the average usage of Steel scrap in making steel is just 20%

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Growth & Value Investment Stock (CNAM) 4-Mar-10 09:18 pm Growth & Value Investment Stock For March


(RTTNews) - This U.S. based company does business in China and made its debut on the NYSE AMEX last month. Operations include the import, sale and distribution of metal ores and non-ferrous metals to the metal refinery industry in China and a recent expansion into the scrap metal recycling business - which is seen as a potential game changer for China Armco Metals, Inc. (CNAM).

Just a few months into the scrap metal recycling turf, Armco has already signed a significant contract to supply up to 230,000 tons of scrap steel this year to a major Chinese steel producer. Based on the current spot price of scrap steel, this supply contract is valued at more than $100 million.

The contract requires Armco to deliver up to 23,000 metric tons of scrap steel every month for 10 months, starting this month.

Although China consumes over 500 million tons of Steel annually, only 100 million tons of steel scrap are utilized every year, and the country has an estimated 40 million ton shortage in supply of steel scrap.

Because of this short fall, the average usage of Steel scrap in making steel is just 20%, compared to 80% usage of iron ore in steel making. When Steel is produced from Steel scrap instead of iron ore, energy costs are reduced by 74% and the pollution released into the atmosphere gets reduced by 86%.

Based on the shortfall in supply, the economic and ecological advantages, the company believes that China has a remarkable growth opportunity for the usage of steel scrap in steel making.

The latest supply contract will allow the company to sell all of the initial production from its recently completed 1 million ton recycling facility during the first several months of operation.

The facility is anticipated to reach a full capacity run rate sometime in the fourth quarter of 2010. At full capacity the facility is capable of processing about 1 million metric tons of scrap steel per year or over $400 million annually at current prices.

More over, the Chinese central government and Jiangsu provincial governments are issuing preferential tax treatment for steel scrap recyclers and Armco's steel scrap recycling project is located in the Jiansu Province. Being located in what has been designated as the pilot zone for steel scrap processing by the China Iron & Steel Association and China Scrap Steel Application Associations, bodes well for the company.

In the last four quarters, the company has grown revenues by more-than two-fold to $27.3 million from $12.2 million.

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