A high strength, oil-containing, Fe-based composite material prepared from cast iron scrap is described in this paper. A high quality iron powder is produced from the scrap by hydrogen gas reduction. The test results show that the properties of the composite are optimized by a 1% graphite addition, by using powder particles in the size range 147-42 um, by compacting the powder al a pressure of 700 MPa, and by sintering at 1100-degrees-C for 90 minutes. Greater strength and hardness and lower sliding friction and wear are observed in bodies prepared from the reduced scrap powder than in bodies produced under the same conditions from a general iron powder. Since the Si and Mn elements dissolved in ferrite replace some iron atoms, and the atomic radii of Si and Mn are bigger than that of the iron atom, they can cause lattice distortion and increased solution strength of the ferrite. The spheroidized graphite greatly reduces friction and wear during sliding.