Dodd Frank Conflict Minerals Law: Headache for Metal Supply Chains

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As the old adage goes, “the devil lies in the details” – and that aptly describes the challenge many diversified US manufacturers find in meeting the new conflict-free minerals compliance requirements under the Dodd-Frank legislation.

MetalMiner's Conflict Minerals Legislative GuideWhat seems straightforward enough – avoiding the 3Ts (tin, tungsten and tantalum) – actually becomes more challenging when one considers the wide array of semi-finished materials companies purchase.

If that wasn’t complex enough, add in the actual “approach” companies take to implement the rules – supplier vs. part level – and we can see why companies will need 18 months to comply.

Vanilla Steel, Simple – Right?

One might jump to the conclusion that the 3Ts don’t apply to many diversified manufacturing organizations (we don’t often come across organizations that purchase tin, tungsten or tantalum in raw or semi-finished forms), but that conclusion would likely mask the more complex subtleties of implementing Dodd-Frank reforms.

Obviously a company that purchases a product such as tinplate (think Campbell’s Soup) will need to comply with the legislation. But how does the legislation impact a company that purchases ‘vanilla’ hot-rolled steel coil (HRC)?

If the buying organization has approached the conflict mineral-free requirement by implementing a solution at the supplier level (similar to how the electronics industry and the EICC approach the issue), as opposed to a more onerous case-by-case product/SKU level-compliant validation process, the buyer of HRC from an integrated steel producer faces additional steps. They will also require additional documentation from the supply base.

We know that ‘vanilla’ HRC does not contain any of the 3Ts, but if the company purchases HRC from an integrated steel producer that also produces tinplate, the buying organization will need to take extra care in validating that the integrated steel company does not use conflict minerals in any of its products.

The China Steel Problem

Companies required by law to file documentation with the Securities and Exchange Commission (SEC) may become subject to Section 1502 of Dodd-Frank. Now, that seems straightforward – but consider the case of imports.

The largest Chinese producer, Baosteel, produces tinplate just like many of the other integrated producers, such as ArcelorMittal and US Steel. In fact, Baosteel (Shanghai Baosteel Group, stock ticker SBSA) will automatically become subject to these same rules, and US buying organizations will have to deploy the same supply chain due-diligence on global producers (particularly US publicly traded ones) as they do on their domestic producers.

All of this raises some other interesting questions not currently specifically addressed within the metals community:

1. How will US service centers specifically address conflict minerals compliance, given that they both import and stock materials from integrated as well as non-integrated steel producers (and in some cases, from non-compliant and/or unknown global sources such as trading companies, etc.)?

2. Will US companies have to deploy SKU level or part/product family-level traceability and supply chain due-diligence programs because they can’t successfully source conflict-free at the supplier level?

3. Will non-US public producers such as those from Russia, India, China, Japan and Korea apply the same rigor, honesty and systematic approach to this issue as US producers and other globally US traded public companies because many of them do not technically fall under Dodd-Frank rules?

Luckily, other initiatives such as RoHS offer lessons learned that apply to Section 1502 rules. We’ll cover that in several follow-up posts.

Spend Matters PRO readers can see MetalMiner’s first look at metals impacted by the Conflict Minerals Dodd-Frank reforms. This list includes semi-finished metals containing the 3Ts.

Image above from updated Conflict Minerals Legislative Guide presented by Elm Consulting.

Comments (2)

  1. William Quam says:

    Informative commentary Lisa. There is an assumption you have made that does not have a solid foundation however. The EICC smelter certification program relied on the ITRI – iTSCi “bag and tag” process to “certify” the minerals as being “conflict free”. The recent UN Group of Experts report reveals that many of the iTSCi “certified” minerals in fact originate in the DRC and since only the mines in the east of the DRC that are currently operating are in fact controlled by the different “armed groups”. In the absence of a more scientifically based analysis, that is possible, of the minerals at each step of the consolidation process is the only way to provide “traceability” of minerals from a location like the east of the DRC where corruption is so widespread. If companies are going to comply with the SEC Rules that require a “reasonable country of origin inquiry” I am afraid they will fall far short if their only line of certification is a process that the UN Group of Experts says is flawed. The estimate is that fully 50 % or more of the minerals from Rwanda actually originate from mine site controlled by “armed groups”.

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