LETTER: Numbers against scrap metal export levy don’t add up

In his recent article Donald MacKay mentioned that mini-mills are selling steel locally at Chinese prices (“Export duties on scrap: the winners and losers”, October 31). This is incorrect. The rebar sold by most mini-mills today is priced at R11,000 a ton ex-works plus VAT. At an exchange rate of R18.05 a dollar that translates to $610 a ton.

Chinese local rebar is selling at $470-$480 a ton and China is exporting rebar at similar levels. Turkey, the largest importer of scrap metal, is selling rebar at $580-$590 a ton ex-works. India, the second largest importer of scrap metal, has most local rebar prices at about $520-$530 a ton. We believe that even now SA long steel prices are at the higher end of the global spectrum.

SA’s scrap export tax, alongside the price preference system (PPS) framework, serves as a strong deterrent for local scrap dealers and traders who might otherwise prioritise exports over domestic supply. In the past, the absence of this tax enabled widespread circumvention of the system, driven solely by the goal of exporting scrap metal.

SA’s policies remain relatively lenient compared to many nations that have implemented an outright ban on scrap metal exports. Scrap metal is a scarce national commodity that must be preserved for local beneficiation, supporting the production of greener steel and driving sustainable development within our economy.

That has become of paramount importance as the use of fossil fuels in iron and steel production is a major contributor to the carbon emissions causing global climate change. The world has now accepted that the steel industry needs to decarbonise and making steel from the remelting of scrap metal has been endorsed with the highest priority and significance in that regard.

Over the past decade the number of steel mini-mills in SA has grown to 13, with additional projects and expansion under way. These facilities collectively process about 2.5-million tons of scrap metal annually. That contributes more than R20bn to national GDP, cascading VAT contributions of almost R3bn annually, more than 5,000 direct jobs and even more indirectly, and reduces CO₂ emissions by 7.5-billion tonnes annually. 

The establishment and expansion of these mini-mills has also spurred regional industrial diversification and created enhanced and equal employment opportunities across almost every province.

Exaggerated claims

We would also like to address the claim that scrap consumers in SA receive about R8.5bn a year in value transfers through the PPS. This figure is exaggerated and does not align with the actual dynamics of the market. If we disregard the 20% export duty and any export control whatsoever, a scrap metal dealer in Gauteng would realise about R5,000 a ton ex-works for heavy melting steel loaded in containers for export.

In comparison, local mills pay an average price of R3,800-R4,000 a ton for the same material. That difference of R1,000 a ton translates into a total value of R2.5bn for the 2.5-million tons of scrap metal consumed annually by mills across SA — far from the claimed R8.5bn.

The calculations above assume that all the scrap generated in the country is exported. Yet even in the days when SA had no export controls on scrap metal, no more than 1-million tons was exported annually because not every scrap processor is equipped to load containers for export.

Loading trucks to supply domestic consumers is far simpler than loading containers, and there are many local scrap dealers who are still loyal to local consumers as they are all-weather friends — unlike fair-weather export markets.

The dollar exchange rate also plays an important role in making exports more attractive than domestic supplies. Hence, we believe hardly R1bn is lost by the scrap metal industry compared with the R20bn contributed to GDP and R3bn in VAT by the mini-mills. MacKay’s exaggerated claims undermine the genuine benefits of the PPS and export tax policies, which are vital in balancing the market and supporting local industrialisation. 

The important point is to understand the difference in the cost efficiency of the production of steel between mini-mills and ArcelorMittal SA (Amsa). We don’t know Amsa’s exact conversion costs (the cost of converting raw materials to finished goods), but we believe a mini-mill can convert scrap to rebar at a far more reasonable cost. Instead of appreciating the efficiencies of mini-mills, MacKay laments the SA government’s trade measures, which support such industrial activity. 

Since scrap metal is attractively priced in SA, Amsa could use more of it. Blast furnaces can use as much as 20% scrap as their input in the production of steel. This would help drive up the prices for mini-mills as well as help the local scrap metal dealers who would then be less inclined to export. 

With the advent of the African Continental Free Trade Area it is imperative for any SA steel producer to be as cost efficient as possible to be able to compete in the global as well as African steel market. It is of utmost importance for the SA government to preserve the scarce commodity of scrap for domestic beneficiation.

We doesn’t want our national resource of scrap metal to be exported, local manufacturing to become more expensive, and for SA to import more steel. We will soon find out more about this once the Zimbabwean steel producer Dinson Iron & Steel is fully operational and we see how it compares and competes with Amsa, as both are blast furnaces using iron ore and coal to produce steel. 

Amit Saini

Coega Steels

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