THE Non-Ferrous Metal Industries Association has welcomed the North Gauteng High Court judgment dismissing with costs an application by the Metal Recyclers Association of South Africa to interdict the government’s new scrap metal export policy.
It says the foundry industry in South Africa — both ferrous and nonferrous — adds value to many types of primary and scrap metals, including copper, brass, lead, aluminium and zinc. But it also says the industry has been struggling for 12 years, with the benefits of scrap metal being handed to global competitors.
The association, which consists of several big metal value-adding companies including Copalcor, Fry’s Metals, Maksal, Non-Ferrous Metal Works, Zimalco and Zinchem, says it "fully supports" a policy directive issued by Economic Development Minister Ebrahim Patel, and new guidelines for scrap metal exports that came into effect on September 16. The new policy forces scrap metal exporters to first offer their product to domestic foundries, small mills and secondary smelters at 20% lower than international prices, before they can qualify for export permits.
The price-preference system is part of a set of recommendations made by the government on iron ore and steel last year, to support downstream industries.
The Metal Recyclers Association’s court application was opposed by Mr Patel, the International Trade Administration Commission of South Africa, the ministers of both trade and industry and water and environmental affairs, and the National Union of Metal Workers of South Africa.
Nonferrous metals are those that do not contain iron in appreciable amounts. Due to its extensive industrial use, nonferrous scrap metal is usually recycled.
The Metal Recyclers Association says it notes and respects the judgment, and reserves further comment now.
Earlier this year it told the government it represented the interests of 150 "bona fide" metal-recycling companies in the formal sector throughout South Africa. These companies collected more than 80% of the country’s ferrous and nonferrous scrap metal for recycling.
It says South Africa’s manufacturing industry is "probably the largest producer of scrap" and industry revenue will suffer from the export regulations. There are more than 400,000 informal scrap collectors in SA, most of whom have dependents, it says.
"The main danger, however, lies in the fact that by intervening in this manner, no consideration is given to the loss of an efficient and competitive sector in South Africa, namely that of scrap metals," it says.
South Africa’s foundry industry has long been in decline. The Non-Ferrous Metal Industries Association says since 2000 it has suffered from decreasing availability of "affordable and quality scrap metal".
It says exports of these metals have soared — mostly to Asia — resulting in up to 10,000 job losses in the foundry industry. The aluminium sector has suffered most, shedding up to 64% of output capacity over the past six years.
But the recycling association, in its earlier representations, said such exports were not depriving domestic consumers of scrap inputs. "The elephant in the room is that local scrap consumers already have the first option to buy scrap in terms of current legislation (prior to exporters being granted permission). This means all of the scrap being exported, is scrap that is not wanted by local consumers."
It also says price controls often lead to "severe unintended consequences", and controlling domestic scrap prices below international levels will lead to distortions in the allocation of resources.
"The domestic scrap-collecting and recycling industries operate within a very competitive global market as pure price takers. This implies any administered price downwards will result in the entire price change being absorbed by the scrap market as they will not be able to compensate for lower prices other than lowering their purchase and selling prices.
"These lower prices will presumably be fully carried by the collectors and suppliers of scrap."
The Federation of Unions of South Africa (Fedusa) has also welcomed the judgment. "It reaffirms the aims of initiatives like the New Growth Path and National Development Plan to reindustrialise the economy and create jobs," the union’s general secretary, Dennis George, says.
"It is important for the social partners to use the new framework to rebuild the steel manufacturing industry, including the foundry sector, create more jobs and strengthen the government’s ... national infrastructure build programme."
Fedusa says as international demand for scrap metal increases, mainly in Asia, the price rises, and the cost of scrap metal for domestic processors in some cases amounts to more than 70% of total input costs. Because of this, it says South Africa has lost many of its value-adding industries, especially in the automotive components, general engineering and furniture sectors.
But the Metal Recyclers Association says scrap exports do not deprive local consumers of such inputs and local metal producers overcharge, using import parity pricing. This has led to a flood of imported "new metal" and an increase in the availability of scrap for export.
It also says scrap metal is a relatively low component cost of foundry products, ranging from 15% in the case of iron and steel foundries, to up to 40% in the case of low-value aluminium castings.
"The recovery of other significant input costs such as energy and labour cannot be justified by increasing the final sale price," it says.