SA's junkyard sale

South Africa is exporting scrap metal at a rapid rate, causing local shortages and job losses.

The Department of Trade and Industry implemented regulations that stopped export permits being issued to exporters of scrap metal in 2002.

This caused the Recyclers’ Association of South Africa, a body that represents scrap dealers and recyclers, to bring legal action against the department on the basis that the regulation violated their right to trade in the free market.

Scrap-metal exporters say exporting is more lucrative than selling domestically. The department took legal advice and reversed the regulation.

Exports have resumed, creating local shortages, especially in relatively high-level scrap.

“We’re in a very serious situation,” said Bob Stone of Zimalco, one of the largest secondary smelters of scrap metals in South Africa.

“About 2 500 tons are exported every month.
That’s around half of the scrap metal generated.” He said the smelting industry has shrunk by roughly 40% since 2000, partly because of scrap-metal exports.

According to the Aluminium Federation of South Africa (Afsa), 44 000 tons of scrap metal, out of a total domestic production of 60 000 tons last year, was exported.

Nearly 80% of this went to the Far East. “China is a sink trap for scrap metal,” said David Hughes, executive director of Afsa.

“They’ll take as much aluminium as they can get their hands on.” Korea alone received 28 000 tons of South African scrap metal in 2005.

Exporting scrap on such a large scale means that there is not enough domestic value-add to scrap because it does not go beyond the scrap dealers.

A plan by Toyota South Africa to build an engine manufacturing plant fell through in 2004 on the basis that the engine plant could not be guaranteed reliable supplies by local automotive parts manufacturers who rely on secondary smelters to supply alloys, said Hughes. The deal would have created nearly 2 000 jobs.

John Reid, MD of Metlite Alloys, smelters and manufacturers of aluminium ingots, said: “The exports represent R2-billion to be potentially gained by the market. If it was kept for the local market, the price of R20 per kilogram would be translated into R400 to R500 per kilogram.”

In addition to losing jobs and billions to exports, energy is being lost.

Aluminium manufacturers import alumina because it is not a natural resource.

“The manufacturers use 100% of their energy to manufacture pure aluminium. Smelters use 5% to convert the aluminium into alloys. This means that we are losing 95% of our energy,” Hughes said.

For the industry, this translates into an efficiency loss. “South Africa is a net importer of aluminium, so how can we export it again? It doesn’t make any sense,” said Stone.

Secondary smelters and casters are most adversely affected by the export of scrap metals. Downstream industry relies on scrap for growth. But the shortage of scrap forces it to import products, thus exposing the local market to high world prices.

However, automotive manufacturers are afforded a degree of protection by the Motor Industry Development Plan, in that they are subsidised for importing scrap metal.

But this is only a small segment of the industry offered protection. Stone said the department is dragging its feet in sorting out the issue.

Industry insiders say the department has commissioned Wits Business School to conduct research on the industry so that the department can address the problem based on information currently not available. However, the Mail & Guardian understands that the process has been stalled even further, owing to industry not cooperating with researchers. The department did not wish to comment.

It is also understood that export permits are being issued too easily by the International Administration Commission of South Africa (Itac)—a branch of the department—exacerbating the problem. Exporters that apply for permits are subjected to certain obligations and guidelines. One such guideline is that scrap dealers are to have stock on their property before a permit is granted. It is alleged that scrap dealers are selling consignments that they do not possess at all.

Itac acting chief commissioner Itumeleng Masege replied to questions sent by the M&G regarding this issue and said: “Itac is not aware of permits issued for the exportation of stock not at hand nor has any of its inspections indicated anything to the contrary. In several instances, applications have been turned down or scaled down if the said stock was not at hand.” She went on to say that independent auditors had verified the availability of scrap to be exported.

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