The International Trade Administration Commission of South Africa (ITAC) is reviewingthe Amended Export Control Guidelines on the Exportation of Ferrous and Non-Ferrous Waste and Scrap, published on 27 September 2024. The aim of this review is to enhance the overall effectiveness and efficiency of the Price Preference System (PPS) for waste and scrap metals. This is the first PPS review since its implementation in 2013.
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How PPS works
PPS transfers value from upstream generators of scrap metal to downstream consumers, shifting approximately R8 billion per annum to the scrap consumers from the scrap metal generators, such as car manufacturers. PPS has become increasingly complicated over the last decade as more scrap consumers come on board (that R8 billion subsidy is very appealing), while the supply of scrap metal has remained fairly constant – nobody is setting up a factory to make scrap metal and the manufacturing sector in South Africa is not growing. Normally prices would rise, but PPS and export duties on scrap keep the prices artificially low. This, after all, is the objective. To try to keep supply levels high but still at low prices, intense lobbying from the scrap consumers have seen the rules of PPS change. For instance, most of the mini mills are in Gauteng, but scrap is generated all over the country. The PPS rules don’t allow the seller to charge the buyer for transport, effectively discounting the scrap the further it is from Gauteng. Because an offer made from anywhere in the country will stop an export permit being issued, the scrap recyclers at the coast simply recover less.
ITAC has identified several issues that warrant a thorough review of the PPS guidelines, including:
Delivery Times and Distances
The PPS mandates that all transactions occur during standard office hours (8 am – 5 pm). This restriction can hinder timely deliveries, especially if scrap metal needs to be transported outside these hours. The lack of available staff for verification and grading during off-hours can lead to delays and complications in the transaction process. Deliveries made late in the day may complicate cash-on-delivery payments, as banking hours may not align with delivery times. This can create uncertainty regarding payment processing and increase the risk of disputes between buyers and sellers.
The considerable distances between scrap yards and buyers, particularly in inter-provincial sales, can escalate transportation costs. These increased expenses may make certain transactions commercially unviable, discouraging potential sales and limiting market access for scrap dealers. To mitigate high transportation costs, there have been suggestions that buyers should initially make offers for scrap metal within their own provinces before seeking supplies from other areas. This could streamline transactions but may also limit competition and availability for buyers.
ISRI Grading and Acceptable Quality
Disagreements between buyers and sellers have arisen regarding whether delivered scrap metal meets the relevant ISRI specifications
There are disputes about the composition of ferrous scrap metal, particularly heavy melting steel (HMS 80/20). While ITAC can inspect some disputes, it cannot do so for every case, leading to unresolved conflicts between buyers and sellers.
Payment Methods
Effecting cash-on-delivery (COD) payments when delivery occurs outside regular banking hours is problematic. The requirement for bank transfers complicates cash-on-delivery payments, particularly when deliveries occur outside banking hours. This raises questions about when payments should be made and whether next-day payment could be a viable solution. The procurement of bank guarantees is seen as time-consuming and costly, making it impractical for many stakeholders. There are calls for alternative solutions such as credit insurance to replace bank guarantees.
Discount Formula and Pricing
Stakeholders have expressed confusion over the application of discount formulas for various types of scrap metal (including aluminium and copper scrap). There are claims that the amended methodologies for calculating prices are not being applied correctly, which could affect competitiveness and profitability.
Duration of Application Process
The current 15-day circulation period for offers is considered too long by some scrap metal dealers, leading to disruptions in the buying process. Suggestions have been made to shorten this period or require offers to be submitted sooner after circulation begins.
Stakeholder Engagement
Although a Technical Working Group (TWG) was proposed to facilitate discussions among stakeholders, it has not yet been established. This absence limits effective communication and resolution of ongoing issues within the PPS administration.
ITAC is seeking public comments on these issues and welcomes suggestions for improving the administration and functioning of the PPS. The review aims to create a more seamless process for the exportation of ferrous and non-ferrous waste and scrap while ensuring an affordable domestic supply of quality scrap metal for the domestic processing industry.