LETTER: Patel plan a boon for sustainable steel industry

The article written by Donald Mackay (a paid consultant hired by the Metal Recyclers Association (MRA) to promote the interests of scrap dealers) is both shameful as well as critical of the excellent work trade, industry & competition minister Ebrahim Patel and his team are doing for the steel industry (“Scrap metal plan does not add up as a few oligarchs will end up controlling the sector”, August 1).

The price preference system (PPS) on scrap metal that has been extended for two years, together with the export tax of 20% on ferrous scrap, are industrious measures that allow both the steel and scrap industries to be sustainable in the long term. I commend Patel for his courage and commitment to establishing a sustainable steel industry.

There is only benefit to be gained from the PPS and export tax by the whole industry, including honest scrap dealers. A scrap dealer is an agent that sells scrap on behalf of an owner or generator of scrap. A scrap dealer does not buy prime steel and generate scrap as part of the production of a steel part or product. A scrap dealer buys the offcuts from a manufacturer or collector, or possibly a thief, and then sells it for the highest price possible in a very competitive market.

The fact that there is an export tax and the PPS (a discounted defined price at which specific scrap grades must be offered to local users before they may be exported) forces scrap dealers to buy the scrap at lower prices from the domestic market, and then sell the scrap to the domestic market at lower prices and only then, if there is scrap local mills don’t want at these beneficial prices, can the scrap dealer export the scrap and make an additional profit.

The system is effective and allows SA steel mills, which have inherent competitive disadvantages (such as high and unreliable electricity supply and expensive logistics) to compete with imported steel. In the areas where the steel market is competitive the SA steel prices for some products are at times cheaper than the local price in China for the same product — thanks to the Industrial Development Corporation (IDC) for assisting to develop these brave entrepreneurs who employ thousands of South Africans.

MacKay states in his article that 300,000 poor people will be paid less for their scrap because of the PPS. For his benefit, steel scrap always has an owner before and after becoming scrap and no, the silver pylons you see with steel/aluminium cables to conduct our country’s precious electricity do not belong to the 300,000 poor people he is referring to. Just because Transnet/Sanral do not have enough security guards to guard every piece of steel they own does not give title to criminals who go and claim ownership at will and remove or collect this steel and sell it to scrap dealers, as if they were the owners of the scrap. All steel is owned legitimately by someone, and there is in fact no steel or copper available for 300,000 poor people to honestly collect. Unfortunately, MacKay’s opinion that 300,000 people collect steel scrap is mistaken, ignorant and incorrect.

He also states that low value scrap will end up in landfills. This is ludicrous. First, one has to pay to collect scrap and pay to dump into landfills. Any ferrous scrap has value, even with the discount created by the PPS or export tax. Today this discounted price is 50% higher in rand value than it was two years ago, and two years ago the scrap was being collected and sold either to the local mills or exported. Therefore, for MacKay to have an opinion that the scrap will be dumped into landfills is simply preposterous.

There has been much negative comment around the work Patel has done in developing the steel master plan — particularly by the members of the MRA. For clarity purposes, the MRA represents a small part of the entire steel industry in SA, and although each stakeholder has a right to fight for what is in their own best interests, it is important for South Africans to be aware that just because a certain group shouts the loudest, or pays someone to shout on their behalf, does not mean they are right. There are two sides to every story, and in this case I know and believe the work and effort that has been put into the PPS and export tax on scrap by Patel and his team is for the right reasons, and will significantly benefit SA today and in future.

I am grateful to the minister and department of trade, industry & competition for their commitment and hard work.

Doron Barnes
CEO, The Barnes Group and Scaw Metals

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