

          9   use of obsolete copper scrap from that pool.  And it's

         10   the difference between those two that is the final

         11   end-of-year net change in the inventory.

         12               MR. EDELSTEIN:  And how did you determine

         13   what was becoming obsolete, is that based on the

         14   average life of product?

         15               MR. DAMUTH:  Yes.  Yes.  And it's in five

         16   different product categories.  And as you have the

         17   time, I suggest look to tables six through ten, or, I'm

         18   sorry, five through nine.  That shows the detailed

         19   calculations by each end-use product category.  The

         20   useful lives of products vary from category to category

         21   so it's a different calculation for each category.


                                                                      214

          1               MR. EDELSTEIN:  And in this do you take a

          2   look at material lost to waste disposal and things like

          3   that, is that accounted for?

          4               MR. DAMUTH:  I think it is only to the

          5   extent that, and frankly I would want to go back and

          6   look at some of the detailed calculations but I think

          7   it is only to the extent that it's captured in the

          8   recovery rates that we have used in the analysis and

          9   they are presented I believe in table fourteen.

         10               MR. EDELSTEIN:  Okay.  Based on that

         11   understanding, if I can draw an analogy then and see if

         12   you agree with my interpretation.  Your reserves of

         13   copper scrap, unrecovered copper scrap are the

         14   equivalent of the reserves, the mineral reserves of

         15   copper in terms of definition; they are there, in the

         16   ground, available to be recovered at some point in time

         17   but at least at this point in time does not necessarily

         18   reflect what is available to the consumer, just from

         19   copper mining, refined copper isn't available to the

         20   consumer until they mine it and therefore this reserve

         21   is not available, of scrap is not available until the


                                                                      215

          1   miners in the scrap industry have in fact for whatever

          2   reason received it, processed it, and made it available

          3   to the consumer, is that correct?

          4               MR. DAMUTH:  Yes.

          5               MR. EDELSTEIN:  Thank you.

          6               MR. HENRY:  You did say we're going to see

          7   a methodology and data that support this?

          8               MR. DAMUTH:  The methodology is actually

          9   contained, the way the tables are organized, if you --

         10               MR. HENRY:  You can see how --

         11               MR. DAMUTH:  Yes.

         12               MR. HENRY:  -- it goes from one to the

         13   next?

         14               MR. DAMUTH:  Yes.  But I will within a week

         15   submit a report that describes the methodology so that

         16   one would not need to read footnotes in a table to

         17   follow it.

         18               MR. HENRY:  And as we look through this,

         19   and get to the point where we can try to understand how

         20   the supply responds to price, is there any overall

         21   conclusion -- I haven't looked at your executive


                                                                      216

          1   summary, but is there any, at all, conclusion about its

          2   price elasticity, at what point do you see your reserve

          3   of copper scrap, whether obsolete; well, anyway, at

          4   what point to you see copper scrap going to the

          5   consumer, at what price levels?  Have we seen that in

          6   the last year as prices of copper scrap exported and

          7   domestic prices have increased, do we see this reserve

          8   of copper scrap going to the recyclers, and at what

          9   point in price was that happening?

         10               MR. DAMUTH:  Our analysis, this analysis is

         11   done at the aggregate level.  What you are looking for

         12   is a much more micro-oriented analysis, to try to

         13   determine the trigger price, that that would be a

         14   difficult task but one that could be done.  I haven't

         15   done it.  What we can say, though, is that the history

         16   of price changes in copper scrap over the period of our

         17   analysis has induced consistently, has brought

         18   consistently net additions to potential reserve of

         19   copper scrap.  And if you look year by year, you will

         20   see some years the addition is somewhat more than other

         21   years but then there's also a draw-down in those years,


                                                                      217

          1   too, as copper is taken from a reserve and actually

          2   recycled and consumed.

          3               One thing I want to step back and say,

          4   though, is that I have heard the term elasticity

          5   referred to in the little time I have been here and I

          6   think there's a little confusion.  Elasticity is a very

          7   precise concept in economics.  I don't think, although

          8   I heard a rumor that somebody earlier had said that

          9   there's, the elasticity of supply of scrap does not

         10   exist, that there is no elasticity.  I think that

         11   that's a misstatement.  I don't think that witness

         12   would have said there's not a positive and direct

         13   relationship between the price of something and the

         14   amount supplied of something.  The question is, how

         15   responsive is that relationship to a change in price

         16   and we have not looked at that.  It is something that

         17   could be determined, subject to the constraints of data

         18   which I have not looked closely at but I know many,

         19   many years ago we did an elasticity calculation for the

         20   supply of iron scrap.  So, from that study I do know

         21   that demand for iron scrap is elastic and I would be --


                                                                      218

          1   elastic meaning the percentage change in the quantity

          2   supplied is greater than the percentage change in the

          3   price.  Okay?  And I would be surprised if something

          4   similar were not true of the copper scrap industry.

          5               MR. HILL:  Okay.  Thank you, sir.  Thank

          6   you for your testimony.  I would ask that you submit

          7   that report to us in the week as you have promised and

          8   I would ask that you do so in electronic format as we

          9   are subject to 508 compliance rules here in the

         10   department.  We wish to get this up on our Web Site as

         11   soon as possible.  So, we will look forward to seeing

         12   your full review, your full report so that we can study

         13   it closely.  Thank you very much.

         14               MR. DAMUTH:  I will.  You're welcome.

         15               MR. HILL:  At this time I would like to

         16   call Sheldon Tauben to the witness table.

         17               MR. TAUBEN:  Good afternoon.  My name is

         18   Sheldon Tauben and I'm the President of Metalsco,

         19   Incorporated, in St. Louis, Missouri.  And we are a

         20   metal merchant.  We're not a broker.  A broker buys

         21   from A and sells to B, for a small commission, and has


                                                                      219

          1   no financial interest in the transaction, basically.

          2   As a merchant we buy and sell for our account.  We deal

          3   in scrap metals exclusively, principally copper, brass

          4   and aluminum.  And, Metalsco has been in existence

          5   since 1976.  I have been in the industry since 1951.  I

          6   have participated in a lot of ISRI events and

          7   activities in the past.  In 1987 I was a national vice

          8   president under a predecessor organization which was

          9   merged with the Institute of Scrap Iron Steel to

         10   produce ISRI in 1987.

         11               All scrap is not created equal.  And I

         12   would just like to open my remarks, which I don't have

         13   a printed, extensive report for you.  I might skip

         14   around on some of these things to touch on some things

         15   that I think are important because I have the advantage

         16   of being the last speaker.  So, I recognize all the

         17   mistakes that have been made so far today -- no, I'm

         18   only kidding -- some inaccuracies.  And one of the most

         19   important ones, Robin touched on it briefly and I just

         20   want to expand on it for a moment because it gets to

         21   the very guts, the heart of what we're trying to do


                                                                      220

          1   here, and that is the subject of number two copper

          2   scrap.  I believe that value-wise the bulk of the

          3   exports to China in the last couple of years has been

          4   in the form of number two copper scrap.  Now, number

          5   two copper scrap is very specifically described in the

          6   ISRI spec sheet.  None of the brass mills, none of the

          7   people that spoke today claiming to use number two

          8   copper scrap in fact use it.  They can't use it.

          9   Number two copper scrap is 94 to 96 copper; the

         10   balance, tin, nickel, lead, iron, zinc, you name it,

         11   aluminum.  There's no brass mill that can run a product

         12   like that.

         13               Now, what they mean when they say a number

         14   two copper scrap, they mean that there are internal

         15   gradations of scrap.  Number two is less desirable than

         16   number one but their number two is not the number two

         17   copper that we are talking about.  We're talking about

         18   number two copper that has gone for generations, in

         19   fact, since the turn of the century, to a custom

         20   smelter and refiner.  I worked for one in 1954,

         21   American Melting Company, Limited, in New Jersey.  They


                                                                      221

          1   closed up about twenty years ago.  The problem we have

          2   is that in the last four or five years, every one of

          3   these customs smelters, meaning that they process other

          4   people's material, they're not going to turn it into a

          5   mining operation -- they buy other people's raw

          6   material and convert into electrolytic copper,

          7   basically, custom smelters.

          8               For the last five years I've seen three,

          9   the last three custom smelters in the United States go

         10   out of business -- Southwire, about three or four years

         11   ago, in Carrollton, Georgia.  They're still operating

         12   as a wire mill and a rod mill but they no longer take

         13   copper scrap in and convert it to electrolytic copper

         14   cathodes.  They gave up that operation up completely.

         15               So, copper, in the St. Louis area did the

         16   same thing.  They closed down their number two copper

         17   refinery, smelter and now they buy cathodes only.

         18   Prior to that, they'd use number two copper to make

         19   cathodes and use it in their tube mill.  Today they

         20   only buy cathodes in the outside market.  The last one

         21   was Cometco (phonetic) about a year ago.  They went


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          1   bankrupt.  They closed up, gone.

          2               The prospects for a copper refinery to open

          3   up as a -- operation today is kind of remote.  The

          4   spreads vary too much and there's no consistency of a

          5   supply of raw material at a fixed spread.  We may see

          6   some reopening of some smelter capacity in the

          7   southwest.  In 1999, 2000 to 2001, my company did four

          8   or five hundred thousand tons a month of domestic

          9   number two copper scrap.  That went to Mexico where --

         10   had a smelter.

         11               And that worked out very nicely until the

         12   copper prices dropped from 90 cents to about 65 cents.

         13   And they gave up the ghost because it no longer was an

         14   operating spread for them.  And just about that time,

         15   the Chinese entered the market and got bigger and

         16   bigger as a buyer over these last couple years.  So,

         17   the important thing to remember is that we are trying

         18   to prevent the control and licensing of export of

         19   copper scrap, and the main item is number two copper in

         20   my opinion.

         21               Now, it might help if we provide a brief


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          1   description of what I consider the five main grades of

          2   copper scrap.  There's the bare bright number one

          3   copper, which is, as it is described, new wire cable,

          4   new production scrap and with the brass mills that

          5   we've spoken to and have spoken to you today, describe

          6   number one copper scrap.  That's what we're talking

          7   about, number one copper.  Why?  Because it's a direct

          8   replacement for cathodes and they put it right into the

          9   furnace and it melts, it's all, 99.9.  And it's a

         10   regularly traded commodity.  It's known as BARAY,

         11   B-A-R-A-Y and ISRI Code.

         12               The next grade number one copper is what I

         13   call ordinary number one.  Ordinary number one is

         14   basically clean -- wire of varying gauge, 16 gauge,

         15   usually that's minimum, 16 gauge but it could be finer,

         16   mixed, and it also includes clean new and old tubing

         17   and pipe, free of -- connections, free of

         18   contamination.  That is ordinary number one copper.

         19               Okay.  None of the brass mills that make a

         20   sheeted strip, use that grade because the copper has

         21   phosphorous in it and they can't have 70/30 brass made


                                                                      224

          1   with phosphorous in it.  Also, the number one -- wire

          2   could have some minor amount of impurities, maybe a

          3   trace lead here or there.  That commodity that I

          4   described as ordinary number one is mainly used by the

          5   tubing manufacturers, among which is Mueller Copper

          6   Tube and Cambridge Lee and Overlea tube and a few

          7   others.

          8               In terms of export, I'll just jump to that

          9   for a minute.  There has been a lot of number one

         10   copper exported, not so much of the ordinary number

         11   one, however, a fair amount but not so much.  That

         12   material is still in relatively good supply.  The bare

         13   bright copper scrap by definition would mean the least

         14   amount available in the market and is also the most

         15   expensive.  Some of that has gone for export and it's

         16   possible that some of the brass mills may have suffered

         17   because of that, to the extent to which I really don't

         18   know but there's no shortage of the material in any

         19   event.  It's really a question of price.

         20               Now, the value of that material again is on

         21   supply and demand.  And as the COMEX has gone up the


                                                                      225

          1   spreads have widened so that bare bright copper scrap

          2   that used to go for a penny or two cents under COMEX,

          3   is now -- going up over COMEX.  The reason is because

          4   the scrap prices follows cathodes.  As cathodes have

          5   escalated from the normal two and a half to three cents

          6   to as much as seven or eights cents of spot material,

          7   that means that the brass mills using the cathodes can

          8   afford to pay a little bit more money than they

          9   normally would for the bare bright material, because

         10   it's replacing cathodes, as long as they've got a three

         11   or four cent spread.

         12               Okay.  Now, another aspect of this is the

         13   fact that this month an important labor contract may

         14   expire in Miranda, in Canada.  Miranda produces copper

         15   cathodes and supplies the bulk of the copper cathodes

         16   that go into the northeast, New England, on the East

         17   Coast.  It may be that there's some boatloads right now

         18   that are going to China that have been diverted, that

         19   come into New England in case there is a strike but

         20   that's another reason why the big spread on cathodes is

         21   developed.  In all the years I have been doing this


                                                                      226

          1   trading business, I never remember a cathode premium

          2   that went to nine or ten cents, never.  They are

          3   unusual circumstances.  Cathodes are in tight supply,

          4   you have Miranda, strike possibility coming up --

          5               MR. HILL:  Mr. Tauben, your time has

          6   expired.  If you can take 30 seconds and wrap it up,

          7   please.

          8               MR. TAUBEN:  Well, I tell you what.  Let me

          9   answer questions.  You may get more from that.  I can

         10   talk for two hours on this with no trouble at all.  Why

         11   don't you ask some questions I'll try to see what I can

         12   do to help you understand some of the problems we've

         13   got here.

         14               MR. HILL:  Appreciate that, sir.  We have

         15   set the rules so that all the witnesses are treated

         16   equitably.  My question is, it's our understanding that

         17   this business --

         18               MR. TAUBEN:  I can't hear you.

         19               MR. HILL:  I'm sorry.  Can you hear me now?

         20   Can you hear me?

         21               MR. TAUBEN:  Okay.


                                                                      227

          1               MR. HILL:  My understanding of this

          2   business is it's very similar to other types of

          3   businesses in the United States, where you have

          4   long-term customer relationships.  And I have heard

          5   reports that some scrap recyclers and processors have

          6   had long-term relationships for many, many years, 30,

          7   40 years, with their customers and that loyalty between

          8   customer and supplier are an important facet of this

          9   industry.  Are you, in your company, have you had any

         10   of your customer base move away because you have not

         11   been able to provide or supply scrap to them?

         12               MR. TAUBEN:  No.  We, as a merchant,

         13   Metalsco, we kind of sit in the middle of the thing

         14   here.  We're doing export extensively.  We're a major

         15   shipper of copper scrap to the Far East.  In Korea, a

         16   major copper refinery counts us as their major USA

         17   supplier.  We also supply almost every major domestic

         18   copper tube mill and brass mill in the United States.

         19   When the domestic copper refineries were operating, we

         20   were a major supplier to every one of them.  So we had

         21   a lot of scrap every month and I have not run in into


                                                                      228

          1   any situation where we couldn't buy enough scrap to

          2   gather up our needs to meet the orders that we have,

          3   have not a problem.  Of course there was a price I had

          4   to pay but I could buy it.

          5               MR. HILL:  Bernie?

          6               MR. KRITZER:  Have you had any instances

          7   where some of your foreign purchasers have paid higher

          8   than market prices, have outbid U.S. customers or at

          9   least a situation generally available to both the U.S.

         10   customer and the foreign purchaser when these contracts

         11   come up?

         12               MR. TAUBEN:  I don't know.

         13               MR. KRITZER:  What I'm looking at is some

         14   of the earlier speakers talked about premia that had

         15   been paid by foreign purchasers.  Have you had

         16   situations where that's occurred that pushed prices

         17   upwards yards and when you conduct your sale operations

         18   are there bidding between foreign and U.S. purchasers

         19   or do you try to have enough supply to take care of

         20   both areas?

         21               MR. TAUBEN:  It's a question of what the


                                                                      229

          1   buyer wants to pay, and basically, and that may or may

          2   not represent a premium in the daily market.  I mean,

          3   it changes every day.  But, as a merchant we sell to

          4   the world market and it may be that we are selling at

          5   premium price relative to the domestic market.  That

          6   could be.  And that's why people in the Far East, for

          7   example, can buy it because they are willing to pay a

          8   bigger price for it.

          9               The other thing is this.  It's kind of the

         10   other side of the coin, too.  There's been some mention

         11   about containers.  There are thousands of containers

         12   coming in from the Far East every month into this

         13   country and they have to go back somehow.  Well, they

         14   go back by loading them up with scrap at very low

         15   prices.  And, so, that is part of the price they're

         16   paying, that they are able to buy the stuff, pay a

         17   premium for it but taking advantage of the fact that

         18   the traffic can move at a variable rate.  As far as the

         19   internal structure of what they do, VAT, I'm still a

         20   little confused on that.  I'm not too sure but it

         21   probably is part of the picture, they will get be able


                                                                      230

          1   to get some benefit from the Chinese government

          2   tax-wise and apply that to the price of scrap to buy it

          3   in the world market away from other people.

          4               MR. KRITZER:  Based on your experience over

          5   the last fifty years, you see, I'm sure you have seen

          6   the market go in cycles.  Do you think that this

          7   particular market has reached its peak or has a little

          8   ways to go or it's on a downward slope?

          9               MR. TAUBEN:  Well, we had spoke about this

         10   yesterday.  Incidentally, copper was up four and a half

         11   cents today.  I don't know if you know that.  But, I

         12   mean, I think that we're in a continuing cyclical

         13   market that's not going to change any.  Whether we will

         14   see prices over a dollar-forty or not, which was recent

         15   high, I think we could.  I don't think the short supply

         16   overall is going to dissipate.  The cathode consumption

         17   is pretty strong.  Some of the mines that are coming

         18   back into the market, producing material, that wasn't

         19   available before but there's quite a time lag until it

         20   gets to the market.

         21               I think we'll continue to see cycles.  The


                                                                      231

          1   only thing I can think of is that from a trading

          2   appointment of view, we're liable to see over the

          3   mid-term lower highs and lower lows, which would be a

          4   downturn but that could turn around very quickly and

          5   run into the higher highs and higher lows, sort of on

          6   the way up.  So, to try to make a long-term forecast in

          7   our business is what's going to happen next week.  So,

          8   it's hard for me to give you any kind of, you know,

          9   extensive program on it.  We live with it day to day.

         10               MR. KRITZER:  I have one final question,

         11   and I asked this of one of our earlier witnesses,

         12   Mr. Kerwin.  Do you see new developments where in

         13   foreign countries or the United States companies are

         14   making investments in anticipation of the continued

         15   high prices to bring new supply on line in the next

         16   year or two?

         17               MR. TAUBEN:  I think they're already doing

         18   that.  Some are reopening old mines.  Whether somebody

         19   is going to go open a Greenfield operation, I mean,

         20   open a new mine, it depends on what they think their

         21   cost of production is.  Some of the South American


                                                                      232

          1   producers have very low cost; and they figure a 30 cent

          2   cost, they'll pay good the money to do it.  If it's

          3   going to cost them 80 cents, they might think twice

          4   about it.

          5               MR. KRITZER:  Thank you.

          6               MR. HENRY:  Thank you.  You provided with

          7   this testimony today an outline.  Do you intend to

          8   write up something that would address everything in

          9   your outline for this group?

         10               MR. TAUBEN:  I do.  I haven't done it but I

         11   could do that for you if you would like me to.

         12               MR. HENRY:  We would appreciate that.  And

         13   secondly, you brought up the point about confusion of

         14   grades, particularly number two?

         15               MR. TAUBEN:  Yes.

         16               MR. HENRY:  And you have gone on to say

         17   that what the copper and brass mills are talking about

         18   in number two is not what you consider to be number

         19   two.  And my question to you is, is, what's being

         20   exported in your mind a grade that the copper and brass

         21   mill industry does not normally use?


                                                                      233

          1               MR. TAUBEN:  Does not normally use it and

          2   cannot use it.  If I show you some picture of the

          3   material, you'll see what I'm talking about.  Maybe I

          4   will include that in my report.  Birch cliff, it's a

          5   miscellaneous copper scrap iron that doesn't quite make

          6   number one and it's a little bit better than Licon

          7   (phonetic).  It's an Indian grade.  It's not an iron

          8   that can be used making brass anywhere, in the United

          9   States, or even abroad, where the quality is a little

         10   bit lower.  It's strictly an item that goes from a

         11   copper refinery to be smelted or melted and out of

         12   furnace, processed.  That's all it is.

         13               Now, there is another aspect to it,

         14   however.  In China, if it's a reasonably good quality

         15   material, they would put a dollar a day labor into it,

         16   in some province and tear these bales apart, pick out

         17   little pieces of copper tubing, that might be a good

         18   number one, pieces of burnt wire.  Number two copper is

         19   a blend of everything.  We buy scrap from certain areas

         20   that is very desirable in the Far East and they like it

         21   because the people that are packaging it don't have the


                                                                      234

          1   time, energy to separate the number one from the number

          2   two, believe it or not and they throw it all in a bail

          3   and ship it.  So we get premium prices because the

          4   buyer knows what he's getting.  But that's very

          5   important.  Don't confuse what number two is, can't do

          6   that, separate item.  And, this is an item I can tell

          7   you we've been handling for years and years and years

          8   that I don't have to talk about.

          9               MR. HENRY:  And the price increase in the

         10   domestic prices of the number two, that the price

         11   increase that the domestic industry is paying is

         12   increasing, and in your opinion is this related to the

         13   scrap prices that are being exported?

         14               MR. TAUBEN:  It would stand to reason that

         15   the greater demand for export is going to put pressure

         16   on prices upward some degree, no question about it.

         17   But I think the critical thing is as far as the people

         18   representing the brass and tube mills, have they really

         19   run out of copper, have they really been unable to

         20   operate?  I doubt that very much because I know we're

         21   supplying them.  In some cases we've even had to hold


                                                                      235

          1   up deliveries for a couple of different reasons.  Why?

          2   Come back next week or next month or we want a number

          3   ten, gives us appointments for three.  This has

          4   happened.  So, you have to, to get a balanced view, you

          5   have to talk to all participants in the trade.

          6               MR. HENRY:  Thank you.

          7               MR. TAUBEN:  You're welcome.

          8               MR. EDELSTEIN:  Yes, thank you.  As a

          9   merchant do you actually collect scrap in a location in

         10   warehouses and bundle it for shipment or do you in fact

         11   just arrange for it to be shipped from specific scrap

         12   yards?

         13               MR. TAUBEN:  Okay.  As a merchant, we don't

         14   physically handle the scrap.  We shuffle the papers.

         15   But, we buy from people that we've known for 30, 40

         16   years.  Two of my sons work for the company.  They're

         17   buying scrap from their grandfather.  Their grandfather

         18   I brought from forty years ago, same generation as me.

         19   It's that kind of relationship.  We're buying from one

         20   generation to the next.  They know us.  One or two

         21   copper, we know what we're going to get.


                                                                      236

          1               So, we don't have to handle it.  We don't

          2   have to see it.  We just move it.  We provide

          3   transportation.  We have a domestic traffic department

          4   that picks up dozens of truckloads every week, every

          5   month all over the United States, deliver to domestic

          6   consumers.  We have an export traffic manager that

          7   arranges for a container to be picked up at the

          8   terminal.  The dealer picks it up, puts the scrap in

          9   it, brings it back to the terminal, sends us an

         10   invoice, sends the packing list, ship it overseas.

         11   That's the merchant function.

         12               MR. EDELSTEIN:  Thank you.  Then perhaps

         13   you may be in the best position of all our speakers so

         14   far to address exactly what is going into the different

         15   trade categories of scrap.  The Schedule B Harmonized

         16   Tariff System shows only four different scrap

         17   categories, one of which is scrap of refined copper;

         18   the other three categories are of copper-alloy products

         19   containing various amounts of lead, brass, brass with a

         20   lead cut off, and the third category is just other

         21   copper alloys scrap.  When you said the largest single


                                                                      237

          1   quantity of scrap that is being exported is number two

          2   scrap, does that all fall into that category, the 7404,

          3   44420 category of unrefined -- of refined copper or

          4   scrap from refined capper?

          5               MR. TAUBEN:  I think number two, the second

          6   one you mentioned.  Repeat the second one.

          7               MR. EDELSTEIN:  Okay.  There is nothing

          8   called number two.  There are four categories of scrap

          9   trade.  One is scrap of refined copper, without further

         10   detail, and then there are three alloyed copper

         11   categories, one being brass scrap with a cutoff grade

         12   for lead, the other being a brass scrap above that

         13   cutoff grade and the third category being other

         14   copper-alloy scrap, presumably bronze or low-grade

         15   scrap, I don't know.  So, material that you are

         16   brokering, the number two that you are talking about,

         17   does that fall into that?

         18               MR. TAUBEN:  It's number one.

         19               MR. EDELSTEIN:  That's number one?

         20               MR. TAUBEN:  Because the number two copper

         21   is a form of refined scrap, is made up of copper wire


                                                                      238

          1   which is, it's just in number two copper form, that's

          2   all.

          3               MR. EDELSTEIN:  Do you broker any brass or

          4   bronze scrap or low-grade scrap?

          5               MR. TAUBEN:  The really low-grade scrap,

          6   which is one of my items here, it's smelter items for

          7   smelter and refinery.  They take the low-grade

          8   materials, such as, oh, electrical scrap, iron, brass

          9   material that will run and they smelt that in a blast

         10   furnace or a tilting reverb of some kind.  And that

         11   becomes eventually smelted.  I mean, it goes into an

         12   anode furnace and becomes a cathode for that system but

         13   it starts out as very low-grade material.  No, we don't

         14   bother too much with that.  I don't like to deal with

         15   it, frankly.  There are too many differences between

         16   what the buyer thinks it is and what the seller thinks

         17   it is so we just don't handle that item; 70/30 brass,

         18   not much.

         19               Actually, one of the gentlemen before

         20   mentioned that there's a lot of scrap being exported.

         21   I can't quite see that because of the thousands and


                                                                      239

          1   thousands of tons that we shipped in the last few, we

          2   didn't ship 70/30 brass to anybody.  Maybe West Coast

          3   is somewhat of a market because it pays to ship it a

          4   lower price.  I wouldn't say 70/30 brass is a big item

          5   at all.

          6               For example, being basic raw material,

          7   there's some, a little bit of that going on with the

          8   West Coast, again the freight.  We buy our brass on the

          9   West Coast and bring it to the Midwest.  We've been

         10   doing that all through this whole period, so, I think

         11   that the brass mill that says that his raw material's

         12   going overseas is by my view I'd question it.  I don't

         13   think that's the case.  Now, another aspect of this

         14   number two copper, which is interesting though, do you

         15   mind if I mention it to you?  I don't have too much

         16   time left, sir.  Is it all right, sir?  Okay.

         17               Number two copper scrap, as I described,

         18   birch cliff, right.  Because the brass mills are

         19   running into voluntary supply problem, they can't get

         20   enough raw material, they have arranged with certain

         21   wire choppers to take the ordinary number two copper


                                                                      240

          1   from the dealers, throw it at these new French

          2   shredders that take everything and chop it up into

          3   small discrete particles.  That's the density that

          4   they're referring to.  They run it over a belt, with a

          5   high-intensity magnet, suction it off, free iron.  But

          6   what they're left with is small particles of copper

          7   scrap, little bits of aluminum, little bits of tin,

          8   little bits of lead, little bits of zinc but it can be

          9   used at the brass mill because as they said it's within

         10   their impurity spec.

         11               Well, there's a certain amount of that

         12   number two copper that isn't being consumed today.

         13   It's a relatively small amount.  I would say if it's

         14   5,000 tons a month, that's a lot, and it's frequently

         15   in the Midwest area, located in Michigan, Indiana.  Now

         16   that's what they call maybe a number two copper scrap

         17   but it's a process that has been beneficiary created,

         18   so to speak, so they can use it.  It's not the ordinary

         19   birch cliff that we ship out in trailerloads with ten

         20   bales and six boxes.  And there's no way a brass mill

         21   can use that.


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          1               MR. EDELSTEIN:  Have you seen a shift in

          2   the availability to you as a merchant of scrap rates;

          3   for example, is there less what you would call number

          4   one scrap available and more number two scrap available

          5   possibly because the processors not, no longer taking

          6   the time to upgrade the scrap where they might once

          7   have, has there been a shift in that market?

          8               MR. TAUBEN:  What you are implying is that

          9   the scrap process would take number two copper and

         10   upgrade it to number one and there's not much of that

         11   goes on.  It's all hand labor.  And it might work today

         12   where there's a big spread between the number two

         13   copper and number one.  It may pay then.  There's a 15

         14   or 20 cent spread.  A dealer might put 6, 7, 8 cents

         15   and actually break the bale apart and pull out the

         16   different parts of number one.  That could be done.  It

         17   has been done in the past.  We find that we have no

         18   trouble buying any number one copper for our needs.

         19   The problem right now is the number two copper scrap.

         20   If, every dealer in the United States, a wholesale

         21   dealer produces one, two three or four truckloads a


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          1   month of number two copper and right now they have got

          2   no place to go with it.  And if you put an embargo on,

          3   it's going to exacerbate a bad situation as it is right

          4   now.  It's kind of interesting.

          5               MR. EDELSTEIN:  Thank you.

          6               MR. HILL:  Thank you, Mr. Tauben.

          7   Actually, I have the pleasure of being the last

          8   speaker.  First I would like to remind everyone that we

          9   are requesting that comments and responses to the

         10   initial comments that were submitted by May 13th be

         11   submitted to the Department in electronic format by May

         12   27th, including any comments on the hearing and

         13   information that was received or heard today.

         14               We also would like to remind you that the

         15   period for submission of all written comments will end

         16   at 5 p.m., June 7th, 2004.  For the record, you should

         17   send your submissions to the following Web address --

         18   all one word -- coppershortsupplypetition at

         19   bis.doc.gov or you may mail them to Copper Short Supply

         20   Petition, Regulatory Policy Division, Bureau of

         21   Industry and Security, U.S. Department of Commerce,


                                                                      243

          1   Post Office Box 273, Washington, D.C. 20044.

          2               We have kept a list of the promises from

          3   the witnesses today so we will be looking for your

          4   submissions.  I would like to again thank Bob Nichol

          5   and his crew.  I guess Bob is out getting ready to

          6   escort you.  There he is.  We thank Bob for taking care

          7   of us and making sure that it all works smoothly.  I

          8   would like to thank the staff, from the Department, and

          9   from our Bureau, who has listened and have been taking

         10   copious notes on all of this.  I would like to

         11   especially thank our government panel, Dan Edelstein,

         12   from the U.S. Geological Survey, Dave Henry from the

         13   Economic and Statistics Administration, Department of

         14   Commerce, my good friend and colleague, Bernie Kritzer,

         15   from the Bureau of Industry and Security and Peter

         16   Klason, my counsel from the Office of Chief Counsel.

         17               I would like to also thank Trina Bean, who

         18   was our timekeeper today.  Nice job.  Court reporter,

         19   thank you.  And I finally and most appropriately would

         20   like to finish by thanking the witnesses.  I found the

         21   testimony to be interesting.  I found that you had


                                                                      244

          1   indeed been very well prepared for the hearing today.

          2   I think we were very pleased with the caliber of the

          3   material we heard and now we are looking forward to

          4   getting the remainder information in.  And as most of

          5   you already know we have already started rolling up our

          6   sleeves and now we will get to work to finish our

          7   report.  And with that I would like to close the

          8   hearing and thank you all for attending.

          9               (Proceedings concluded at 4:18 p.m.)

         10   

         11   

         12   

         13   

         14   

         15   

         16   

         17   

         18   

         19   

         20   

         21   


                                                                      245

          1   State of Maryland.

          2   Baltimore County, to wit:

          3               I, ROBERT A. SHOCKET, a Notary Public of

          4   the State of Maryland, County of Baltimore, do hereby

          5   certify that the within-named proceedings personally

          6   appeared before me at the time and place herein set

          7   out.

          8               I further certify that the proceedings were

          9   recorded stenographically by me and this transcript is

         10   a true record of the proceedings.

         11               I further certify that I am not of counsel

         12   to any of the parties, nor in any way interested in the

         13   outcome of this action.

         14               As witness my hand and notarial seal this

         15   1st day of June, 2004.

         16   

         17               ___________________________                   

         18                    Robert A. Shocket,

         19                       Notary Public

         20   My Commission Expires:

         21   November 1, 2006


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          1                            INDEX

          2                       Copper Hearing

          3                        May 19, 2004

          4   

          5   Witnesses:                              Page

          6   Joseph Mayer                             7

          7   James Mallory                            13

          8   David Hartquist                          36

          9   Michael Kerwin                           51

         10   Roy Allen                                91

         11   Thomas Baker                             107

         12   Jeffrey Burghardt                        119

         13   George Dykhuizen                         135

         14   James Rourke                             152

         15   Robin K. Wiener                          174

         16   Robert Damuth                            201

         17   Sheldon Tauben                           218

         18   

         19   

         20   

         21