Africa-Press – South-Africa. As a likely ban on scrap export looms, steel industry heavyweights have thrown their weight behind the move while scrap dealers maintain it will have adverse implications for the industry and the country more broadly.
Last week comments were closed on policy proposals published by the Department of Trade, Industry and Competition seeking to curb rampant cable theft and vandalism of critical infrastructure, which is severely hampering economic activity and estimated to have an annual economic impact of R187 billion.
The proposal is for the phased implementation of several measures.
In the first phase, government seeks to establish an inter-departmental Metal Trade Task Force. It also proposes a permit system for exporting semi-finished goods and non-ferrous metal products and importing furnaces or other machines capable of transforming metal and disguising its origin.
Among the proposals in the second phase is for a permit system to be applied to scrap exports, an enhanced registration regime, and restrictions on who can sell copper scrap and semi-finished copper products.
Phase three will seek to prohibit the use of cash in scrap metal transactions while also allowing for the blacklisting of offenders.
While preparations to implement these proposals are under way, the DTIC has suggested a six-month ban on all scrap exports,which could be extended if deemed necessary.
The South African Iron and Steel Institute – which counts scrap consumers like ArcelorMittal South Africa and the Scaw Metals Group among its members – has come out in support of such a ban.
Along with a new permit system, the ban, will likely lead to a material reduction in the theft of metal from the country’s infrastructure. These interventions will divert significant volumes of scrap metal to the local market, leading to lower prices which will likely disincentivise theft and vandalism of infrastructure, the institute said in a presentation on the policy proposals.
According to the institute, “increasing scrap intake is essential to the cost competitiveness of the local primary steel producers – large and small – and is critical to the industry’s environmental and carbon aspirations.”
While the scrap industry, as represented by the Metal Recyclers Association (MRA), has welcomed DTIC’s multifaceted approach to combating the theft of critical infrastructure, it has warned a ban on exports would cause local prices to lose direction and collapse, harming both the formal and informal sectors.
“Not to diminish the extent of the problem, the quantity of stolen scrap metal in South Africa is estimated to be a fraction of 1% of the nation’s total scrap metal volume, which implies that the proposed ban would definitely negatively affect more than 99% of the market, in an attempt to potentially regulate a portion of less than 1% illicit activity – this does not make sense,” the association said in a written comment on the DTIC draft policy.
The MRA is also not convinced the ban will resolve the problem because SARS customs data indicates scrap is not exported as “scrap metal”. Rather, it is more often melted down and exported as semi-finished products. There is no evidence that a three-month scrap metal export ban in 2020 had any effect on the theft of metal infrastructure.
The MRA further argues that domestic scrap consumers already have access to plenty of cheap product – as is ensured by legislation which requires scrap to be offered to local players at a discounted price before it is allowed to be exported.
“The domestic scrap metal consumers are presently melting at full capacity despite exceptionally low prices,” the MRA said. “The consequence will be that the lower value grades of scrap metal, such as steel shavings, old motor car bodies and beverage cans, will be discarded as and where they lie, and ultimately much of this will be disposed of in waste landfill facilities, which is in direct contrast to all greener economic ideals.”
If a ban must be implemented, the MRA suggests it should be limited to those scrap metal types that are the subject of infrastructure theft, such as specific types of copper and selected grades of steel.
“When you restrict demand and not supply, prices fall and keep falling until a new equilibrium is reached,” CEO of XA Global Trade Advisors, Donald MacKay, said in a note.
“Supply can’t be easily constrained because most of it comes out of factories and mines, and while they produce, the scrap builds up.”
South Africa exported 494 700 tons of scrap between July 2021 and June this year. That’s about 54 rugby fields of scrap metal, piled 2.5m high -“Where does over a rugby field of scrap metal go each week?” MacKay said.
“I think the ban will cause devastation to the recycling sector, but will achieve little beyond that. However, I think a lot of the other initiatives could work. The ban on the sale of scrap for cash is a no-brainer and, if pushed quickly, could have a measurable impact,” he said.
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