Scrap export policy effects ripple through South African scrapyards

20 Nov 2013

Engineering News, 20.11.2013
By Bianca Markram

A new policy on the export of scrap from South Africa continues to draw fire from local scrap merchants, with the country’s second-largest scrap trader, SA Metal, taking the International Trade Administration Commission of South Africa (ITAC) to court last week to force the regulator to grant export permits it had refused under the policy.

SA Metal’s urgent interdict application was heard in the North Gauteng High Court, in Pretoria, on November 13, the scrap merchant’s CEO Graham Barnett confirmed.

“Unfortunately, the judge refused to hear the matter on an urgent basis,” he told Engineering News Online, adding that there was an undisclosed amount of SA Metal scrap that the company is unable to export.

A high court official confirmed that the judge struck the interdict application from the urgent cases roll, with all costs payable by SA Metal. He explained that it was still possible for the interdict application to be heard if it was put on the normal motions roll, but it remained unclear when this would happen.

The policy, which has been in effect since September 16, requires ferrous and nonferrous scrap dealers to offer their consignments to the domestic market first at a 20% discount to published international prices, before they could apply to ITAC for export permits for these consignments.

In late August, when the government announced the implementation date as September 16, the Metal Recyclers Association (MRA) filed for an urgent interdict to halt the policy.

The court only heard the case on October 28, by which time the policy had already been in effect for more than a month, and dismissed the interdict application, a move that has drawn support from labour union, the National Union of Metalworkers of South Africa, as well as the Non-Ferrous Metal Industries Association (NFMIA).
However, Barnett listed a number of problems South African scrap merchants have encountered in the roll-out of the new scrap policy since its introduction.
“We are seeing local consumers making offers to purchase scrap metals available for export at prices between ITAC preference prices and actual export achievable prices,” he noted. “My understanding is that ITAC is not issuing export permits if they are made aware of offers made above ITAC preference prices.”
Barnett said ITAC had to iron out more details surrounding the pricing system to eliminate confusion.

“These offers to purchase all seem to be made on a delivered basis,” he noted, adding that ITAC has, so far, not made clear whether its price is on a collected or delivered basis.
“Sellers may not be in a position to deliver, or the cost of delivery may result in the offered price being uncompetitive,” he added. Barnett pointed out that, during October, the first full month of the price preference system having been in place, ITAC had made mistakes in calculating the right price for local users, which caused some confusion among sellers and buyers. Another ambiguity, he felt, was that ITAC has not indicated whether buyers have to be creditworthy.

“ITAC is also in the process of learning the system,” NFMIA chairperson Bob Stone said. However, he was confident that the system would work, benefiting the local beneficiation industry. Indeed, Engineering News Online has learned that Gauteng-based New Reclamation Group (Reclam) may be in the process of buying a Boksburg foundry. Reclam is looking at buying Crown Cast from Sovereign Steel for an undisclosed amount.
This acquisition may be proof that the new policy is working in its attempt to revive the South African foundry sector, which is the primary beneficiator of ferrous and nonferrous scrap.

“The scrap metal yards are now starting to look at melting as a viable option,” Stone said, referring to the Reclam acquisition. “If anything, it actually shows that the policy is working.” Crown Cast is a steel foundry that would be a primary consumer of ferrous scrap metal to produce its castings, while Reclam is a major supplier of ferrous scrap metal, with the bulk of its products earmarked for the export market.

It is unclear at what stage of the process the acquisition is and what Reclam intends to do with the foundry. The company did not answer repeated calls for information. However, Reclam is a major supplier of ferrous scrap metal, with the bulk of its products earmarked for export. “It makes sense [for Reclam],” a market source, who declined to be named, commented. “Reclam must offer its scrap locally and at a discount. Why not simply benefit from this by using it in your own downstream operations? And then you have a higher value product than the scrap to export, minus the hassle that the new policy is imposing on scrapyards.” The policy has been imposed in line with the South African government’s plans to incentivise more beneficiation locally in accordance with the National Development Plan. A strong reason for the policy was to revive the dwindling foundry industry.