SAfrica to decide on scrap metal tax by February

SAfrica to decide on scrap metal tax by February

South Africa expects to make a decision on a scrap metal export tax early next year, but may postpone its introduction as prices have fallen sharply in the global economic slowdown, a government official said.

The government has been discussing the measure to discourage exports of scrap metal and ease input costs for downstream manufacturing to boost value-added exports.

But the plan has faced wide criticism from the recycling industry, which says the tax would benefit the bigger players.

Nimrod Zalk, head of industrial policy at the Department of Trade and Industry, said the government was still evaluating its options.

"At the moment we are looking at whether any kind of mechanism to control the export of scrap is appropriate and if it is, what could be the most appropriate form that it might take," Zalk told Reuters.

South Africa had invested heavily in the collection of scrap, he said, adding it would not be economically efficient to allow scrap to be exported without any further beneficiation, or treatment.

"I can't give any specific date, but we expect a decision early next year, let's say by January or February," he said.

Zalk said the ministry would take into account the drop in demand and prices on the back of a worsening demand outlook.

"When the talks started, we were in the middle of a commodities boom. Now prices have come down and obviously that will factor into our decision," he said, adding the tax might only kick in at a particular point in the commodities cycle.

Prices for scrap are calculated by using the metals prices on the London Metal Exchange (LME), depending on the quality of the material.

DEMAND

Copper MCU3 fell to 3-1/2-year lows last week as demand slumped, and aluminium MAL3 hit its lowest level in more than five years, echoing trends of other industrial metals. Metals soared on Monday, but traders have questioned the sustainability of any rally. [MET/L]

"We might look at a price-based system or at a quantitive restriction, or a combination of both," Zalk said. But industry representatives have complained the tax might subsidise bigger players like ArcelorMittal SA, and it could put smaller scrap companies and individual traders out of business.

ArcelorMittal uses about 1.8 million tonnes of scrap metal annually, of which some three-quarters are sourced internally and the remaining 450,000 tonnes are procured in South Africa. Some 3 million tonnes of scrap are estimated to be recycled in the local market each year. 

"We have never objected to supporting local industry first, but we do object to supporting them to the detriment of our own industry," said Bernard Maguire, spokesman at the Metal Recyclers Association of South Africa.

Maguire said the government was still too vague in what direction it was going with the measure and whom it would benefit, adding that the timing was unfortunate.

"In the light of what is going on in the world at the moment, this is the wrong time for the government to be talking about something like this," he said.

"It's disruptive to the industry in terms of keeping the confidence of our buyers overseas."

information from www.reuters.com