The U.S. Regional Ferrous Scrap Model

Ferrous scrap markets in the United States have been a key element in the dynamics of the steel industry, because ore-based steel producers and scrap-based steel producers are direct competitors in steel product markets. Recognizing the importance of ferrous scrap markets in this context, the U.S regional ferrous scrap model analyzes geographic variations in prices for two grades of ferrous scrap across the continental United States. The model uses a logistic function of choice under differentiated products in a computer generated equilibrium framework to solve for prices that support the observed spatial distribution of supply and demand quantities. The model's specification is highly disaggregated, and it accounts for 1,212 supply regions and 240 demand regions. This paper presents the model's formal structure and its solution algorithm. The validity of the model is analyzed by comparing solution values for a base case to a subset of published prices. Maps of the base-case solution clearly delineate price gradients that are centered on the industrial Midwest.