Calls for transparency as SA weighs another extension to scrap metal export ban

Government is being accused of persisting with the export ban on ferrous and copper scrap, not to end infrastructure theft – but to protect the investment portfolio of the Industrial Development Corporation (IDC).

XA Global Trade Advisors says in its report relating to the scrap metal landscape in South Africa that the IDC’s exposure in the scrap-consuming industry (foundries and mini mills) is around R14 billion – 10 times the market cap of steel producer ArcelorMittal.

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The IDC is a wholly-owned state finance entity and reports to the Department of Trade, Industry and Competition (dtic).

The dtic introduced the export ban in 2022, initially for six months, but it was extended for another six months at the end of July this year. It is now proposed to extend it for another six months.

“Government’s intervention in the scrap metal sector is so large that it has distorted the market, potentially closing ArcelorMittal’s Newcastle operation resulting in massive job losses,” says XA Global Trade Advisors CEO Donald MacKay, speaking at a briefing on Wednesday.

“I don’t believe the intention to put the ban in place has anything to do with the theft of infrastructure. I am pretty sure the ban is put in place to look after the IDC’s investment portfolio.

“If you are invested in the scrap-consuming sector, the export ban is simply a money printing machine.”

The IDC has increased its exposure to the scrap-consuming industry by more than R3.3 billion in the past four years.

Moneyweb asked the office of Minister of Trade, Industry and Competition Ebrahim Patel for comment on the accusation relating to the intention behind the ban.

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His spokesperson responded: “The minister will consider all inputs and will carefully weigh the impact of the scrap and waste metal ban on the steel value-chain against the substantial damage done to infrastructure and the associated disruptions to business and communities stemming from inter alia cable and railway line theft.”

‘Supportive’ interventions

The scrap metal sector is currently supported by three intervention programmes:

• The price preference system (PPS);
• Export duties; and
• The export ban.

MacKay says South Africa produces three million tons of scrap steel per annum.

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The PPS forces scrap recyclers to offer their scrap at a minimum discount before they are allowed to export.

In the case of ferrous scrap, it is a discount of 30%. “This means that we extract value from the upstream industry to the downstream market at a minimum of R4.5 billion a year,” says MacKay.

According to the Metal Bulletin, the current global price for the most common grade of scrap steel is R6 185 per ton. The PPS price is R4 758 – a third of the global price.

The PPS rules have become increasingly complicated and now provide that when a recycler finds a buyer, it must cover the transport costs associated with getting its product to the buyer.

Although the intention was to replace the PPS with export duties, both programmes are still running simultaneously.

Between August 2021 (when export duties were imposed) and September 2023, R1.4 billion was paid in export duties on scrap metal that no one wanted to buy locally.

“This is an enormous removal of productive capital from the economy for product not even in demand by the scrap consumers,” XA Global Trade Advisors says in its report.

According to MacKay, since 2016 there has been virtually no export of copper.

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“We are not denying that copper infrastructure is being stolen, but it is not leaving the country as copper infrastructure or copper cable,” he says.

“So we have an export ban on a product that is not being exported.”

Theft data secrecy

MacKay expressed concerns about the lack of reliable data on which the ban and the proposed extension of the export ban are based.

His firm and the Metal Recyclers Association have filed requests under the Promotion of Access to Information Act to Patel’s department, the South African Police Service (SAPS), Transnet, Eskom and the Passenger Rail Agency of South Africa (Prasa).

The overall response was that the information is “confidential”.

The secrecy makes it impossible to understand on what information the proposal to extend the ban is based. There is no way of knowing whether the policy decisions are rational or not.

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“Billions of rands of economic value are being transferred from manufacturers, mines, and construction companies to scrap metal consumers, many of which are invested in by the IDC, yet every piece of information which could support these decisions is kept secret,” says MacKay.

“If the interventions were working, it’s hard not to imagine government making everything available.”

XA Global Trade Advisors says unless hard evidence of the reduction in theft of infrastructure as a result of the ban can be produced, the ban needs to be immediately lifted.

“If this is not done, we have moved from a crime fighting action to state support for its own investment portfolio,” the firm says.

Patel’s office says it does not wish to comment so close to the closing date as a decision has not been taken on whether or not to extend the ban.

This article was republished from Moneyweb. Read the original article