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Asian Scavengers Feed China's Hunger for Steel

SONGINO, Mongolia - At an abandoned Soviet Army base here, scavengers dig deep into the earth. Tossing aside concrete casings, they carry away precious loot: cast-iron water pipes.

Above ground, brawny men, wearing T-shirts and wielding sledgehammers, smash open abandoned barracks. From crumbling concrete walls, they pry out the rusted steel reinforcement bars.

In Vladivostok, Russia, a port 1,250 miles east of here, dock workers have discovered in scrap metal shipments such sundries as a live artillery shell and what is said to be surplus rails from the Trans-Siberian Railroad.

In North Korea, idle factories are being quietly stripped of metal that is then sold across the Yalu River as scrap to China.

With its relentless industrial rise, China, once known as the Middle Kingdom, has become a massive magnet inexorably drawing scrap metal from across Asia.

"I recently drove to the Gobi and saw 100 trucks stuck in the mud, just one after the other," Enkhbaatar Ochirbal, a mining consultant in Ulan Bator, said of trucks loaded with scrap metal that were caught by an unexpected rainstorm in the Gobi Desert. "Earlier, in March, every second truck going to the border checkpoint seemed be carrying scrap metal."

Steel is the lifeblood of China's booming industrial economy, from bridges to ships to cars. Plans by General Motors and Volkswagen to double their output of Chinese cars by 2007 only mean ever greater demand for steel.

To meet this demand, China's steel production is to nearly double during the rest of this decade.

But China's iron ore production is forecast to remain basically flat. To close this yawning gap, China is signing long-term multibillion-dollar supply contracts with Australian and Brazilian mining companies.

In March, BHP Billiton, the world's largest mining company, signed a $9 billion deal to supply 12 million tons of ore to four Chinese steel mills for 25 years.

But it is far cheaper to melt existing metal than to process ore. Consequently, China's scrap imports have almost doubled since 2000. Even with Beijing's efforts to cool economic growth, imports of scrap steel may double again by the end of 2005.

A result is one of the biggest recycling programs the world has ever seen. Market forces are cleaning up Asian landscapes that have been long littered with Soviet-era junk.

"Every year, when I would go see my grandmother, I would use as a landmark this big abandoned Russian bus," said Jargal Byambasuren, a tour guide in this nation, a former Soviet satellite on China's northern border. "Then the last time I was there, it had disappeared."

The invisible hand of high scrap prices is tidying Mongolia's sere and treeless landscape, a tableau now picked clean of metal trash. On a recent six-hour drive across the steppe, only two wrecked cars could be seen. One had been converted into a feed dispenser for livestock. The other car had been in an accident only a few hours earlier.

"When I was a boy, the only thing to collect around here was cashmere and fuel," Sukhbaatar Sandagdorj, a 48-year-old road maintenance worker, said in his snug ger, a traditional circular dwelling kept warm by burning dried sheep dung.

Stacked on one side of his portable house were piles of rusted iron: discs from a farm harrow, long leaf springs from a truck and wheels from a tractor.

"People wander around and pick it up," he said of nomadic herders who had weighed their metal troves and then left them in his safekeeping for an itinerant scrap dealer. "When the Russians pulled out, they left a lot of junk. But, it would be good if instead of exporting the iron to China, Mongolians could recycle it."

Similar laments over Chinese scrap imports echo from this handmade felt ger to the sleek boardrooms of steel companies in Seoul, Sydney, Osaka and Pittsburgh.

American scrap steel exports to China have tripled since 2002, hitting 3.5 million tons, or $1 billion in 2003. With China now the largest importer of American scrap, Chinese demand caused international spot prices to hit $340 in spring 2004, almost triple the levels of one year earlier.

In May, smelters in Australia, Japan, Russia, South Korea and the United States appealed to their governments to restrict scrap metal exports. In the Russian Far East, scrap export volumes are running at double the 2003 levels. In a possible prelude to restrictions, government agents in Russia and South Korea have started to monitor scrap exports closely.

The only serious move has come in Mongolia, where protests were made by the Darhan Metallurgy Plant, the nation's only steel mill, a Russian-built venture limping along partly because of a lack of scrap metal. Situated 135 miles north of Ulan Bator by rail, Darhan is a company town with Mongolia's second-largest urban population, 100,000.

With parliamentary elections set for June 27, the government in late May increased the export tax 2.5 times, to the equivalent of 7 cents a pound. By early June, exports had slowed.

"Most people have stopped taking scrap to China because of the export tax," said the director of an Ulan Bator yard, who was overseeing the unloading of a truck near the freight rail yards. His scrap, he said, would instead go by rail north to Darhan.

But many in Mongolia believe that the lull in scrap exports to China will end after the elections, and the trade will pick up again.

As in the United States, Japan and South Korea, many scrap metal dealers here say they should have the freedom to sell to the customer who pays the highest prices, currently China. With rudimentary roads linking a nation twice the size of Texas, many Mongolians say that transportation costs rule out shipping scrap to Darhan.

"If you transport scrap iron from my district to Darhan, it will be 'gold iron,' " Oyun Sanjaasurengin, an opposition member of Parliament, said of the prohibitively high cost of trucking scrap from her area, on the Chinese border, to Darhan, a two-day drive.

Indeed, across the region, the mining for industrial scrap metal continues unabated. In the Russian Far East, submarines, fishing boats, tanks, broken train wheels are all disappearing into open maws of bulk carriers destined for China.

The Pacific port of Vladivostok, once disfigured with half-sunken derelict boats, has been cleaned up, restoring the harbor's reputation as the San Francisco of the Russian Far East. Moving deeper and deeper into Siberia in search of junk metal, the INI Steel Company of South Korea opened a purchasing office in 2003 in Yakutsk, 300 miles south of the Arctic Circle.

With much of the easy pickings gleaned, there are fears in Northeast Asia, that the scrap metal frenzy will go beyond recycling and into theft.

In Mongolia, fences have disappeared from cemeteries, spigots have been torn from public fountains, and manhole covers have vanished, adding another hazard to walking at night in Ulan Bator.

Ganbold Chuluun, a public relations adviser to a foreign mining company here, said: "It is irritating when you wake up and discover you can't use the telephone. Someone has stolen the wire in the night."

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