Government gets tough on errant scrap metal exporters

Government will step up
efforts to clamp down on
scrap metal exporters who
have not been complying
with its price preference
system (PPS), vowing to “act
against transgressors of the
law”, according to Minister
of Economic Development,
Ebrahim Patel.
This follows last week’s
Constitutional Court ruling
dismissing a challenge to
government’s PPS rules
by the SA Metal Group.
The trade policy directive
– implemented in 2013
– gives local industry
buyers of scrap metal a
preferential price of 20%
below the international
price. Scrap metal exporters
are required by law to
first offer local buyers the
product at the reduced rate
for a period of up to 60 days
before the International
Trade Administration
Commission of South Africa
(Itac) will issue an export
permit.
The PPS policy was
introduced by government
to fight continuing
deindustrialisation as high
volumes of scrap metal
exports were depriving the
local beneficiators – such
as foundries and mini-mills
– of affordable and quality
steel which is a key input
in their manufacturing
process.
The policy directive was
contested in the Western
Cape and Gauteng High
Courts and then referred to
the ConCourt where it was
dismissed, bringing four
years of legislation to a halt.
Patel said in response
to the ConCourt ruling
that “the decision makes
it clear that rational
decisions by the state in
favour of job creation and
industrialisation would be
upheld by the courts”.
But while the steel
industry lauds the “good
intentions” of the policy
on paper, it still insists it
doesn’t work in practice.
Virusha Subban, a partner
in law firm Bowmans,
pointed out that the
beneficiators have accused
scrap merchants of
circumventing the PPS
system using a range
of tactics that force
beneficiators to forego the
mandatory discounted
offer.
“Such tactics include
inf lating the preference
price by charging for
delivery over and above the
quoted price, demanding
impossible sale conditions,
upfront cash payment or
reams of documentation
before selling to local
buyers,” she explained.
The scrap metal
merchants have in turn
blamed beneficiators for
making
frivolous
offers to
purchase
scrap just so
that Itac will
deny or delay
the permits
and thus
frustrate
their exports.
“They
complain
that some
local buyers
object to
the permit
but do not
provide payment terms and
do not collect the good. Or
fail to pay on time,” said
Subban.
She added that scrap
dealers also complained
of tonnes of waste metals
piling up in their scrapyards
due to the time delays
involved in first offering
local industry, then
applying for
a permit and
waiting for it
to be granted.
“The scrap
dealers
argue that
although most
applications
may be
approved, all
delays in the
movement
of the metal
increase their
exposure to
commodity
market risks
and precipitate
cash-f low issues,”
highlighted Subban.
Chairperson of the Metal
Recyclers Association
(MRA), Quintin Starkey,
pointed out that the scrap
industry had seen a number
of closures, noting that
the scrap industry was
estimated to have lost 40%
(9 000 employees) of its
formal workforce since the
introduction of the PPS.
He conceded however
that much of that could be
attributed to the economic
downturn as a whole.
Patel is however upbeat
about the success of the PPS,
pointing out that prior to
the policy directive SA had
seen a significant increase
in export of the raw material
to the detriment of local
industry.
“Volumes of ferrous
scrap metals increased by
340% between 2003 and
2012, while the value (in
rand) increased by 1 060%.
Since the introduction of
the trade policy directive,
export levels have dropped
and local foundries and
mini-mills have reported an
improvement in the supply
of scrap metals,” he said.
INSERT & CAPTION
Export levels have
dropped and local
foundries and minimills
have reported
an improvement in
the supply of scrap
metals.
– Ebrahim Patel