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12. September 2013

SA - Breathing new life into the scrap metals industry

WHILE newly introduced restrictions on exports of waste metal are meant to ramp up growth and competition in the struggling metals beneficiation and fabrication industries, they could also help curb the scourge of copper theft.

The policy directive introduced by the Department of Trade and Industry at the start of last month will allow local buyers of scrap metal such as foundries, mills, minimills and secondary scrap processors to get it at a preferential rate of 20% below the international spot price that South African exporters can get for ferrous and nonferrous waste metal. The policy will remain in place for the next five years.

Export duties on scrap exists in most countries including China (40%), Argentina (20%), Iran (50%), India (20%) and Russia (15%). The Steel and Engineering Industries Federation of SA (Seifsa) says South African industries have been paying the highest price in the world for its input scrap material as all of it is priced at export parity.

The South African Chamber of Commerce and Industry says any kind of disruption to the normal logistical operations of copper theft syndicates exposes them to detection. Metals theft is estimated to cost the economy more than R5bn a year, with high-metal prices making theft increasingly attractive to organised criminal syndicates.

Power utility Eskom has blamed as much of half of its power outages on the theft of copper in its facilities.

Eskom says cable theft is also rife in neighbouring countries but most of the stolen cables and materials are often sold through South Africa to Asian countries.

The new policy is expected to help in policing and preventing illegal exports. "Illegal trade is expected to reduce in response to continuing disruptive operations," Eskom says.

The International Trade Administration Commission (Itac) says in determining an "optimal price preference rate", it has to consider what will be a sufficient level to assist the metals beneficiation industry to improve its competitive position. The body has to set the rate at a level that will not have adverse effect on the scrap collection industry.

Itac has found in its investigation following the draft policy directive issued by Economic Development Minister Ebrahim Patel in January this year that foundries are marginally profitable, and in some instances it found "substantial price disadvantages" compared to foreign competitors manufacturing similar products.

Institute of Foundrymen CEO John Davies says scrap metal prices in South Africa have always been subjected to international spot prices and when prices fell in the past, and especially after the 2007-08 crisis, collections certainly did not come down.

He does not believe there will be an increase in theft as street collectors are not only reliant on scrap metal.

It is the "sweetener" in the total recycling packet.

Speaking on behalf of the metal-casting industry, Mr Davies says any measures aimed at reducing the industry’s input cost must be welcomed. "If it can improve the profitability of foundries they can become more competitive by lowering their prices and improving their orders," he says.

Mr Davies says that scrap metal makes up 30%-60% of the metal casting industry’s input cost. A reduction of 20% will make a difference on price-competitiveness. He admits it is only one of several challenges facing the industry.

The industry also needs measures to improve skills development, productivity, technology adaptation, better asset utilisation and higher productivity.

The Non-Ferrous Metal Industries Association chairman Bob Stone says recent reports by the National Foundry Technology Network showed that there has been a drop of 13% in the number of foundries between 2007 and 2011.

Industries such as secondary metal smelters, foundries and scrap processors have suffered for the past 13 years due to the reduced availability of affordable and quality scrap metal as exports of metals such as copper, brass, lead, aluminium and zinc "soared" to Asia.

"This resulted in 10,000 job losses in the foundry industry alone with the aluminium sector suffering the worst shedding of up to 64% of production capacity over the past six years," Mr Stone says. A recent survey of the foundry industry found that it is working at only half capacity, with only 53.8% of companies reporting working five days a week, and 43.6% reporting working short time.

The industry has requested nearly a 26% reduction in input metal costs.

Mr Patel has indicated that existing measures to curtail the export of scrap metal have to be strengthened to deal with the job losses, deindustrialisation and to improve the competitiveness of downstream industries.

Itac will regulate the exports of ferrous and nonferrous waste and scrap and will not allow any exports unless they have first been offered to local users.

An economic impact study and a possible review of the preferential rate and administrative framework will be done after the first year of the policy directive.

Seifsa warned last year that the benefits of converting scrap had long been recognised by South Africa’s trading partners.


Source: Opens external link in new windowbdlive.co.za

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