Divisions have emerged within a big scrap metal industry body over a decision to take the government to court to challenge some of the measures to tightly regulate the export of scrap.
The Reclamation Group (Reclam), one of the largest scrap metal dealers in the country, is at odds with its industry representative body, the Metal Recyclers Association of SA (MRA), which has launched a court application to challenge the government’s decision to continue with regulations forcing industry players to sell at a discount locally while an export tax has been introduced.
Most recent industry figures show that in 2019 SA shipped about 633,000 tonnes of scrap metal, amounting to R5.6bn.
The MRA, whose members collect and process about 80% of all scrap metal in the country, is challenging the parallel requirements of the new export duties, which have been implemented, and the unexpected continuation of the price preference system, arguing that this is a double whammy and a double barrier to the ordinary export of scrap metals.
Dave Kassel, the chair of Reclam, one of the largest scrap metal dealers, processors and recyclers in the country with an estimated 30% market share and responsible for over 1,500 jobs, said at the weekend the court challenge by the MRA is ill-advised and not supported by some of the association’s members.
“The MRA claims to represent and control a substantial portion of the industry — approximately 80%. This claim of the MRA is misleading having regard to the fact that Reclam comprises and represents a very large portion of this 80% and Reclam’s views are not aligned to that of the MRA,” he said.
Kassel said the price preference system and the export duty do not run in parallel, so that a recycler does not face a double whammy.
“It’s one or the other, not both,” said Kassel, adding that dealers always factored in the additional costs to prevent losses as a result of the price preference system or the export duty.
“They purchase material with the full knowledge of the price that they will ultimately achieve on the sale of such material. This obviously translates into the ability of the recycler/dealer to at all times protect its margin and sustainability and results in no prejudice to the recycler/dealer.
“Since 2013, to my knowledge, no members of the MRA have gone insolvent or been placed in liquidation. On the contrary, relevant reports are that the industry has been largely very profitable,” Kassel said.
The state, however, is of the view that scrap metal is a feedstock into manufacturing and is crucial for SA’s industrialisation drive. The government has been pushing for measures to boost access to higher-quality and more affordable metal waste in the local market.
A price preference system was introduced in 2013, which disallowed the export of scrap metal unless it had first been offered to domestic consumers at a discount to the international price at the time of sale. The government’s long-term plan for the industry, however, has always been to have in place an export tax on scrap metal to replace the price preference system. It says such a tax will be the most effective tool to reduce the domestic price.
But trade, industry & competition minister Ebrahim Patel announced late in 2021 that the price preference system would be extended by two years. This came a few weeks before the export tax came into effect on August 1, meaning scrap metal exporters must now sell at a discount locally and at a cut rate when they export, with many critics considering this a form of double tax.
Kassel said the price preference system and the export duty are in the best interest of SA’s economy. Many other countries, such as Angola, Argentina, China, Columbia, India, Indonesia, Israel, and Zimbabwe, have moved to tightly regulate the movement of scrap metal amid rising levels of theft.
In addition, Kenya has just announced a moratorium on scrap metal trade as part of efforts by its government to put a stop to the increasing vandalism of public installations and the resulting export by unscrupulous recyclers.
“One then asks oneself what possible rational explanation exists for those who are adamant that no export restrictions should be in place. It would appear that the only explanation can be is to [unwittingly] aid and assist possibly unscrupulous recyclers/dealers,” facilitating the illegal exportation of stolen goods, VAT fraud, money laundering and exchange control breaches, Kassel said.
An MRA spokesperson maintained that its court action is supported by the majority of its members.
Donald MacKay, the association’s trade adviser, said it is incorrect to say the price preference system and the export duties do not run in parallel.
“You start with having scrap metal to sell and notify Itac,”, he said, referring to the International Trade Administration Commission, which is tasked with customs tariff investigations, trade remedies, and import and export control.
“They then notify the local consumers, who make offers under the PPS [price preference system] rules.
“If someone offers at PPS or higher, the recycler can’t get an export permit and has to then sell at the discounted price locally. Now let’s assume there are no local offers. In the past you would have received an export permit and could have exported without paying the duty ... Now if you have no offers, you can get the export permit but also have to pay duties.
“This is an enormous cost added to products which no-one is buying locally, so to say they don’t operate in parallel makes no sense,” MacKay said.
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