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SPIKE IN METAL PRICES: WHAT DOES IT MEAN

FOR SMALL MANUFACTURERS?

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

WASHINGTON, DC, MARCH 10, 2004

Serial No. 108–57

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

SAM GRAVES, Missouri 

EDWARD SCHROCK, Virginia 

TODD AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

TRENT FRANKS, Arizona 

JIM GERLACH, Pennsylvania 

JEB BRADLEY, New Hampshire 

BOB BEAUPREZ, Colorado 

CHRIS CHOCOLA, Indiana 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

FRANK BALLANCE, North Carolina 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

GRACE NAPOLITANO, California 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

DENISE MAJETTE, Georgia 

JIM MARSHALL, Georgia 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

BRAD MILLER, North Carolina 

[VACANCY] 

J. MATTHEW SZYMANSKI, Chief of Staff and Chief Counsel 

PHIL ESKELAND, Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Ross, Mr. Wilbur, International Stell Group, Inc. ................................................ 5

Atwell, Mr. Wayne, Morgan Stanley ...................................................................... 7

Hickey, Mr. William, Jr., Lapham-Hickey Steel Corp. ......................................... 8

Bodner, Mr. Emanuel, Bodner Metal and Iron Corp. ........................................... 10

Stevens, Mr. Robert, Impact Forge, Inc. ................................................................ 12

Klinefelter, Mr. William J., United Steelworkers of America .............................. 14

Hemme, Ms. Barbara, Youngberg Industries, Inc. ............................................... 16

Martinson, Mr. Kyle, Revcor, Inc. .......................................................................... 17

Trilla, Mr. Les, Trilla Steel Drum Corp. ................................................................ 20

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 37

Prepared statements: 

Ross, Mr. Wilbur, International Stell Group, Inc. ......................................... 41

Atwell, Mr. Wayne, Morgan Stanley ............................................................... 58

Hickey, Mr. William, Jr., Lapham-Hickey Steel Corp. .................................. 66

Bodner, Mr. Emanuel, Bodner Metal and Iron Corp. .................................... 72

Stevens, Mr. Robert, Impact Forge, Inc. ......................................................... 104

Klinefelter, Mr. William J., United Steelworkers of America ....................... 111

Hemme, Ms. Barbara, Youngberg Industries, Inc. ........................................ 114

Martinson, Mr. Kyle, Revcor, Inc. ................................................................... 122

Trilla, Mr. Les, Trilla Steel Drum Corp. ........................................................ 126

Visclosky, Hon. Peter J., U.S. House of Representatives (IN-1) ................... 131

Kopenhaver, Ms. Janet, American Wire Producers Association ................... 135

Harbaugh, Mr. William L., Burrell Mining Products, Inc. ........................... 138

ITW CIP Stampings ......................................................................................... 142

Zawacki, Mr. Jim, GR Spring and Stamping, Inc. ......................................... 146

Bates, Mr. Christopher M., Motor and Equipment Manufacturers Association ................................................................................................................. 147

Ashley, Mr. L. Gary, Conveyors and Drives, Inc. .......................................... 151

The Associated General Contractors of America ........................................... 153

Hemme, Ms. Barbara, Youngberg Industries, Inc. ........................................ 156

Martinson, Mr. Kyle, Revcor, Inc. ................................................................... 157

Taylor, Mr. William E., VERSABAR CORPORATION ................................. 159

Tyler, Mr. S. Mark, OEM Fabricators, Inc. .................................................... 161

Pfeiffer, Mr. Rick, Fisher Hamilton, L.L.C. .................................................... 162

Honnold, Mr. Fred, The Syracuse Stamping Co. ........................................... 163

Piwonka, Mr. Richard, Lastercoil Spring ....................................................... 164

LeBouef, Mr. Gene, Jr., Corrugated Industries of Florida, Inc. ................... 165

Trilla, Mr. Lester, Trilla Steel Drum Corporation ......................................... 168

Hoelke, Mr. Robert T., United States Steel Corporation .............................. 170

(III) 

(1)

SPIKE IN METAL PRICES: WHAT DOES IT 

MEAN FOR SMALL MANUFACTURERS 

WEDNESDAY, MARCH 10, 2004

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS

Washington, D.C. 

The Committee met, pursuant to call, at 10:07 a.m. in Room 

2360, Rayburn House Office Building, Hon. Donald Manzullo, 

[chairman of the Committee] presiding. 

Present: Representatives Manzullo, Kelly, Akin, Shuster, 

Chocola, King, Velazquez, Ballance, Napolitano, Bordallo and 

Sanchez. 

Chairman MANZULLO. Good morning, and thank you for all being 

here today as we examine the recent spike in metal prices, particularly in the steel industry, also copper and other types of commodities, and the effects on small manufacturers. I would especially 

like to thank those of you who have come great distances to be 

with us today. 

A few weeks ago, I started receiving calls from several manufacturers in the congressional district that I am privileged to represent regarding an unexpected and unprecedented increase in 

steel prices. For industries still reeling from the effects of the 18 

month tariffs period in which they saw price increases of up to 50 

percent, this certainly was not welcome news. 

When the tariffs were lifted on December 4, 2003, American 

manufacturers were expecting at the very least a stabilization of 

prices, and many had anticipated reductions in the price of steel. 

What they got was the exact opposite. Instead, steel prices have 

surged since the tariffs have been rescinded. According to some industry reports, prices have almost doubled in the last four months 

alone. 

For example, according to the trade publication, American Metal 

Market, the price of hot-rolled steel, one of the most widely used 

types, has soared by more than 80 percent in the last year and by 

almost half since December of 2003. 

The prices of other metals have also risen dramatically in recent 

weeks. The price of copper soared to an eight year high of nearly 

$3,000 a metric ton during the third week in February. The price 

of nickel has more than doubled in the past year. 

These unprecedented increases are nearly impossible for manufacturers to absorb. They are caught in the middle between the 

suppliers and the customers. They need steel and other metals to 

fulfill contracts already obligated, but they are seeing surcharges 

2

added to quoted prices from their suppliers that they cannot pass 

along to the customers due to contractual constraints. 

I have also been informed by many manufacturers in the district 

that I represent that they are being told that there is no steel 

available for them, even though they have longstanding contracts 

in effect. Talk about being stuck between a rock and a hard place. 

That said, and listen to me very carefully. We are not here today 

to point fingers or place blame on any one segment of the industry. 

I am deeply concerned about the effects these price increases are 

having on small manufacturers. 

This hearing is an inquiry to assemble facts, and you will note 

that everybody in the steel industry is present—the integrated 

mills, the mini mills, the steel suppliers, the scrap dealers and the 

consumers. Everybody is at the table to try to bring to light the 

problems that are going on and possibly move towards some type 

of a resolution, if any is possible. I want you guys to discuss, but 

do not fight among yourselves, okay? 

I recognize one of the factors contributing to this situation with 

regard to the steel shortage is the massive industrialization of the 

People’s Republic of China. Due to what equates to state subsidized 

business practices, coupled with artificially deflated currencies, 

Chinese companies are able to absorb global price increases in both 

raw and finished products. 

As we have said before, as a nation the U.S. must exert more 

pressure on the Chinese Government to comply with the WTO requirements and to stop manipulating their currency. They are not 

playing fair, and it is killing our businesses here in the United 

States. It appears as if there is not one single factor that would indicate why prices and shortages are occurring to the degree they 

have, but rather a culmination of many factors. There is no quick 

fix here. 

Again, the goal of the hearing is to try to discover what caused 

the various metal prices to rise so high and so fast and also what 

impact it has had on the U.S. manufacturers, especially the small 

manufacturers. 

I want to remind all of our witnesses that we are here today not 

to point fingers or place blame on any one part of the industry. We 

are interested in the root cause of the price increases and to determine if there is any middle ground on which we can work together. 

[Chairman Manzullo’s statement may be found in the appendix.] 

I would now recognize Congresswoman Nydia Velazquez, who is 

our Ranking Minority Member, for her opening statement. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. Today, we are once 

again examining the issue of rising steel prices and its effect on 

both U.S. industry and consumers, mainly small manufacturers. 

The price of steel has skyrocketed by over 60 percent in the last 

five months. This incredible surge has been the result of several 

factors. They include the increased internal demand for steel and 

foreign trade policies that have limited access to many international steel markets. 

This trend is in complete reversal to what our Committee witnessed two years ago when we first examined this issue. At that 

time, there was a flood of cheap foreign steel inundating the United 

States. It devastated domestic steel producers and, coupled with an 

3

overvalued dollar, resulted in many of them being forced to close 

their doors. 

The solution put forth by the White House was to invoke tariffs 

that were deemed as necessary to protect the domestic steel industry. Those tariffs were viewed by many, including Members of this 

Committee, as resulting in an increased cost of steel. 

Although originally slated to last three years, after just 21 

months the tariffs were repealed due to changed economic circumstances. With the lifting of the tariffs, many expected to see 

prices fall with an influx of imported steel. However, the exact opposite occurred, and prices went through the roof. 

Similar to the situation two years ago, the cause was complex 

and cannot be attributed to any single cost. Many would like to 

simplify today’s problem and blame China. However, the situation 

is the convergence of many factors, including growing demand, increased supplier costs, limited international suppliers and rising 

energy costs. 

Much like the crisis two years ago, this is not a cut-and-dry problem in terms of the impact on small businesses and very much depends on where you sit. Certainly these spikes in prices are affecting portions of the manufacturing sector, but also mills and exporters. Many that are small businesses have not been able to operate 

in the current environment. 

Recently, the idea of implementing export control on scrap steel 

was suggested as a way to soften the domestic supply shortage. 

This seems surprising considering the Bush Administration tried to 

restrict what was coming into our country with tariffs, and now he 

wants to restrict what is being exported the same way. He sends 

very mixed messages about our nation’s trade policies. 

One of the main arguments against export control is that they 

are too costly for the economy. These controls hinder the free market from working and prevent the flow of goods from reaching the 

highest bidder. 

I find it ironic that when the steel industry has been in such dire 

need for decades, we will reintroduce policies such as export controls which ultimately failed us during the 1970s. As with any complicated problem, there is no simple solution. 

I look forward to hearing from the witnesses to find a fix that 

reduces costs to steel consumers and protects producers. Finding a 

solution to this problem is just as pressing as finding ways to give 

entrepreneurs access to health care, capital and reduced energy 

costs, all of which are pulling resources away from our most important economic driver, small businesses. 

Thank you, Mr. Chairman. 

[Ranking Member Velazquez’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you very much. 

The rules are we keep the testimony at five minutes. I know 

most of you could talk for the entire hour, but we have to do that. 

We do that so we can leave plenty of room for questions and interaction at the end. 

We have been advised there may be a series of three votes coming at 10:15, so we are being subjected to the tyranny of the voting 

bells. I do not know how long that distraction will occur. 

4

Do you want to have a short opening statement? Go ahead. I 

really would like to get going, Sue. 

Mrs. KELLY. I would like to just simply say something, and that 

is, as the Ranking Member pointed out, our problem here is a very 

complicated one, but when you consider the fact that our problem 

is the fact that we here in the United States in our steel mills are 

so much more productive with such better quality that the low dollar has affected this market because other people want our steel. 

It is not just steel. It is that low dollar also affecting the fact that 

the scrap can go offshore and get more money. You cannot blame 

the scrap dealers, but we also need to find a way to keep the high 

quality steel that we are able to produce here in the United States, 

which is a tremendous amount, here in the United States for our 

manufacturers. It is a long-range jobs problem, and I hope that 

some of you on this panel will address the jobs problem. 

Thank you for allowing me to say something. 

Chairman MANZULLO. Sue, thank you for raising your hand because what I want to do is start the testimony when we come back 

from the votes. 

We have a couple minutes now if anybody else wants to give just 

a very brief statement. 

Ms. SANCHEZ. Mr. Chairman? 

Chairman MANZULLO. Yes? Go ahead. 

Ms. SANCHEZ. Thank you. 

Chairman MANZULLO. Very brief. 

Ms. SANCHEZ. Yes, very brief. I want to commend Chairman 

Manzullo and Ranking Member Velazquez for calling this important hearing today. It is the second time that the Committee has 

had a hearing on this particular topic, and it is noteworthy that it 

does impact many small businesses in the United States. 

With that, I am just going to ask unanimous consent to place any 

opening statements in the record to allow my other colleagues a 

chance to also give opening statements as well. 

Chairman MANZULLO. Does any other Member of the panel want 

to give a statement? 

Grace Napolitano, who lost 21,000 jobs in one day what, four 

years ago, Grace? 

Mrs. NAPOLITANO. Yes, sir. You are correct. 

Chairman MANZULLO. Go ahead. 

Mrs. NAPOLITANO. We formulated a task force on manufacturing 

in my area because of the issue of the spiking in steel prices back 

when. 

I am glad, and thank you, Mr. Manzullo. Chairman Manzullo has 

been at the forefront in helping us bring this issue to the forefront. 

We need to work together. We need to be able to instead of finding 

the almighty dollar benefit, we are losing the jobs that will in turn 

negate any kind of benefit to this country. 

Thank you very much for being here, and thank you, Mr. Manzullo. We look forward to the testimony. 

Chairman MANZULLO. Does anybody else wish to be recognized? 

[No response.] 

Chairman MANZULLO. Okay. We are going to adjourn. We will 

come back as soon as we are done voting. 

[Recess.] 

5

Chairman MANZULLO. The Committee will come back to order. 

We are going to go a little bit out of order. We will take Mr. Ross 

first, then Mr. Hickey and then Mr. Atwell based upon the fact 

that they have to make 1:00 flights. The next votes will not be for 

two or three hours. 

Our first witness is Mr. Wilbur Ross. Mr. Ross, if you could pull 

that mike real close to your mouth there? 

Mr. Ross organized International Steel Group, ISG, in April of 

2002 as its board chairman. ISG acquired the steelmaking assets 

of LTV and Acme Steel Corporation and in April 2003 raised a $1 

billion borrowing and acquired bankrupt Bethlehem Steel to become the nation’s second largest integrated steel producer. 

We have all the principals here in the steel industry. Mr. Ross, 

we look forward to your testimony. When you see that yellow light 

come on, that means that you have one minute to go. 

Mr. ROSS. Thank you, Mr. Chairman. 

Chairman MANZULLO. Okay. We look forward to your testimony. 

The complete written testimonies of all the witnesses and the 

Members of Congress will be made part of our record. Thank you. 

STATEMENT OF WILBUR ROSS, INTERNATIONAL STEEL 

GROUP, INC. 

Mr. ROSS. Mr. Chairman and Members of the House of Representatives Committee on Small Business, thank you for inviting 

me to testify today. 

International Steel Group has been surprised by the rapidity of 

costs and steel price increases both here and abroad. We did not 

initiate any of those increases. We have lagged in implementing 

them, and in general we price our products below our major competitors. We can do so because we are the lowest cost integrated 

producer. 

Also, we are very concerned that if prices were to remain at current levels for long, other materials would be substituted for steel, 

so we actually prefer lower price levels. Frankly, we are confident 

that steel prices will soon decline. 

You can see from Exhibits 1, 2, 3 and 4 in my prepared testimony that spot prices for hot-rolled band, the industry’s generic 

sheet product, in China, Europe and the former Soviet Union have 

paralleled the U.S. pattern. It costs an additional $70 per metric 

ton to ship steel from abroad to the midwest, so imports are not 

the solution to the problem. 

There are several reasons why steel prices have been so volatile, 

and those are summarized in Exhibits 4 and 5. The price spike in 

the second quarter of 2002 was primarily due to the bankruptcy 

shutdown of the LTV and Acme facilities, 10 percent of the industry. When our company acquired and reactivated those plants, 

prices fell, even though the tariffs remained, and that proved that 

the tariffs were only a minor factor. 

Also, at the $209 price for hot-rolled band at the trough early in 

2002, prices were unsustainably low. No steelmaker in the U.S., 

Europe or China could deliver quality product profitably at that 

price. Exhibit 4 shows that those prices were actually far below the 

levels in the early 1990s, even though costs have obviously risen 

since then. 

6

In fact, even with the recent steel price increases, 15 steel companies remain in bankruptcy today. Almost everyone in the industry has been unprofitable every quarter since 2002. The reason is 

that input costs have risen at an extraordinary rate, and 50 percent of integrated mill revenues are on long-term contracts which 

do not automatically adjust to reflect increased cost. 

In contrast, small steel buyers, as well as some major ones, tend 

to purchase in the volatile spot market. They have made the speculative decision not to lock in steel costs when they quote prices of 

their product for future delivery. This strategy works well in some 

years and poorly in others, such as the present. 

Congress might consider a program for insurance for small businesses against fluctuating prices of steel and other commodities 

which, like steel, have no futures market. 

In any event, major raw materials needed by an integrated mill 

to make a ton of steel are 1.6 tons of iron ore, 0.4 tons of coke, 0.2 

tons of scrap and 2.5 MBTU of natural gas. 

Exhibits 6 through 9 of my prepared testimony show that in the 

past two years, these commodities have added $178 to the cost of 

a ton of steel. Increased wages and other miscellaneous items add 

another $6 a ton, and higher raw material costs tie up more capital 

in inventory and receivables, adding another $4 per ton of cost. 

Assuming that half of one’s business is conducted under fixed 

price contracts, the spot half of the business must go up faster in 

order to avoid insolvency for the company. 

In addition, the industry needs about $40 per ton of EBITDA, 

earnings before interest, taxes, depreciation and amortization, just 

to cover debt service and make capital expenditures. At the trough, 

the industry was losing about $8 a ton of EBITDA, so it needed $48 

a ton of price increases just to be able to sustain operations. That 

level would not make up for the cumulative industry losses of $132 

per ton from 2001 through 2003. 

Cyclical industries must earn back in strong markets the money 

lost in weak markets. 

Chairman MANZULLO. How are you doing on time there, Mr. 

Ross? Your five minutes just ran out. 

Mr. ROSS. I will finish up quickly. 

Chairman MANZULLO. Can you summarize there? 

Mr. ROSS. Yes, sir. 

Chairman MANZULLO. Thank you. 

Mr. ROSS. Scrap, we believe, is in fact in big supply worldwide, 

but had not been reclaimed because prices were low. Consumption 

is 340 million tons. There are eight billion tons out there. We think 

that marketplace will start to change. 

We also think that with U.S. Steel solving the fire problem at the 

Pinnacle Coke & Coal Mine and China solving a similar one, coke 

may be in a little bit less short supply. 

We oppose the idea of putting export controls on scrap. We think 

it would be preferable to force other countries not to limit their exports of raw materials as they are doing. Putting export controls 

on scrap would exacerbate our balance of payment problems, which 

were reported this morning to be a $43.1 billion deficit for the most 

recent month, and would also just provoke China to do retaliatory 

things. 

7

[Mr. Ross’ statement may be found in the appendix.] 

Chairman MANZULLO. Okay. Let us cut you off there so we will have some time for questions. 

Let us go to Mr. Atwell, who is a market analyst on steel with 

Morgan Stanley. We look forward to your testimony. 

If you want to pull that mike up close to you, we would appreciate that. Thank you. 

STATEMENT OF WAYNE ATWELL, MORGAN STANLEY 

Mr. ATWELL. Thank you. Good morning, Mr. Chairman, Members 

of the Committee. Thank you for inviting me. I am honored to 

speak here this morning. 

My name is Wayne Atwell. I am an equity analyst with Morgan 

Stanley and follow the steel and nonferrous industry. I grew up in 

Pittsburgh. My father worked for the steel industry. I have followed the industry for 35 years and have toured 300 mills on four 

continents, so I have seen a lot of equipment. 

The sharp runup in the domestic steel price has its origin in a 

complicated set of domestic and foreign factors. We believe there 

are three primary drivers forcing the price of steel up. First, the 

weak dollar; second, dramatic growth in the Chinese economy; and, 

third, under investment in infrastructure. 

We did not expect a rollback of the 201 to have much of an impact on the industry as the strong dollar and high price for global 

raw materials was causing a shortage. The weak dollar has driven 

up the price of steel globally. What has happened is the euro is up 

33 percent against the dollar in the last two years. The Canadian 

dollar is up 20 percent. These two areas account for 40 to 50 percent of our imports. 

As a result, imports of steel last year were down 30 percent and 

exports were up 40 percent, so this is the best trade balance we 

have seen in 10 years. We have actually seen, ironically, an improvement in the steel industry despite the fact that domestic steel 

consumption was down last year, so what we have seen is almost 

the entire shortage is trade balance oriented, i.e., the weak dollar. 

The rapid growth in steel consumption in China has put material 

pressure on raw materials. China imports all of its iron ore growth. 

They do not have self-sufficiency in iron ore, and all of their steel 

industry growth has to be funded with or provided from offshore. 

They also are a major supplier of coke. What has happened in 

the last several years is coke, which they used to sell on the world 

market for $55, is now up to $200 to $300. They have historically 

been a large exporter of metallurgical coal. They actually imported 

metallurgical coal last month, and metallurgical coal has gone from 

$40 up to between $125 and $200. 

China’s intense demand for raw materials has put pressure on 

the dry bulk fleet. We have seen fleet prices, bulk prices, up five 

to sevenfold in the last 18 months, which again has forced up raw 

material costs. Basically this has forced costs up for the integrated 

steel companies such as ISG and U.S. Steel. This has forced the industry to turn to scrap based suppliers such as mini mills. This has 

increased the bill and demand for scrap. 

Scrap has gone from $110 in 2002 to $140 in the third quarter 

and is currently roughly $300. This has forced the industry to put 

8

on surcharges. There is a $100 surcharge now, and we think that 

could be $150 before long. 

This in fact has backed up in steel pricing. Having followed the 

industry a long time, I can say I have never seen an environment 

like this. Hot-rolled spot was $255 January of last year. It is currently running $550 to $600. We think that is probably going to be 

the peak. We think what happens is that as scrap prices start coming down it puts some pressure on steel pricing. 

Steel prices are very high here, probably among the highest in 

the world, but this is not unique to the United States. In my testimony, I have a chart going back 25 years, which shows steel prices. 

You will see from this pattern that this is the sharpest, fastest increase that we have seen in almost two generations. 

What I see happening is the seasonable factors for scrap, which 

typically peaks in the first quarter. Nine out of 10 years scrap has 

peaked in the first quarter because of the poor weather conditions 

and difficulty to accumulate scrap. We think scrap probably peaks 

within one to two months. 

If that in fact is correct, that will force the mini mills to roll back 

some of their surcharge. If that happens, you will see prices start 

coming down. We think if we have this Committee convene in six 

months, people will be talking about the sharp decline in steel 

prices. 

I would suggest that the free market be permitted to act. We 

think that steel prices are quite close to peaking and, if the market 

is permitted to act freely, should in fact force down prices. 

I would encourage a number of our friends here who are steel 

buyers to be very careful in inventory accumulation because if in 

fact I am right and we see prices down $50 to $100, they could end 

up with very large inventory losses. 

This is a very difficult period, tough on everybody, but I do not 

know that there is a government solution to this. I think the free 

market is probably the best mechanism to solve our problem. 

Those are pretty much the extent of my comments. 

Chairman MANZULLO. I appreciate that. 

We are going to skip then to Bill Hickey, Jr. He is the president 

of Lapham-Hickey Steel Corporation, which is a steel service center 

in Chicago. 

Mr. Hickey, we look forward to your testimony. Pull that mike 

real close to your mouth there. 

STATEMENT OF WILLIAM HICKEY, JR., LAPHAM-HICKEY 

STEEL CORPORATION 

Mr. HICKEY. Mr. Chairman, I want to thank you and the other 

Members of the Committee for this invitation. 

Chairman MANZULLO. You have to speak up louder than that. 

Mr. HICKEY. Mr. Chairman? 

Chairman MANZULLO. There you are. 

Mr. HICKEY. Thank you. I want to thank you and the other Members of the Committee for the invitation to address the issue of the 

spike in metal prices and what it will do to small manufacturers 

across the country. 

9

I am Bill Hickey. I am here representing the Metals Service Center Institute and the company that I am president of, LaphamHickey Steel Corporation. 

The MSCI is a trade association of steel and aluminum service 

centers. This group of 350 companies is the steel industry to most 

of the 300,000 steel consumers in the country. We, as an industry, 

are the companies that inventory, store, process and deliver metal 

to the industrial base in this country from Maine to southern California and all points in between. 

The company that I am president of was founded in 1926 in Chicago, Illinois, and currently has six locations where we store, process and deliver steel to a wide variety of industrial metal consumers. 

Mr. Chairman, as I make my comments on this topic today, I 

would suggest we change one word in the question posed to us in 

this topic. Instead of asking what the metal price spike will mean 

for small manufacturers, I would suggest that this historic spike in 

steel prices will affect all manufacturers in this country. 

Today, we are experiencing the swiftest, largest increase in steel 

prices that I have seen in my almost 30 years in this industry. The 

factors of this increase are many—scrap pricing, transportation 

costs, coke shortages, just to name a few. The other part of this 

equation is what is causing this corresponding product demand? 

The answer to that question is China. 

I keep wondering when someone in Washington, D.C. will connect the dots on our current economic problems in manufacturing. 

Since the mid 1990s when the People’s Republic of China devalued 

their currency by almost 80 percent and then pegged that currency 

to the U.S. dollar, we have seen the most massive shift in manufacturing in the history of the world from one country, the United 

States, to another country, the People’s Republic of China. 

Look at the evidence and tell me if you do not also see this issue. 

Since the People’s Republic of China devalued their currency, the 

balance of trade with the United States has gone from about balanced to a deficit of $104 billion in 2002 and a staggering $125 billion deficit in 2003. This massive deficit is part of the almost $500 

billion trade gap that we have as a nation. A chart reflecting this 

is attached as my Exhibit 1. 

China is not the only trading partner that is manipulating their 

currency for competitive advantage. Japan, South Korea and Taiwan also use currency market intervention to maintain a predetermined value of their currency against the dollar to ensure their 

manufacturers, big and small, will be able to produce and sell 

goods in the United States. This effort is ongoing as we speak and 

enhanced by the dollar holdings of their countries, which is shown 

in Exhibit 2. 

The other factor feeding demand in Asia which has the effect of 

driving up prices in already overheated metal markets, is a banking system that lends money to companies that will never repay 

the funds, but will not be closed for domestic political reasons, i.e., 

they do not want unemployment. 

It seems that as we reaffirmed last week with the February employment report, it is okay to have 43 consecutive months of manufacturing employment decline in the United States and the reducVerDate 0ct 09 2002 15:57 Aug 20, 2004 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\HEARINGS\93202.TXT MIKEA
10

tion of almost three million manufacturing jobs since July of 2000, 

but it is not acceptable to question how the existing trade policy 

of this country is either free or fair. 

My final point is about the near term effect of what has and is 

happening to raw material prices as a percentage of cost in finished 

goods prices. This explosion in steel and other metals prices should 

raise product prices of the goods produced out of these metals. I 

know that this steel cost increase will raise the cost to my customers of the products they make for their customers. 

This required cost increase in products to cover higher component cost I believe will not occur with most products coming to this 

country from Asia. The reason that these costs will not increase is 

these countries will continue to subsidize their exports to the 

United States. The results will be an acceleration of large and 

small manufacturing plants closing in the United States and relocating to low cost countries. 

In summary, let us connect the dots. Half of our trade deficit is 

with four countries that either pegged their currency or intervene 

in currency markets to ensure the exchange rates allow their manufacturing companies to ship products to the United States. This 

flood of manufactured goods displaces American produced goods, 

and our manufacturing companies close and three million manufacturing jobs disappear in 43 months. 

I know the members of the Metals Service Center Institute are 

asking for enforcement of our existing trade laws to level the playing field for our manufacturers. When will the United States Government act? 

Thank you. 

[Mr. Hickey’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you, Mr. Hickey. 

Our next witness is Emanuel Bodner, president of Bodner Metal 

& Iron Corporation of Houston. 

With regard to Mr. Hickey, Mr. Ross and Mr Atwell, I will leave 

it up to you whenever you have to leave to catch your airplanes. 

If you suddenly get up and disappear we will understand that, but 

hopefully we will have an opportunity to ask an array of questions. 

Manny, we look forward to your testimony. Do you want to pull 

the mike close to you? 

STATEMENT OF EMANUEL BODNER, BODNER METAL & IRON 

CORPORATION 

Mr. BODNER. Thank you. I appreciate the kind introduction, Mr. 

Chairman. 

Chairman MANZULLO. A little bit closer. 

Mr. BODNER. I do not see a switch on the microphone. I appreciate the kind introduction. I am Emanuel Bodner, and I am president of Bodner Metal & Iron Corporation in Houston. We are a 

family owned business with 25 employees, and we have been in 

business since 1948. We supply both the domestic and export markets. 

I am here this morning on behalf of ISRI, I-S-R-I, the Institute 

of Scrap Recycling Industries, the trade association of the recycling 

industry. I would like to generally explain what our industry does. 

11

We receive scrap from both industrial and commercial and the general public. 

Material includes prompt industrial scrap, in addition to obsolete 

scrap, including the washers and dryers, the automotives, the automobiles and the agricultural types of sources. We process that variety of scrap that comes into our facilities into a specific grade. 

There are many grades, and these are specific grades that we supply into our consumers, our customers, which are the mills and the 

foundries. 

I would like to make five points here this morning. The first 

point is that, number one, there is ample supply of scrap, and there 

is no shortage of scrap. Every mill, at least to my knowledge, is 

able to obtain sufficient tonnage in order to maintain their production requirements. In fact, we see some mills in some areas adding 

capacity, in my mind which would lead one to believe there is sufficient raw material. 

The second point I would like to say is that exports and prices 

of scrap are not unusually high. In fact, today’s export levels have 

been duplicated only seven times when looked over the last 33 

years. Pricing expressed in 1998 dollars are not at historic highs. 

I want to say to you all on the subject of pricing I want us to 

bear in mind that mills, our customers, set the price. I respectfully 

submit that scrap is a good value at whatever the price because do 

not forget it is highly competitive. There are alternatives to scrap. 

Chairman MANZULLO. Manny, take a sip of water. I will not take 

it out of your time. 

Mr. BODNER. Can I take a long sip? 

Chairman MANZULLO. Go ahead. Take a little bit of rest here on 

your throat. 

Mr. BODNER. Thank you. 

Chairman MANZULLO. You bet. Go ahead. 

Mr. BODNER. I would like to submit that scrap is a good value 

at whatever the price because, quite frankly, if it is not a good 

value because of the highly competitive nature of our commodity it 

will seek a value at which it is a good price, and that is the price 

it is traded. 

I would also like to submit that when we hear of scrap surcharges as it is reported in the press that the scrap surcharge includes the cost of scrap, but it also includes the cost of transportation because of energy, as some mills are reporting, the additional margin that is over cost in order to improve investor return. 

The third item I would like to say is that history is on our side. 

We heard it this morning. History will show that the pressure on 

prices will soon come to an end. 

Another sip of water, please. 

The fourth item. Extra controls on scrap have historically resulted, as in 1973 and 1974, in even their higher prices because 

when you artificially remove a commodity from the marketplace, 

the demand remains even or even increases. 

It is simple supply and demand. There is nothing complicated. 

Price is going to go up. In other words, if you add controls on scrap 

to try to keep the price in check and level, it is not going to work. 

History has proven that time and time again. 

12

Item 5. Free trade will regulate this market as it is doing so al- ready. The fact is in the month of March that we have seen the 

steam, the fuel in the drive for scrap to begin its reseeding, the 

price in the different areas of the country. Do not forget. In some 

areas in the north and the south they are different. It is not a constant price. It varies according to the region. While scrap is a globally traded commodity, pricing is local and regional. 

In the month of March we have seen a reduction in pricing. Some 

areas it has gone up. Some areas it has stayed the same. Some 

areas I understand it has even gone down. The correction is taking 

place. 

I very much appreciate this opportunity to participate in this discussion. 

[Mr. Bodner’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. When we get into the questions and answers, I think Mr. Ross takes exception with you, but 

that will be after everyone testifies. 

I know you are itching to do that. We will give you an opportunity to do that. 

Our next witness is Mr. Robert Stevens, CEO of Impact Forge, 

Inc., out of Columbus, Indiana, with Steel Consumers. Mr. Stevens, 

we look forward to your testimony. 

STATEMENT OF ROBERT STEVENS, IMPACT FORGE, INC. 

Mr. STEVENS. Thank you, Mr. Chairman. Can you hear okay? 

Okay. 

I would like to thank you and the Members of the Committee for 

having me speak today. I am Bob Stevens, chairman and CEO of 

the Impact Forge Group. I started this business with my co-founders in the basement of my home 18 years ago, and with the help 

of an SBA loan, and I thank you for that belatedly, we grew the 

business by taking over three companies in financial difficulty, and 

with four companies we grew to 950 employees. 

Because of what has happened in the economy and internationally, we are down to 530. Today, my business is at risk, as is the 

business of many small and medium sized companies, because of 

the sharp increase in the price of steel and steel scrap. 

I would like to address for the Committee, number one, the problem; number two, the causes; and, number three, the solution I 

have. 

As far as the problem, starting January 1 of this year, our little 

company has been paying over $10,000 a day in steel scrap surcharges, and it is estimated that effective on April 1 that is going 

to double to about $20,000 a day. That is absurd, ladies and gentlemen. 

As far as the causes, I have attached as the last page of my written testimony a one-page chart that shows what has happened. The 

export of steel scrap in the United States since 2000 has risen from 

6.3 million tons to almost 12 million tons last year. At the same 

time, the price has driven from under $100 to over $300 a ton, and 

we do not see any relief in sight on the high quality scrap that is 

being used. 

As far as why these prices are going up, we must take a look at 

those exports. We also take a look at the restrictions that other 

13

governments are putting on their exported steel scrap. We have 

Russia that has had taxes on steel scrap for quite some time, and 

we have the Ukraine that started out with a tax, and now they 

have restricted all scrap exports. 

This week, Korea, the same Korea that bought 2.5 million tons 

of scrap from the United States last year, has put a restriction on 

their export of scrap, rebar, and I have also read steel bars, and 

they are also encouraging their steel mills not to export steel products to other countries. 

Of course, we have China that has all sorts of restrictions, things 

they are doing with their currency, and also they are restricting 

their coke. There is no free trade here. There is no level playing 

field. These are actions by foreign governments to protect their domestic industries, and they hurt American companies like ours. 

A secondary cause of this is also very troubling, and that is the 

transfer of U.S. manufacturing jobs overseas. When an auto parts 

manufacturer moves abroad, that means that the prompt steel 

scrap that is generated from that factory moves, so our economy 

that lost 2.8 million jobs in the last three years, now we are losing 

the future scrap to provide the raw material that the steel mills I 

buy 120,000 tons of steel a year from. We are losing the future. 

Our economy has been hollowed out by dumped and subsidized 

imports and the transfer of companies overseas. We are now seeing 

the result in the permanent loss of jobs. In our case, one customer 

moved their entire factory from Indiana down to Mexico, and overnight we lost $12 million of business and over 100 jobs. 

The sharp price increase in scrap and the tight supply are harming all manufacturers, buyers of steel and steel products, including 

construction, all these buildings that you see around, automotive 

and appliance forgings and many more, including foundries. These 

are not steel mills, but foundries that buy the raw scrap and make 

it into castings. They are being devastated by this also. 

We cannot afford to absorb the $10,000 to $20,000 per day in 

scrap surcharges. Therefore, we are in negotiations with our customers to either pay the scrap surcharges, or we will be forced to 

stop shipments, which are the same terms that have been mandated to us by the steel mills. 

As far as a solution, I have been pushing and have helped form 

the Emergency Steel Scrap Coalition to address this crisis. Our coalition consists of a diverse group of steel scrap consumers and 

steel users, including construction companies, parts makers, forgers, foundries and others. 

My message to Congress and the Administration today is that we 

need help, and we need it now. I hope that other companies will 

join us by signing up with scrapemergency.com, which is our 

website. 

We already have existing and tested U.S. law that provides a potential remedy, the temporary imposition of steel scrap export restrictions, and the Commerce Department may impose such restrictions if all the problems that we have addressed today are reviewed. We believe that this is the fastest route. It can happen in 

less than four months. 

14

Although there are many issues that are affecting the price of 

steel scrap, this is one that we can address quickly, and we ask for 

your support. Thank you. 

[Mr. Stevens’ statement may be found in the appendix.] 

Chairman MANZULLO. Thank you for your testimony. 

Our next witness is Bill Klinefelter. He is the assistant to the 

president, the legislative and political director, of the United Steelworkers of America. 

Mr. Klinefelter, we look forward to your testimony. 

STATEMENT OF WILLIAM J. KLINEFELTER, UNITED 

STEELWORKERS OF AMERICA 

Mr. KLINEFELTER. Good morning, Mr. Chairman, Members of the 

Committee. We really appreciate this opportunity to testify today. 

We as a union are deeply concerned about the health of small 

manufacturing in the United States. We are not just basic steel. 

We have 600,000 members in the United States and Canada, and 

many of them work in small manufacturing, so we are concerned 

about their well being as well. 

Look, the manufacturing sector in this country has taken a hit. 

We have lost three million manufacturing jobs. It depends on 

whose figures you use. We support all kinds of tax incentives for 

business. We support trying to do something about the health care 

system in the United States to make our industry competitive. 

Look, we are here today to say look, when the Congress comes 

up with legitimate things to deal with the crisis in manufacturing 

in this country, the United Steelworkers of America will be standing there right with you to try to get those things done because 

those jobs are ours. 

We think that this price increase is temporary, and it is due to 

a number of factors, including the rising import cost, the reduced 

inventories, reduced steelmaking capacity and the decline of the 

U.S. dollar. 

This affects both integrated and the mini mills. For integrated 

steelmakers, iron ore prices have jumped by almost 20 percent in 

2004. Coke has been in short supply, and natural gas costs have 

climbed as much as 70 percent in 2002. 

Scrap prices, as you have heard and will again today many 

times, are volatile. They go up and down. I mean, this is the way 

the market works. When you are dealing with the spot market, 

that is the kind of thing you are going to deal with. 

In addition, the decline in the U.S. dollar and the recovering 

global economy has made steel imports more expensive. For example, the domestic price of hot-rolled steel has increased by 13 percent since January 2000, while the average import price has 

climbed by 19 percent over the same period. 

Look, the steel price environment has been affected by the loss 

of 12 to 15 million tons of American capacity. You know, I do not 

take any pleasure and the union does not take any pleasure coming 

here and telling you so, that this was going to happen. 

When we do not enforce the trade laws of this country, when this 

industry has been under assault for 30 years and when all of a 

sudden we have the collapse of the steel industry in the United 

States and everybody is pushing us, you know, we need consolidaVerDate 0ct 09 2002 15:57 Aug 20, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\HEARINGS\93202.TXT MIKEA
15

tion, we need to reduce our capacity, well, you take out 12 to 15 

million tons, and this is what happens in the long run to prices. 

I think that one of the interesting things I came across today 

when I was preparing this testimony—Geneva Works, 2.6 million 

tons. Now, Geneva Works was built out in Utah during World War 

II for the government so that the Japanese could not bomb it, but 

it was in production for all that time until recently. It went bankrupt and finally went down after lots of struggles, lots of sacrifices 

by the union, but Geneva Works went down. 

Geneva Works is going to serve a useful purpose. Geneva Works 

has been bought by the Chinese, by a Chinese steel company, and 

they are going to transfer that equipment and add it to their productive capacity in China. I mean, I think that at some point in 

time, you know, we really in this country have to think about what 

we are doing. 

The manufacturing sector needs the attention of policymakers to 

regain its competitiveness and stem the loss of domestic jobs. Attempts of small manufacturers by interfering to artificially lower 

steel prices, however well intentioned, would hurt the domestic 

steel industry, which has yet to return to profitability, and ultimately injure the very small manufacturers we all seek to help. 

Some have suggested that the U.S. trade laws be relaxed to increase steel imports and lower import prices. I cannot overemphasize how disastrous such an approach would be. Unfair trade has 

contributed directly to the destabilization of domestic steel prices. 

Unfair trade should not be rewarded. It is not the time to let the 

people who have been convicted get out of jail. 

This is a very volatile situation, and those trade orders have to 

stay in effect. We have to encourage the Administration now to do 

away, but to strengthen the trade laws of the United States as we 

go forward in the DOHA Round. 

This has been a bad period for the industry. They have lost $11 

billion. Forty-four steel companies have filed for bankruptcy protection since 1997. 

Chairman MANZULLO. How are you doing on time there, Bill? We 

are out of time. 

Mr. KLINEFELTER. Okay. Including nine since 2003. 

Let me just say to you one last thing. I do not know what the 

future is going to be, but I heard the future last night on TV. 

There was this thing on ABC about this small entrepreneur in 

Massachusetts who had a software company. He said I do not want 

to send my jobs overseas. What did he do? Eighty thousand dollar 

programming jobs. He put an ad in the newspaper, and he said I 

will pay you $40,000. He had 100 people sign up. 

We are de-middle classing the United States, and we are doing 

it at a far more rapid pace than I ever even thought was possible. 

I do not know if that is what we want to be. We want to be the 

low income, low wage, low priced country? We are on that course. 

Chairman MANZULLO. Thank you for your testimony. 

Our next witness is Barbara Hemme, whose son is celebrating 

his seventeenth birthday today. Where are you, Michael? Are you 

back there somewhere? Good to have you out here. 

Barbara was at a manufacturers breakfast in the district that I 

represent about three weeks ago and mentioned something about 

16

the price of steel. I said well, you can do something about it, so we 

asked her to come. She is with the Youngberg Industries. 

Barbara, we look forward to your testimony. 

STATEMENT OF BARBARA HEMME, YOUNGBERG INDUSTRIES, 

INC. 

Ms. HEMME. Thank you, Mr. Chairman and Members of the 

House Committee, for letting us be here and giving us this opportunity. We are most grateful. 

I am actually the corporate secretary and controller of Youngberg 

Industries, which is a family owned business that was started in 

1947. We are a job shop, and we specialize in vacuum furnaces and 

general fabrications. 

Just a few short years ago, we were one of the largest employers 

in Belvidere, Illinois. Our company had over 90 employees, and we 

were enjoying a reasonable profit. Five years ago, that began to 

change. We witnessed profit erosions so severe that we laid off 

much of our work force. Part of that was caused by NAFTA, part 

of it because of the recession, where we saw a decrease in our sales 

and profits. 

Generally, as steel welders and fabricators, we are generally the 

first to see any economic upturns and downturns. Recent history 

has proved no different. In the third and fourth quarter of 2003, 

our sales did begin to increase. We felt the recession was over, and 

we could get back to a comfortable profit margin. 

When steel tariffs were removed, quotes for steel price increases 

and surcharges began coming in from the steel distributor. Included in my written testimony are some graphs that directly affected Youngberg Industries. You can see in the written testimony 

on that first graph that prices were fairly flat in the months of October, November, December, and then once the increases started 

they were changing weekly as we were getting information from 

our steel service centers. 

Not only were those increases happening to us weekly, but sometimes day by day. It gets even worse at the beginning of a month. 

Steel prices? We cannot even predict what they will be. 

In addition to the price increases, our steel service centers are 

also holding us to tighter terms, so where before we could maybe 

float our cash for 45 to 60 days, maybe 15 to 30 days, and now all 

of a sudden I am even being asked to prepay for a load of steel. 

A load of steel, just so you know, can be anywhere between $20,000 

and $80,000. That is a large chunk of change for a small company 

like ours. 

In addition, our customers will pay us in about three months to 

four months, mainly because we buy steel at the beginning of our 

process. It takes 12 to 16 weeks to build a vacuum furnace, and 

then we have 60 to 90 day terms because our customers are holding us on the other end. 

We are the ones who are feeling the pinch from both sides. That 

requires us obviously to go to the bank and get higher credit lines, 

so now we are paying more interest on top of everything else. 

In addition to the price increases, we are experiencing material 

shortages. Our purchasing department often has to call all over the 

country, and we will find one plate at this service center, one plate 

17

at that service center, and we just cannot in a lot of cases even get 

the steel that we need. We cannot predict this because we are a 

job shop, and it is based on the order that we receive from our customer. 

In addition, we have been told that there is a limited supply of 

T–1 plate, as I put in my testimony. We are very grateful that this 

is going to Iraq. However, it does create a steel shortage for us, and 

our second largest customer does in fact use the T–1 steel plate. 

That would be a major food company in the United States that I 

am sure that you would recognize the name of that particular customer. 

These shortages and price increases do not only affect Youngberg 

Industries. We have been receiving phone calls from companies all 

over Rockford and Belvidere when they found out I was giving testimony. Their concern is these are even smaller companies of 20 

employees and less, which is the majority of the companies in the 

Rockford and Belvidere area. 

These companies are afraid that they will be out of business next 

week. They do not have time for a lot of congressional hearings to 

take place. They need an answer now because they will be out of 

business tomorrow. That was a concern that they all asked me to 

share with you is please understand the urgency of this. 

I did look up some statistics. There are 533 businesses in the 

Belvidere/Rockford area that have less than 20 employees, and that 

is the kind of shops we are talking about losing. 

We do have a couple of suggestions. Because there is no simple 

solution to this matter, first, take some kind of action now, whatever it is. Help us out. Over and above that, help equalize trade. 

Third, please stop looking at American jobs as being all college 

educated. Many, many, many Americans can only work with their 

hands, and these are the kind of people that hold these types of 

positions. We need your help, and we need it fast, or we will lose 

manufacturing in the United States permanently. 

Last of all, please take a look at things like health care and insurance. Next to my payroll and my steel costs, my third highest 

cost is the cost of health insurance and workmen’s compensation 

insurance caused by government regulations, so we ask please, we 

beseech you, help out the small businesses. 

We are one voice here. I am representing many, many small 

businesses in our particular area. 

[Ms. Hemme’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you, Barbara. 

Our next witness is also a constituent whose company, Revcor, 

is located in nearby Carpentersville, Illinois. Kyle Martinson. Kyle, 

we look forward to your testimony. 

STATEMENT OF KYLE MARTINSON, REVCOR, INC. 

Mr. MARTINSON. Thank you, Mr. Chairman. Distinguished Committee Members of the U.S. Committee on Small Business, I would 

like to express my appreciation and what an honor it is to be before 

you today. 

My name is Kyle Martinson. I am Director of Purchasing for 

Revcor in Carpentersville. I am a lifetime certified purchasing 

manager by the Institute of Supply Management and also a reVerDate 0ct 09 2002 15:57 Aug 20, 2004 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\HEARINGS\93202.TXT MIKEA
18

spondee to the business activity report that each of you are familiar with issued each month. 

My comments today concern our corporate headquarters and 

manufacturing in Carpentersville, Illinois, about 45 miles northwest of Chicago. In 26 years of experience in metal buying, I have 

bought both at the mill direct and the service center level. 

We currently buy at the service center level from these companies. They slit master coils into smaller coils that we are able to 

utilize in our manufacturing. They inventory and provide JIT or 

just-in-time delivery, as well as provide metallurgical support and 

advice when requested. 

As to volume, in 2003, we purchased approximately 5,700 tons of 

slit coil stock, primarily galvanized, and approximately 800 tons of 

cold drawn bar stock. These total expenditures represented approximately $5.7 million. 

Today’s metal buyer is faced with market conditions not seen 

during my career. It might be useful to recap how we got here. Recent events date back to the current Administration’s implementation of what became known as the Section 201. 

Almost overnight, steel prices for slit and delivered stock rose 15 

percent for those buyers who could even find it. The industry felt 

these tariffs were necessary to allow the domestic industry to become well financially and to even the playing field against offshore 

competition. 

Fast forward to November of 2003 when the decision was made 

to lift these tariffs. No one expected pricing to drop. Demand was 

relatively high. The Great Lakes in our area were just closing, so 

offshore tonnage would be limited, and pricing gains the industry 

had gained we thought they would be able to retain. We did not 

think it would be Attention K-Mart Shoppers at all. The weakened 

dollar meant that foreign producers could sell elsewhere. 

We began putting our buy together for 2004 in October, and at 

that time we had anticipated a significant savings going into 2004. 

We had firm price agreements with our suppliers where we allowed 

some adjustment plus or minus a certain percentage based upon 

the producer price index that we reviewed in July and in December 

of each year. 

Less than two months later, these agreements were voided force 

majeure; a combination of coke shortages, energy costs, scrap metal 

shortages and the industry felt it was necessary to implement surcharges. We were being instructed to sign these new surcharges before steel was going to be shipped. 

We have pricing agreements with our customers who are telling 

us they cannot and will not pay higher prices than previously 

agreed on. We are in the process of trying to pass through these 

surcharges now. 

With regard to scrap surcharges, it is my understanding the steel 

industry has been declared national defense critical. How can we 

allow scrap to be exported to China for big bucks when the domestic industries tell us there is a shortage that drives these surcharges? I am all for maximizing profit where possible, but gouging 

is an entirely different matter. 

Through industry downsizing, consolidation and bankruptcies, 

we have two players now controlling a major portion of domestic 

19

steel production capacity. A few players in turn domestically provide less opportunity for a competitive bidding process we steel 

buyers have known for so long. Are there not any antitrust issues 

at stake here? Two companies now control 50 percent or more of 

the domestic capacity. 

The situation has now become instead of buying offshore, completed subassemblies, component items and the associated jobs are 

being done offshore. In your own district, the Rockford Register 

Star headlined 11,800 Jobs Lost Since 1998 in a metropolitan community of approximately 300,000 people. 

American industry can compete, but before we grant favored nation trade status to China should we not insist they allow their 

currency to float internationally with other currencies instead of 

being propped up and supported by their central government? Does 

this not amount to a subsidy on the part of the Chinese Government? 

The last comment I would like to make is the perceived arrogance of the U.S. steel mills. As we sit here, contracts and supply 

agreements are being voided and handed back to customers. Major 

integrated mills feel it is necessary that since the electric mini 

mills have higher surcharges that they need higher transaction 

pricing, so even orders that they are late on will now be PIE, price 

in effect, at time of shipment will apply. 

Surcharges are one thing. Our customers may not like it, but 

they understand it. Transaction pricing is entirely different. These 

are negotiated between you and the supplier, increases here you 

are forced to absorb. 

Chairman MANZULLO. Okay. We are forced to ask you to———

. 

Mr. MARTINSON. To summarize, if I may? 

Chairman MANZULLO. Quickly? 

Mr. MARTINSON. Major concerns here are availability. Will we be 

able to get the metal we need for our production? 

Pricing. Can we afford the metal, and will we be able to pass 

along any of these force fed increases? 

Information. We have orders on steel that is due next month. We 

do not know how much we are going to pay for it. We have almost 

essentially issued a blank check. 

Lastly, there are rumors that a fuel surcharge is going to be implemented before long due to escalating fuel prices. This is just insult on job of injury. 

Thank you. 

[Mr. Martinson’s statement may be found in the appendix.] 

Chairman MANZULLO. Kyle, we thank you for your testimony. 

Our last witness is Les Trilla. Les has appeared before our Committee I think on two occasions before. Is that correct? 

Mr. TRILLA. Yes, sir. 

Chairman MANZULLO. His father or grandfather was a cartwright and started making wooden barrels 600 years ago, and you 

have continued that tradition as a shop in a suburb of Chicago. 

Les, we look forward to your testimony. 

20

STATEMENT OF LESTER TRILLA, TRILLA STEEL DRUM 

CORPORATION 

Mr. TRILLA. Thank you very much. Good morning, Mr. Chairman and Members of the Committee. Thank you for the opportunity to 

appear here before the Committee to discuss the impact of the steel 

pricing crisis on my company. My name is Lester Trilla. I am president and CEO of Trilla Steel Drum Corporation with locations in Chicago, Illinois, and Fenton, 

Missouri. Trilla is a manufacturer of steel drums used in filling 

and transportation of hazardous materials, food and many other 

products. As you earlier stated, Trilla is a family owned, family run 

business for more than three generations. I traveled to Washington today to tell you about the problems my company and my industry is facing in light of pricing and supply 

problems with steel. Over the past two months, the price of steel 

has skyrocketed beyond our belief. It is even worse in the situation 

we faced when steel tariffs were initially imposed almost exactly 

two years ago. We buy domestic steel at Trilla Steel Drum. Our supplier in- formed us within the last three weeks that they will not honor 

quoted prices, but will determine the price of an order by market 

price in effect at the time of shipment. Basically, they are rescinding all pricing agreements. When asked how they were going to determine the price at time of shipment, the company’s representative told us that he was not 

sure because they did not yet have a system in place that they 

could do daily pricing changes. This is a seller’s market like we 

have never seen. 

Our steel supplier also informed they were raising our price for the intermediate period of time. While we were paying $390 a ton 

in December and had plenty of supply, we are currently paying 

over $530 a ton today, and we have been told to expect the steel 

price—my statement says $680 a ton, but since I wrote this statement it has gone over $800 a ton in April. The most recent spot 

quotes I have received are for over $850 a ton today, almost three 

times what I was paying five months ago. 

These rapid, unexpected price increases are devastating to our 

business, which always runs on very tight margins, less than 17 

percent gross margins. Where cold-rolled steel is our primary raw 

material, steel makes up 45 to 60 percent of the cost of making a 

steel drum. When you include other components—rings, fittings—

steel makes up 60 to 70 percent of our cost. 

All these costs are much higher than my European counterparts 

and Asian counterparts who are now taking business to these other 

shores in filling the drums, making and filling the drums in other 

parts of the world. 

The fact that our steel supplier will not honor a quoted price or 

let us know how much we will end up paying for a shipment adds 

tremendous uncertainty to our business; so much uncertainty, in 

fact, that if we had a choice I would have to look elsewhere for 

steel. We have quoted a price for our customers and must honor 

those prices to our customers. 

Our customers already balked at the significant higher prices 

that were necessitated by steel tariffs. We lost 30 percent of our 

21

longstanding customers, which we had for over three generations, 

and we imposed a 20 percent price increase to respond to the steel 

tariffs. 

We are certain that we will lose more customers when we have 

to raise prices again, but Trilla simply cannot absorb these huge 

increases. We have notified our customers that we must raise our 

prices for orders placed after March 15. This is unfortunate. We 

can only hope that our customers understand the squeeze that we 

are in and will not go to alternate suppliers or alternate containers. 

Furthermore, apart from the problem of increased steel costs, we 

are faced with unavailability of steel supply. Steel, as I stated earlier, is my chief raw material. We use 11 different sizes, and without a steady and reliable supply of these products I cannot produce 

steel drums without steel. A very simple fact. 

At the price we are being quoted, there should be more steel produced, but this is not the case. Last month, our steel supplier cut 

the volume of steel that they would supply to us without consulting 

us. The volume they said they will now supply is not adequate for 

our needs, and we will have no place else to go for steel. As you 

heard earlier from other people, there is no steel on the market. 

We must maintain a two-week level of inventory for work in 

process, et cetera, but in February I ran out of most of my major 

materials, and five of the 11 sizes that I had were very short. We 

totally ran out of one size. This will force me to cut back on my 

production. 

At the same time, exports of raw material, raw material that I 

use to make steel drums, has gone up 40 percent, so we are exporting steel rather than using it here in the United States. 

Faced with the bleak supply picture I just described, we contacted two other domestic steel mills in our area, but to no avail. 

Domestic steel producers seem to be either unable or unwilling to 

sell a new customer. 

We have contacted the foreign steel mills we used to do business 

with before the imposition of steel tariffs, but they will not even return our calls. Their disappearance from the market is———. 

Chairman MANZULLO. How are you doing on time, Les? Can you 

sum up? 

Mr. TRILLA. The last sentence. The steel tariffs have forced us to 

buy domestic steel. As we knew then, they could only supply 70 

percent of what we needed. We needed to import 30 percent of steel 

for the consumption of steel here in the United States. 

The rest is in my testimony. I thank you very much. 

[Mr. Trilla’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you very much. 

Just when we thought we had figured in all the components of 

this crisis, someone throws in the frozen Great Lakes. It is amazing. 

I want to turn to you, Mr. Ross, and perhaps have an interchange there with Mr. Bodner. You took exception to a statement 

he made. Why do you not go ahead and share that with us? 

Mr. ROSS. Well, I am not sure which statement you are referring 

to. 

Chairman MANZULLO. I think it was that the price of material 

was determined when it hit the mills. 

22

Mr. ROSS. Yes. What I took exception to was his theory that people are loading great, big profit components onto it. That would not 

explain why the industry has been losing money, so he is wrong in 

that regard. 

Second, the reason that we do not have enough capacity to meet 

the demand is that so many steel companies have been forced out 

of business by the illegal foreign trade practices of before, so to now 

say that a shortage that was created in part by bad acts, illegal 

acts on the part of foreigners, and that they, therefore, should be 

rewarded now that the shortage they created has occurred I find 

amazingly illogical, so I disagree very much with that. 

I do sympathize with the problems of our consumers, and I think 

the real reason that they are feeling the pressure is that China 

subsidizes its steel consuming industries and its other industries. 

They constantly make loans that they know will not be repaid, 

loans that are just absorbing losses, and that is why the Chinese 

companies, whose steel mills are charging the same prices as we 

are, they are consuming industries and not passing it along because they are being subsidized. That is what is really wrong. 

The global problem of steel prices is what it is, but it is wrong 

that China gets away with subsidizing the people who are manufacturing and competing with Mr. Bodner and other people. That 

is illegal. Something should be done about it. 

I was appalled to learn the other day in the GAO report on our 

Customs Service in many product areas—for example, textiles—

less than one one-hundredth of one percent of what comes into this 

country is even looked at by anybody from Customs, so how we can 

say we are going to enforce our trade laws and we do not even 

know what is coming in is really very horrible. 

I really do think the problem is China and others subsidizing the 

processing industries to the direct disadvantage of our companies, 

and if Mr. Bodner and his companies get put out of business we 

will have nobody to sell steel to, so we are very sympathetic to 

them. The evil is China. The evil is not the domestic mills. 

Chairman MANZULLO. Mr. Bodner, did you want to respond to 

that? You do not have to, but I will give you the opportunity. 

Mr. BODNER. I appreciate it. I very much appreciate, first of all, 

the chance to be able to be sitting right next to him. I very much 

appreciate that. 

We can talk in absolutes. We can talk in generalities. There are 

always going to be exceptions, and we always can find that. I can 

only refer to what is reported in the press. 

There is an article in the Wall Street Journal January 23, 2004, 

where a steel industry executive is quoted as saying: ‘‘We have put 

in surcharges on raw materials. At this point in time, with the addition of those surcharges, the price we charge our customers is up 

more than the cost of our raw materials.’’ It goes on to say: ‘‘We 

will enjoy the higher margins in 2004 than in 2003 across all product lines.’’

Now, I want to be very clear that the scrap industry, with the 

scrap industry that we have, several customers, our customers are 

our suppliers of scrap, yet our customers are our consumers of 

scrap. In turn, our customers will also be the manufacturers of the 

products that our consumers are producing. 

23

Our industry throughout history, and anyone who knows me for 

any length of time, they know that we seek relationships. We seek 

the dialogues. It is not us versus them. It is us in a way that we 

can continue to work together and so on and so forth. 

Chairman MANZULLO. Let me ask you. Go ahead, Mr. Ross, 

please. 

Mr. ROSS. I would just like to ask Mr. Bodner one question. Are 

your profits up so far this year, sir? 

Chairman MANZULLO. This is interesting. Go ahead, if you would 

like. 

Mr. BODNER. Our company is a private company, but I will 

share. I will have to say they are. Are your profits up? 

Mr. ROSS. We, as we just reported, are not yet profitable. 

Mr. BODNER. I would like to keep it in perspective. Mr. Chairman, if I could say this? 

Chairman MANZULLO. Go ahead. Go ahead. 

Mr. BODNER. When I speak, you see, I do not know the history 

and how far you go back, sir. 

The history of our industry is that historically scrap prices are 

low. As I have said before, the history of our commodity is that it 

will trade at a good value because of the competition because if it 

does not trade at a good value———. 

Chairman MANZULLO. My five minutes have expired so I am 

going to live by the same rules as you do. 

Let me go to Ms. Velazquez because I want to leave plenty of 

time for the other Members of the Committee to ask questions. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Ross, at the end of your statement you mentioned that you 

have urged the President to invoke the 7.5 per annum import 

growth capping China’s WTO accession agreement. What response 

have you gotten from the Administration? 

Mr. ROSS. Well, we are in discussions with them. We have not 

received any commitment from them to impose the 7.5 percent annual growth limits. 

Ms. VELAZQUEZ. What do you think at the end the Administration is going to do? 

Mr. ROSS. I wish I did. I am a businessman, not a politician. I 

would defer to your judgment on that, ma’am. 

Ms. VELAZQUEZ. Well, we are losing jobs, and this situation is 

part of failed economic and trade policies. 

Mr. ROSS. Yes. 

Ms. VELAZQUEZ. I hope that the President got an opportunity 

now to show that there is not a disconnect between what is going 

on in your part of the world. 

Mr. ROSS. Yes. I think there is a serious disconnect because it 

is industry after industry that is getting the illegal subsidy from 

China. 

It is hard enough to compete with $11 or $15 an hour labor 

against 89 cents, but when they also are having their companies—

almost their whole textile industry loses money right now, and it 

is amazing that with 89 cent an hour labor they still lose money. 

The banks make them loans to subsidize the loss. Then they forgive the loan. That is really tough to compete against, and it is 

wrong. That is why I think we should impose the caps. 

24

Seven and a half percent a year is wonderful growth. Our country would be in heaven if we could grow seven and a half percent 

a year. 

Ms. VELAZQUEZ. Mr. Ross, in your testimony you also mentioned 

that ISG has generally continued to price its product below your 

major competitors. 

Mr. ROSS. That is correct, ma’am. 

Ms. VELAZQUEZ. Can you provide this Committee with an overview of how ISG is able to achieve lower prices? 

Mr. ROSS. Yes. The companies we have acquired thus far, namely 

Bethlehem, LTV and Acme, all had been bankrupt companies in 

part because of huge burdens for———. 

Chairman MANZULLO. Could you pull the mike a little bit closer? 

Mr. ROSS. I am sorry. In part because of huge burdens for unfunded pension liability, which they turned over to PBGC before we 

came on the scene. Second, they were burdened by vast sums for 

retiree health benefits, which they also canceled before we came on. 

Collectively, those liabilities that were shucked off in the bankruptcy are $10 billion, so we do not have to earn that $10 billion. 

We can pass it on in lower prices, plus we made a new agreement 

with the steelworkers, which now is gradually becoming hopefully 

an industry standard, that lets the companies operate much more 

efficiently, so we are now using about one person hour to make a 

ton of steel, whereas the old companies have been using about two 

and a half people hours to make a ton. 

Ms. VELAZQUEZ. Thank you, Mr. Ross. 

Mr. Klinefelter, the Section 201 tariffs that were put in place to 

protect steel producers and allow them to get back on their feet, 

to what degree has the steel industry returned to profitability? 

Mr. KLINEFELTER. Well, I think that in terms of profitability I do 

not think that we are there yet, but I think that look, I have heard 

this conflict here this morning about consolidation and concentration in the hands of just a few companies. 

Well, I mean, U.S. Steel and ISG are only one-third of the U.S. 

steel industry out of 120 million tons, but the fact of the matter 

is this is the President’s program. When the industry went to the 

President and said and the union said we want you to do something about the basic steel industry in this country, the President, 

his Secretary of Commerce and Secretary of Treasury said to us, 

yes, we will consider it if you consider consolidation. They strove 

for consolidation of the basic steel industry in the United States, 

and now they are getting it. 

We are aware of the fact that there are companies where consolidation is not complete. There are other companies, I believe, which 

will be part of it. I think it is a necessary thing for the industry. 

It was a necessary thing for the steelworkers, but let us not forget that hundreds of thousands of people have had their pensions 

reduced because of this situation and hundreds of thousands of retirees who can ill afford it. People between the ages of 55 and 65 

and people over 65 have lost their supplemental health care because of what has happened here. 

Look, you know, we are talking about prescription drugs. You 

know, look. Health care in this country is on the back of the private sector. We are talking about drugs. 

25

Ms. VELAZQUEZ. Thank you. Thank you. 

Ms. Hemme? 

Ms. HEMME. Yes? 

Ms. VELAZQUEZ. Thank you very much for your testimony. I 

heard you loud and clear. We need to act, and we need to do it 

now. 

One of the issues that you raise is the lack of health care. This 

is a major issue for a small business to be able to retain workers. 

We passed an association health plan last year. I would encourage 

your industry to reach out to the Republican leadership because 

they are in control. 

We passed this legislation. We voted this legislation out from the 

House, and all we need is the leadership from the White House to 

get this legislation acted upon on the Senate side. 

Chairman MANZULLO. Thank you. 

Congressman Chocola? 

Mr. CHOCOLA. Thank you, Mr. Chairman. I would like to thank 

you all for joining us today. 

Mr. Ross, I used to be a businessman. I am now a politician, but 

I have not been here long enough to totally have forgotten what 

business was like. 

I was in the manufacturing business. We bought about 80,000 to 

100,000 tons of galvanized steel a year. I just talked to the folks 

there at that company the other day. They are seeing 65 percent 

increases in their steel costs between January 1 and March 31. National Steel used to be headquartered in my district, so I have I 

guess some real life experience with this issue. 

Maybe, Mr. Atwell, you could help on this as well. What capacity 

is the worldwide steel industry operating at right now? 

Mr. ATWELL. Almost 100 percent. It is a billion ton industry, 900 

million to a billion tons. Maybe there are five to 10 million tons in 

Europe. 

I was marketing, and one of my clients said well, where is the 

excess capacity? We cannot find it. What you are seeing is really 

unprecedented. 

If I could just add, there is a lot of pain here, which nobody is 

happy about, but I think what you are seeing is probably the maximum amount of pain. I have a chart in my testimony that shows 

prices almost vertical. In the time I have been in the industry, it 

has never happened before. 

The process that people are dealing with now is short-term oriented. If they can figure out how to deal with this, prices would 

never go up for that long and never stay high very long, as you 

would probably remember, so I think we have to deal with this period, but essentially the industry is running flat out. 

Mr. CHOCOLA. One other thing, Mr. Ross. You said you need 

about $40 a ton of EBITDA to cover. Since you do not have to bear 

the burden of some of these legacy costs, does that $40 cover your 

future liabilities with your future pension requirements? 

Mr. ROSS. Yes. We do have a defined contribution pension plan, 

and in fact we put in a VEBT, voluntary employee benefit trust. 

Even though we had no legal responsibility to the retirees, we felt 

a moral responsibility, so as our profitability gets over $30 some 

odd dollars a ton we begin sharing incremental profit with the 

26

VEBT to try to provide through the USWA some benefit, some 

recoupment of benefits to these old folks who have been unfortunately disadvantaged. 

Mr. CHOCOLA. Is that the primary reason you stated that you 

think you are the low cost producer in the industry? 

Mr. ROSS. Those reasons plus having bought the assets out of 

bankruptcy, we have less capital involved and, therefore, less borrowing expense. Those are the basic reasons. 

Mr. CHOCOLA. Mr. Atwell, you are an equity analyst? Is that 

right? 

Mr. ATWELL. Right. 

Mr. CHOCOLA. What is your recommendation on steel industry 

stocks right now? 

Mr. ROSS. Thank God you did not ask me that, Mr. Congressman. 

Mr. ATWELL. Good question. We actually are recommending U.S. 

Steel. The reason is I am a pure capitalist I guess bottom line. 

Chairman MANZULLO. Can I throw a disclaimer in here at this 

point so the SEC does not come after the Chairman or what? 

Mr. ATWELL. Yes. I do not own any U.S. Steel, but actually I 

should say we have done business with them. We actually were 

just involved in an equity offering, so we probably have and will 

continue to try to get business from U.S. Steel. 

I would recommend U.S. Steel because they have a very strong 

position in natural resources, they are in balance in iron ore, and 

they are long in coke. Everybody else is a net buyer of iron ore and 

they are a net buyer of coke, so U.S. Steel is selling coke, and the 

rest of the industry is buying. 

U.S. Steel has a very strong position in Central Europe where 

they bought assets at 10 cents on the dollar, much like Mr. Ross 

did here in the United States. They are not buying much scrap. 

Unlike the mini mills, which have to pass on higher costs, they 

pass on higher prices, but do not have to pass on higher costs. 

The industry is a tough industry. Forty-five percent of the industry has gone bankrupt in the last five years. To add a point, this 

is not an industry that has historically gouged people. It has been 

failing. They are finally trying to earn a profit here. It is a very 

troubled industry, and they finally have a chance to make some 

profit. 

Basically it is a troubled industry. We think that is the most attractive of the names. I do not cover ISG, so I do not have an opinion on Mr. Ross’ firm. 

Mr. ROSS. Thank you. 

Mr. CHOCOLA. I am almost out of time, so just real quickly. Mr. 

Stevens, welcome from a fellow Hoosier. 

Your recommendation for a solution is to impose restrictions on 

export of scrap steel. Is that correct? 

Mr. STEVENS. Yes. 

Mr. CHOCOLA. I was not sure if I understood the steelworkers’ 

position. Do you share that opinion or not? 

Mr. KLINEFELTER. No, we do not at this time. We think that it 

is too early to do that. We think that this is a volatile thing. We 

think the price will come down. 

27

Mr. STEVENS. Everybody talks about historical numbers, but I 

am worried about today and tomorrow. I do not care what happened 20 years ago or 30 years ago, what the historical average is. 

I am talking about our workers today. I am talking about the scrap 

surcharges that we are paying now. 

The steel bar business that I am in is related, but a little bit different than the steel sheet that most of the people here at this 

table are talking about. The bars that we take and we forge into 

high strength parts for vehicles, the wheels, the hubs that hold 

your wheels on, the transmissions, the suspension parts, trucktrailer parts, high strength applications, need good quality scrap. 

Although the high price of scrap is bringing more scrap out of the 

closets, so to speak, we have to talk about the quality of the scrap. 

You cannot take 1958 Oldsmobiles with big, chrome bumpers and 

put them into the mixes and come out with the quality steel that 

you need for precision steel bars and sheets today. 

One of the things that is happening that has not been mentioned 

is the prime, prime steel scrap that, for instance, the three big auto 

manufacturers—GM, Ford and Chrysler—are producing, they are 

making deals with the steel mills directly, and they are keeping it 

out of the market, so we do not even have that prime area. 

If we do not do something about the export of steel scrap, we all 

agree that China is out of control. That is a whole separate topic, 

but unless there is something to———. 

Chairman MANZULLO. I do not think that is a separate topic because you are out of time. 

Mr. STEVENS. Okay. 

Chairman MANZULLO. Congresswoman Bordallo? 

Ms. BORDALLO. Thank you very much, Mr. Chairman and our 

Ranking Member. 

I have two questions for Mr. Atwell of Morgan Stanley. I apologize for coming in late. I did not hear your testimony, so you may 

have covered it, but I will ask it again. 

Do you see the recent sharp increase in steel prices as a shortterm bubble or problem? If so, would current world market conditions favor steel manufacturers in the United States in the effort 

to meet growing demands? 

Mr. ATWELL. We are short on steel. We are a net importer of 

steel. We export about eight million tons, and we import about 23 

million tons, so we have not been self-sufficient in steel for quite 

some number of years. 

I look at what is happening now as temporary. There are three 

drivers—the weak dollar, very sharp growth in China and underspending in infrastructure. Once again I get back to the history. 

This has not been a very profitable industry. There has been a lack 

of capital spending, so equipment has not been maintained. 

What we are seeing is a great deal of stress on the business primarily emanating from China. China is growing like a weed, and 

they are putting a lot of stress on the global system. That is going 

to continue. You have seen metal prices across the board go up. 

Copper has almost doubled. Nickel has almost doubled. Aluminum 

is up sharply. Cobalt is up fourfold. 

28

I view this as somewhat of a short-term problem. You have seen 

an exacerbation of the situation by virtue of underspending. People 

just have not been prepared for this. I do look at it as a bubble. 

Ms. BORDALLO. In the short term. 

Mr. ATWELL. History would tell you that prices are going to peak 

within a couple of months. They are either going up, or they are 

going down. They are never stable. 

I think that if we leave the market alone it will solve this problem. Unfortunately, jobs are probably moving offshore because 

labor is cheaper elsewhere. 

Ms. BORDALLO. I have another question that deals with the longterm effect of rising steel prices on manufacturing companies that 

require heavy steel input, especially in states like Michigan and Illinois. 

Will the rising cost of steel put them out of business, or will steel 

inflation in other manufacturing countries with less resources give 

our manufacturers any kind of an advantage? 

Mr. ATWELL. You have probably seen the statistic. The cost of 

health care for an automobile is higher than the amount of steel 

in the automobile. The manufacturing consumers we have talked 

to here, they probably have a high percentage of their cost for steel, 

but in most products it is a very low percentage. 

Unfortunately, we will probably see the businesses move offshore, but in most products, unlike the people who have testified 

here, it is a rather small percentage of your total cost. I would say 

that we probably will lose jobs, but it is generally not a big percentage of the cost. 

The one thing that is happening in China, if you look at what 

is happening there, their labor cost is very low, their capital cost 

is low, and they can build capacity very quickly. In our country, six 

percent of our costs are commodities. Two-thirds of our costs are 

labor. 

In China, basically they can afford to pay a lot more for raw materials because their labor is so much cheaper and their capital is 

so much cheaper, so the business model would tell you it is very 

tough to compete in the United States when you are a manufacturer. It is unfortunate. It is just a law of economics. 

Ms. BORDALLO. Thank you. 

Thank you, Mr. Chairman. 

Chairman MANZULLO. Thank you. 

Congressman Shuster? 

Mr. SHUSTER. Thank you, Mr. Chairman, and I thank all of you 

for being here today. 

I believe I have read that part of the problem is there is a shortage of coke in the world. Is that accurate? Can you talk a little bit 

about, somebody that may know a bit about it, why is there a 

shortage of coke? Is it because of capacity, or is it raw materials? 

What is the situation caused by? 

Mr. ATWELL. As you may know, coke is a product that is made 

out of coal. You buy metallurgical coal, and you roast it, and you 

drive off the volatiles, and you end up with something called coke 

that goes into making steel. 

The steel industry has been very unprofitable. If we take National Steel, they usually would have to spend their depreciation to 

29

stay in business. They spent 10 percent of it. Depreciation was 

$200 million. They were spending $20 million a year. 

The industry had such a small profit level they could not afford 

to maintain their equipment. Coke is very dirty. 

Mr. SHUSTER. For coke? 

Mr. ATWELL. For coke, yes. I mean in general, but coke in particular. 

Mr. SHUSTER. Right. 

Mr. ATWELL. It costs around $300 million to build a coke oven 

battery. People just frankly could not afford it. 

China basically was dumping coke on the world market. They 

were the supplier of last resort. They dumped coke on the world 

market for $55. We paid $110 here. They ruined the business. No 

one could afford to compete with them. 

Suddenly supply and demand got tight. The price is now somewhere between $200 and $400. In China, you cannot get coke to 

save your life. We have not spent the money to build our coke 

ovens because the industry was very unprofitable. Half the industry has gone bankrupt in the last five years. 

What you have is an industry that was under stress suddenly is 

faced with a very tight market. That is really what is backing up 

a lot of this whole conversation is the tightness of coal. We are not 

sure there is going to be enough metallurgical coal to fuel the coke 

ovens once you have built them. 

Probably within two or three years there will be enough coke capacity, but we are not sure there is going to be enough coal to fire 

those up. 

Mr. SHUSTER. So right now it is capacity, but very well in the 

future it could be raw material? 

Mr. ATWELL. It is capacity constrained, but then you are going 

to need the raw materials. 

Mr. SHUSTER. You said how much was it to build a coke facility? 

Mr. ATWELL. It is about $300 million to build a million ton battery. 

Mr. SHUSTER. How much of that cost is driven by environmental 

regulation? Is that a tremendous problem there? 

Mr. ATWELL. I am an equity analyst. I am guessing 20 percent. 

Mr. SHUSTER. Is it similar to the refinery problems in this country, oil refineries? They have not built any because it is just too 

much burden to build them? 

Yes, sir? 

Mr. KLINEFELTER. Yes. The coke ovens are subject to Section 112 

of the Clean Air Act, which is the hazardous pollution section of 

the Act. Those standards are very restrictive in terms of public 

health, so I think it has been very difficult to meet those standards. 

I think the industry has probably done a very good job of getting 

as close as they possibly can, but they do add a considerable cost, 

the coke oven batteries. 

I think the other thing is that unfortunately many of our places 

where steel used to exist in Pittsburgh are really clean, and people 

in those communities say we do not want it. I mean, that is a fact. 

Mr. SHUSTER. Right. 

Mr. ATWELL. Yes. The majority of your pollution problem in steel 

resides in the coke ovens. They are very dirty. The air is awful. If 

30

there is one thing you want to draw the line on it is coke ovens, 

so it is very, very difficult to get approval. 

If you are probably only rebuilding old batteries, it is very tough 

to get approval. We will probably never see another oil refinery 

built in this country, and coke ovens are extremely difficult to 

build. 

Mr. SHUSTER. As far as the situation with the escalating price of 

steel in this country, can you sort of divide it up into why it is 

under three sort of topics? The consolidation, that is part of it I 

know, but the world economy going up and this coke shortage. 

Would you be able to put a percentage of what is causing the biggest problem? Are all three equal? 

Mr. ATWELL. Well, I would say the consolidation really has not 

contributed very much, to be honest with you because imports are 

down 30 percent, and exports are up 40 percent. Consolidation is 

healthy for the industry because it is going to hopefully save some 

of the capacity so I do not think that has really contributed. 

Really it all boils down to China. Eighty percent of what I do is 

try to figure out what is going on in China. What you have seen, 

just to give you some numbers, is in 1997 China produced 100 million tons of steel. They are now at about 240 million tons of steel. 

We think they will be 270 million by the end of this year, 300 million by the end of next year, and 400 million by the end of five 

years down the road, so they will have quadrupled their capacity. 

The world does not have the resource to deal with that. It is not 

a very profitable business. Capital has not been committed to it, so 

the world is suddenly suffering because of demand. We would not 

even have this conversation if it were not for China. China is pulling in raw materials in every single sector. They are pulling in 

every type of scrap, and it has caused prices to go up across the 

board. It really revolves around China. 

Mr. KLINEFELTER. Could I just add to that, Congressman? 

I think it is the tip of the iceberg. Right now if you look at China, 

53 percent of the steel is going into construction. Fifty-three or 54 

percent is going into construction. It has not even touched the automobile market, which is five percent right now of Chinese steel. 

We know by statistics that by the year 2006 they are going to 

be the fourth largest producer of automobiles in the world. Look, 

if you have 1.2 billion people, you know, you have low income, but 

you could end up with a middle class of 400 million people. Four 

hundred million people. That is a lot of cars and a lot of steel. 

Chairman MANZULLO. Congresswoman Napolitano? 

Mr. SHUSTER. Thank you. 

Mrs. NAPOLITANO. Thank you, Mr. Chair. Let me get up closer. 

I am kind of short. 

In listening to the testimony of all of you, I am struck by a couple of things. First of all, we have known for a few decades that 

the steel industry, the small manufacturing, had been hurting. Am 

I correct? I think most of you in small business understand where 

that has been. 

Have you taken any steps to inform and educate your Congress 

people about what is happening in your backyard? What has been 

the response? Anybody? 

31

Mr. HICKEY. Congresswoman, my representative is Bill Lipinski 

in Chicago. Congressman Lipinski has been wonderful in our discussions on these issues. We have talked at length about the problems of unfair trade, dumped products, loss of manufacturing. 

You know, he certainly has tried very hard to work with all Administrations, the last Administration and the current Administration, to address some of these issues. All we keep asking for is let 

us enforce the trade laws. We do not get anybody here in any Administration that wants to talk about this. 

Mrs. NAPOLITANO. Why do you think that is? Anybody? 

Mr. HICKEY. Bring the former Secretary of the Treasury Reuben 

back and ask him. 

Mrs. NAPOLITANO. No. I am———. 

Mr. HICKEY. I do not know why. We cannot get an answer. We 

cannot get an answer. 

We ask them why they want to export the middle class, why they 

want to export manufacturing jobs from the United States. We cannot get an answer from the past Administration or the existing Administration. 

Mr. KLINEFELTER. Congresswoman, we have set ourselves on a 

low cost trajectory in this country. Zelwig, the Trade Ambassador, 

his favorite company is Wal-Mart. Let us just keep the prices 

down, keep the prices down, keep the prices down and trade away 

the good paying jobs because that is the way we should go. 

You know, it is the whole idea of the way the global trade situation is set up now, and it is not to our advantage in terms of jobs. 

I do not know. The only ones who are going to turn that around 

is if the society takes a different tact. 

I mean, these are policies. I mean, these are not laws of nature. 

These are things that can be changed. It takes the Congress of the 

United States and the Administration to do that, but it can be 

done. 

Mr. STEVENS. Congresswoman, I have met with Senator Lugar, 

Senator Bayh and Congressman Mike Pence in our district. First 

of all, they have generally not been informed about the serious nature until I started meeting with them and bringing this information to them. 

We are getting support slowly, but surely. We do hear a lot of 

comments about well, we believe in free trade and fair trade, and 

I think most people in this room would believe in the principles of 

free trade and fair trade, but I also think that most people in this 

room, that if you take a look at the reality, anybody that thinks 

we have free trade and fair trade in the international market also 

has to believe in the tooth fairy. 

I mean, it is ridiculous what is out there, and as Americans we 

need to stand up and say enough is enough. 

Mrs. NAPOLITANO. Why do you think then that the Administration does not want to enforce the lack of engagement into this debate, to go to the WTO and ask for the enforcement of China following the rules like we tried to? What is it? What is keeping us 

from doing that? 

Certainly in the vote, when we took the vote to give them most 

favored nation status, that did not play into the debate. Why was 

it not brought up and said look, it is hurting you? 

32

I get a little concerned because, number one, I found out from my 

businesses in my area a couple years ago, and we started a task 

force to find out where we were going with this. I brought it to the 

Chairman, and we have been bringing in the testimony. 

Until you speak up and join forces, this Administration is not 

going to do anything. We are losing the jobs. We are exporting our 

economy, and yet we are sitting here still saying where are you? 

Why are you not moving on this, Administration? 

Ms. HEMME. May I speak, Congresswoman? 

Mrs. NAPOLITANO. Yes, ma’am. 

Ms. HEMME. First of all, Mr. Manzullo is our representative, so 

he has———. 

Mrs. NAPOLITANO. He does a fabulous job. 

Ms. HEMME. He is absolutely wonderful. He spent a lot of time 

at this breakfast meeting that he discussed talking to the small 

business manufacturers in the Belvidere/ Rockford area. He has 

been addressing their needs the best that he can. 

One thing that I have found is that people do not have the funds 

to necessarily help their Congress people or to talk to them. They 

do not feel comfortable. They are just small business owners just 

trying to make a nickel. That causes them not to group together 

and band to go after this. 

I will tell you that my phone rang off the hook from the time—

we have only known about this for three weeks, and I have been 

nonstop for three weeks on the phone with small, very small businesses. They are all concerned. They just do not know how to bring 

it. 

They do not know the process, and they do not understand it. All 

they know is they want to provide jobs for the people that work for 

them. They are very ethically based and morally based, and they 

just want to provide a good living. Not even a great one. These are 

working class people here, not even necessarily middle class. 

Mrs. NAPOLITANO. Thank you. 

Mr. Chair, I request permission to enter into the record a letter 

that is being formulated by my small business manufacturers to 

enter into the record because apparently they were supposed to get 

it to you. I do not know if you have received it. 

Chairman MANZULLO. Without objection. of course. 

Mrs. NAPOLITANO. Thank you. Thank you. 

Chairman MANZULLO. I have a couple questions here. Mr. Atwell, 

first of all with regard to scrap metal, does the United States have 

a trade surplus in that? 

Mr. ATWELL. Yes. We are a net exporter of scrap. I think we export maybe about 20 percent of our scrap, something like that. I 

think we are about a 60 million ton nation, and we export 12 million tons right now. It does go up and down. 

Chairman MANZULLO. How much did we import? 

Mr. ATWELL. Virtually very little. 

Chairman MANZULLO. Okay. Emanuel, you made a statement 

that no one seized upon, although there was an interesting discourse. You know, what a great moment in time to have this discourse taking place. 

You said there is no shortage of scrap in the United States. 

Someone mentioned a 1958 Buick, and that was the machine that 

33

had the diamond teeth. Do you remember? Somebody called in the 

chromemobile. Did you mention that? Was that Bob? 

Emanuel, talk to us about that. A lot of people said there is a 

shortage of scrap. There is no shortage of scrap? Obviously there 

is a shortage of scrap. You say there is no shortage of scrap. Talk 

to us about it. 

Mr. BODNER. There are conflicting reports obviously. We heard 

them this morning. There is no shortage of scrap, sir. 

This is just me speaking and our industry as well. It is not just 

me. It is the industry. We are concerned about manufacturing in 

the United States. The manufacturing sector is most important for 

the creation of jobs, the creation of the products, the creation of the 

wealth of our country. There is no question about that. 

With the decrease in manufacturing in the United States, there 

is a grade of scrap which is produced from manufacturing. It is logical, therefore, that with certain grades of scrap, because the manufacturing base has decreased, there is a decrease in that grade of 

material. That is on the one hand. 

On the other hand, though, the industry is resilient, and it produces a scrap. It will seek the available resources and produce a 

scrap and produce a scrap of quality, of consistency and of durability that will continue to meet the demands of the steelmaker. 

You have heard experts on the steel side. I am going to speak 

from the scrap side. If I am wrong, I know I will be corrected. You 

make some steel just like you make a cake. You have some egg, 

you have some flour, you have a little salt, you have some pepper, 

and if you like chocolate chips you might put chocolate chips. 

The same thing when you are making some steel. You add different varieties of scrap, different industrial specifications of scrap. 

You also add coke. If you are making some specialty grades, you 

add some specialty material. 

This is history. This is nothing new. I go back again with my 

original testimony. As far as I know, as far as we are aware, there 

is no mill, there is no consumer in the United States, that has gone 

without scrap that needs scrap. 

Chairman MANZULLO. Okay. Let me hold you right there. Does 

anybody disagree with that statement? 

Mr. Stevens, is it your industry that represents the mini mills? 

Mr. STEVENS. No. We represent consumers that buy from the 

mini mills. 

Chairman MANZULLO. Okay. 

Mr. STEVENS. I cannot speak for the mini mills other than to say 

that I know that the scrap situation is very tight, and this tight 

situation is what, together with the exports, is driving up the 

prices. 

Chairman MANZULLO. The mini prices are saying there is a 

shortage of scrap? 

Mr. STEVENS. There is a tight supply. 

Chairman MANZULLO. Mr. Atwell, is that correct? 

Mr. ATWELL. I have never heard them say there is a shortage. 

It is very tight, and it is a market that clears so what has happened is scrap is being pulled offshore. There is a shortage of coke 

and iron ore, and so scrap has been pulled offshore. 

34

Freight rates are up sevenfold. If you are making steel in Europe, you need two and a half tons of raw material to make a ton 

of steel. If you bring in scrap, you need 1.1 tons of scrap to make 

a ton of steel. Freight rates have gone up from $5 to $25, so a lot 

of this relates to the freight shortage. 

We are seeing the dry bulk freight is backed up loading iron ore 

in Australia and unloading it in China. Fifteen percent of the 

freight is tied up in the world in ports because of congestion, so 

that has raised the freight rates sevenfold. 

This whole thing backs up and is very circular, so I would not 

say there is a shortage. I would say it is extremely tight, and the 

person willing to pay the most gets the scrap. 

Chairman MANZULLO. I have another question, but, Mrs. Velazquez, did you want to have some more questions? I do not want to 

take your time. 

Ms. VELAZQUEZ. No, Mr. Chairman. 

Chairman MANZULLO. Mr. Shuster, did you have any more questions you wanted to ask? 

Mr. SHUSTER. No. 

Chairman MANZULLO. I want to ask Les a question. Les, before 

the tariffs went into effect, you used to buy a substantial amount 

of specialty steel for your barrels from South Korea because you 

had a problem with the American mills were not using the special 

treatment to make these barrels as I guess nonpermeable as possible. 

What has happened with that supply? 

Mr. TRILLA. We bought from Korea due to cleanliness issues, and 

we were able to lower our cost for high grade drums going into food 

products and hazardous products. 

We use the specialty steel, as you recall, to produce a higher 

grade, higher quality drum for better coatings, et cetera, et cetera. 

We always were a domestic buyer, but we had to go offshore for 

quality of cleanliness. 

Chairman MANZULLO. And you paid more for that, did you not? 

Mr. TRILLA. I paid more for the steel, right. They will not come 

back. 

You know, contrary to what we are hearing from the panel here, 

I am requesting that the government relax all the quotas and all 

the restrictions in this shortage period of time. You know, we allow 

Korea, we allow these other countries that may have been criminal, 

as they were called earlier, to come back into our marketplace because in the world market, the world market for my product, and 

I just returned this weekend from an international meeting in 

Spain. Tough duty, but I just returned. 

We compared pricing as we do in our raw materials, et cetera, 

and the product that goes into our product costs right around $400 

to $450 a ton in Europe and the Far East, and now in the United 

States it is going to be over $800 a ton. I would like to know the 

answer to that. Why do we have to pay $800 a ton if we have consolidation, we have government intervention, and I do not want to 

pick on Mr. Wilbur who is gone, but it is government subsidized. 

If his industry does not have the hospitalization or the pension 

liabilities that my company has and every other company has, that 

is government intervention just like China. 

35

We do not have the luxury of small businesses that have that. 

Bankruptcy worked in his industry. Thank you. He paid less for his 

company. The steel industry now has lower costs because of all this 

government subsidy. 

What about us? Let us open it up to the world market. Let us 

get the world market cooking again. We could take action against 

China, but let the doors open up. 

Chairman MANZULLO. Mr. Klinefelter, you had a response? 

Mr. KLINEFELTER. Yes. In terms of this government subsidy for 

the retirees’ health care and pensions, PBGC is a government corporation that the companies pay fees to in order to provide the benefits, as you know, for these pension plans when they go bankrupt, 

so it is not the government that is proving these benefits. It is 

what is collected from the corporations who are members of the 

PBGC. 

As for health care, there is no health care. All there is is medicare. If we want to give up medicare, I suppose there is that, but 

there is no government subsidy for any of the 250,000 retirees who 

have lost their health care in this situation. 

Mr. TRILLA. I agree with that statement, Mr. Chairman. I am not 

saying that the employees—they got hurt. The corporations, U.S. 

Steel, ISG, et cetera, are benefits of these government subsidies 

which add to the profitability, which we hear we should buy U.S. 

Steel stock, and I agree with that, but, you know, the small manufacturer, the jobs that we place. You need employees. 

As we heard earlier, I have hospitalization costs for———. 

Chairman MANZULLO. You still work for a union, do you not? 

Mr. TRILLA. The second operation I bought in St. Louis was nonunion. We put a union in there. We run union shops. We believe 

in union shops, but, you know, our people are getting hurt. 

Chairman MANZULLO. He is a Republican, Bill. I just want you 

to know that. 

Mr. TRILLA. Yes. I am a Republican. 

Mr. KLINEFELTER. Some of our best employees are Republicans. 

Chairman MANZULLO. There you are. You bet. 

Mr. KLINEFELTER. Including U.S. Steel. 

Mr. TRILLA. But still, you know, we as a small industry, a small 

world out here, which probably represents 60 or 70 percent of gross 

national product, our employees are suffering, and the big companies—once again, it is a big industry, and I am sorry I am not a 

big industry. 

They are getting all the advantages, all the abilities. They get all 

the steel they want. My biggest competitor gets all the steel it 

wants from the gentleman that left the room, and he does not have 

a salesman that calls in Chicago. 

Chairman MANZULLO. Mr. Stevens? 

Mr. STEVENS. Gentlemen, the whole program, as Mr. Atwell 

talked about what happened in the coke industry. China builds 

their coke industry. They sell the product at half the world price. 

They drive the American manufacturers out of business, and 

then they come back. There is nobody left in the United States, and 

we get into this situation which it is a vicious circle that drives 

more jobs offshore. 

36

The same thing that Bill just mentioned about what is happening with all of the steel mills being built and the capacity in 

China with bad credit. They already have $500 billion of bad debt 

that they admit to, and everybody estimates it is double that. They 

are still giving credit out to anybody that can breathe with no hope 

of it getting paid back. 

This is the big problem. We are allowing this situation to expand 

where it is going to put everybody in the whole damn world out of 

business because they are out of control. 

Chairman MANZULLO. Mr. Bodner, and then I want to go ahead 

and conclude. Go ahead. 

Mr. BODNER. I would just like to remind everyone here that we 

certainly understand the difficulty of the industry, but do not forget 

the scrap industry, that while scrap pricing could be somewhat 

high at this point, that our industry has come off since the 1980s. 

That was a very hard period of time. 

Historically, scrap prices are low. There are some spikes, as was 

discussed here today. Those are already being corrected. The answer is not inputting controls on scrap. That is clear. The evidence 

I have not seen today would suggest that that would be our solution. 

Chairman MANZULLO. This has been a fascinating panel with the 

major players being involved in it. 

I want to take the opportunity to thank you for coming to Washington, for sharing your concerns with us. It has been extremely 

enlightening. I enjoyed the exchanges on it. 

This hearing is adjourned. 

[Whereupon, at 12:45 p.m. the Committee was adjourned.]

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