SA export duties plan for scrap metal scrutinised
Faces headwinds, including retaliation by China, in event of large chrome ore duty
SOUTH Africa’s plans to impose export duties on scrap metal and chrome came under the spotlight yesterday during a webinar on export duties hosted by experts from the XA International Trade Advisory ( XA) and Cova Advisory.
The webinar highlighted headwinds, including retaliation by China, in the event of a large chrome ore duty while it heard that exemptions would likely have to be considered when the scrap metal duty is imposed.
The government is scheduled to impose the scrap metal duty next April.
Last month, it announced it had approved measures to support the ferrochrome industry, including an export tax on chrome ore, a key stainless steel ingredient.
During the webinar, XA director, Donald Mackay, said South Africa was the world’s largest exporter of chrome, followed by Turkey and Kazakhstan, while China was the world’s top chrome importer followed by Russia and Indonesia.
Mackay believed that for the chrome duty to work it would need to be large enough to create a distortion in the trade pattern.
“If you put a modest chrome duty that does little to alter the buying behaviour, it will serve little purpose, it will not drive investment in ferrochrome. If it is large enough I would assume we would need to ask China’s permission to do that. If we were simply to impose a large duty and surprise China with a large duty, there is a serious risk of a retaliation from China.
China could cause considerably more damage to South Africa’s economy than we could on theirs,” said Mackay.
Mackay said at face value it would be a good idea to drive more ferrochrome sales, however, the proposed duty failed to address underlying issues facing the ferrochrome industry.
“Will the export duty on chrome work? I am sceptical, because part of the reason we don’t have more people producing ferrochrome is an electricity problem, both the cost of electricity and more importantly a stable supply of electricity. It was not too recently that Eskom was paying ferrochrome producers to turn off their factories and pay them to do so rather than risking load shedding,” said Mackay.
Trade, Industry and Competition Minister Ebrahim Patel in July issued a trade policy directive to the International Trade Administration Commission of South Africa to urgently investigate the market conditions around the demand- supply imbalance in the scrap metal industry as a result of Covid- 19. Patel had said in July that local mini- mills and foundries had made representations that they were struggling to survive and were calling on the government to help protect their investments, save jobs and livelihoods.
“The objective of this investigation is to determine appropriate amendments to the Price Preference System guidelines, which can address the shortage in affordable good quality scrap metal,” said Patel.
However, Mackay said there would be more scrap metal exported to the EU and Mozambique as a result of the duty.