Steel prices are set to rise this month, bringing the total increases in some product lines so far this year to 72%—even though scrap metal prices have fallen in the past few months.
Scrap metal dealers who wish to remain anonymous say that although prices increased in the beginning of the year they are now “very seriously dropping and continue to drop”. One dealer claimed to have no idea as to why this is happening.
Another said: “To my understanding the refineries are overstocked and that is why prices are now falling ... During the metal boom they bought and are now stocked up.”
ArcelorMittal SA said at the beginning of July that prices would increase by between 3% and 7% this month on rising international prices. Long and flat products would rise by about R500 a ton. Wire rod would rise 14%, increasing by about R1 000 a ton, Mittal spokesperson Tami Didiza said. The move was necessitated by rising input costs and is in line with international prices.
The new increases follow monthly increases since the beginning of the year, some as high as 22%.
The government has considered measures to limit the export of scrap metal to ease input costs on downstream manufacturing. At the beginning of July Trade and Industry Minister Mandisi Mpahlwa said the government is likely to introduce export taxes.
Mpahlwa said government wants to ensure a sufficient supply of scrap metal for the domestic industry. With commodity prices soaring internationally, the government hopes to ease the cost of inputs of beneficiation, he said. “Scrap is an important and cheap source of input, which can reduce the cost of beneficiation. This is really low hanging fruit. You cannot impose a ban on exports, but there needs to be a balance,” Mpahlwa said.
The department has already taken steps to tighten up on the export of scrap metal goods. The International Trade Administration Commission published a notice in the Government Gazette in June, notifying the industry that an export permit was needed for the exportation of a host of scrap metal products.
The restriction has been in place since June 20.
Trade and industry chief director of industrial policy Nimrod Zalk said: “Essentially, there is a global shortage of scrap. Quite a number of countries, such as China and India, have already introduced some measures to restrict exports.”
While restrictions are being placed on scrap metal exports the increases in steel prices have been considerable. “We have in the past month seen continued upward movement of steel prices on world markets and this has created a substantial gap between international prices and our own domestic price,” Didiza said, adding that future price rises are possible, depending on the exchange rate.
South African steel prices now average $880 a ton, while steel in the US costs $920 a ton and in Europe prices are already in excess of $1 000 a ton, Didiza said.
Consumers will feel the pain in higher prices for goods such as motor vehicles, appliances, packaging and building costs.
The price hikes will add to the inflation burden, putting further pressure on the Reserve Bank to raise interest rates.
With a slew of infrastructure development programmes under way in preparation for the 2010 World Cup, demand for steel in the domestic market has shot up to levels last seen in the 1980s.
Mittal said the market situation had no bearing on increases, which are determined by international price movements.
The steel and scrap industry faces a Competition Commission probe into price-fixing. It said it had uncovered a cartel in the steel industry, which it believed involved all producers. The commission said prices in the scrap metal market are also fixed.
Thousands of poor South Africans earn their livelihood from selling scrap metal.