SA’s largest steel producer, ArcelorMittal SA (Amsa), came out strongly against the proposed export tax on scrap metal on Wednesday though other sectors of the industry support the measure.
Treasury has proposed an export tax of R1,000 per tonne of scrap ferrous metals which Scaw Metals CEO Doron Barnes told MPs Wednesday was needed if the steel industry was to survive.
Scrap metal exports from SA are estimated at about 1.5-million tonnes annually, or about 40% of the total collected stock.
The scrap metals industry contributes R15bn to SA’s economy and employs about 350,000 people, many of whom are involved in informal collection of scrap metal.
The export tax on scrap metal will replace the current premium price system that was introduced in 2013 to regulate the export of ferrous and non-ferrous scrap by not allowing the export of scrap metal unless it has first been offered to domestic consumers at a discount to the international price at the time of sale.
Amsa, Scaw Metals, the Metal Recyclers Association of SA, the Copper Development Association Africa and the International Zinc Association all gave inputs on the proposed export tax during a public hearing by parliament’s finance committee on various tax laws emerging from the 2020 budget.
The Budget Review noted that “SA has generally avoided export taxes”, which are limited by trade agreements and lead to winners and losers in the economy.
It said the introduction of an export tax on scrap metals “aims to improve the availability of higher-quality scrap metal at affordable prices for domestic foundries and mills”.
But Amsa chief marketing officer Colin Hautz argued that there was a more than adequate supply of quality scrap metal in SA to meet local demand and “such a tax would only dampen domestic prices, the benefits of which will not flow to the broader economy in general but rather accrue to the direct users of the resource, the electric steel makers”.
Hautz said the proposed tax would be a “significant and disproportionate direct subsidy to electric steelmakers having a distortive effect on the market. This would be to the detriment of steel making based on iron ore.
“A decrease in local scrap price would dampen the incentive to collect scrap. This would negatively impact the informal sector in particular.
“Even though ArcelorMittal would enjoy some benefit directly from lower scrap prices, it will have a disproportionate effect on steel producers using iron ore [like ArcelorMittal] and we believe the longer-term impact on the steel industry would be negative.
“That there are complaints of a lack of scrap in the country is an indication that the scrap prices are too low to motivate scrap merchants to collect and sort enough scrap. If at present levels, pricing is insufficient to incentivise scrap collection then the answer cannot be an export tax which will only reduce domestic scrap prices further and thereby disincentivise collection even more.”
However, Barnes, who is also chair of the Electric Steelmakers Association, said an export tax on ferrous metal scrap — used by steel mills to produce steel — would be a decisive measure to limit exports, and would provide the domestic steel industry with a much-needed competitive advantage in the context of electricity constraints, high input costs and reduced demand.
He said an export tax would foster competition in the steel market and increase investment in the upstream sector.
Metal Recyclers Association of SA adviser Donald Mackay recommended that instead of having a fixed export tax an ad valorem duty be introduced.
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