JOHANNESBURG (Business Day) --A prominent economist has criticised the government's plan to restrict the export of scrap metals, saying South Africa's dominant steel makers - already under fire from the trade and industry department over high steel prices - were likely to benefit most from such measures.
The department is considering the introduction of an export tax on scrap metal - including aluminium, copper and ferro scrap - as one of the primary measures to discourage the export of scrap and so ease input costs for downstream manufacturing.
Steps have already been taken to tighten the export of scrap metal and export permits are needed for the export of a host of scrap metal products.
According to government estimates, about half of aluminium scrap and 25% of steel scrap is exported.
But the economist, who declined to be named, believed the department's plans were likely to benefit established manufacturers, such as ArcelorMittal SA and Highveld Steel, rather than new manufacturers.
" Mittal is the biggest user of scrap in South Africa so if the government introduces the tax it would effectively constitute a subsidy to Mittal.
"Now that's a real irony if you consider the long battle the department has fought with Mittal over high steel prices and its benefit from subsidies in the past," the economist said last week.
Mittal uses about 1.8-million tons of scrap metal annually but 75% of this is internally sourced, so it procures about 450,000 tons - or 15% - of the approximately 3-million tons of scrap recycled annually in the local market.
One of the key aims of the national industrial policy framework is to reduce the input costs for strategic manufacturing sectors in a bid to encourage downstream beneficiation to boost value-added exports.
Metals, and capital and transport equipment have been earmarked as a lead sector for state intervention but the scrap metal industry has warned that measures to curb exports could have severe consequences for about 50,000 people employed in the industry.
Moreover, it is estimated that several million informal traders, making a living from collecting and selling scrap metal, could also be adversely affected.
Chairman of the Metals Recyclers' Association of SA Juan Patuel said he believed any interventions in the present economic climate would be "catastrophic" for the industry.
"There is much criticism of import parity pricing, but what we have pointed out to the department is that a study on the industry has shown scrap metal prices are export parity-based.
"So unlike steel, scrap is actually fairly priced," Patuel said.
Some of the findings of the study, done in 2006 by Simon Roberts, who is now senior economist at the Competition Commission, were released to the industry.
The department has consistently refused to share the study's recommendations with the industry despite numerous calls, Patuel said .
In the meantime, the department has rejected claims by Reclamation Group vice-chairman Sello Mahlangu that the department had agreed to delay its scoping exercise on measures to curb the export of scrap metal until an independent study had been completed.
An official of the department, who declined to be named, said the department had no concrete timelines yet for when it planned to implement export restrictions on scrap.
The department met industry stakeholders in September and invited them to make proposals on measures that could be considered as alternatives to export taxes and submissions on how the duty would affect the industry.
Stakeholders have until the end of this month to make submissions but the department's study is going ahead.
