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Business Day IT IS possible to make quite a good case for imposing curbs of some sort on the export of scrap metal. Scrap is a key input into certain steel-making processes, so it can affect the competitiveness of parts of the domestic steel industry and the downstream manufacturers which rely on it for their inputs. There is a possible link to crime too — if exporting scrap metal is easy and lucrative, that may make it even more attractive to cable thieves and others. But it is almost always dangerous when governments believe they know better than the market how to set prices and allocate goods for commercial use. And so the new price cap on scrap metal which has now been introduced deserves only a very wary welcome at best. The 20% "price preferential rate" has been imposed by South Africa’s International Trade Administration Commission (Itac) in terms of a policy directive issued by the Department of Trade and Industry (DTI). This followed a draft policy directive earlier this year from Economic Development Minister Ebrahim Patel, which argued that scrap exports deprived local steel mini-mills, foundries and other scrap-metal processors of affordable and quality feed stock — and that this therefore undermined the competitiveness of downstream industries. The DTI then directed Itac to regulate exports in two ways: first by disallowing exports unless the scrap was offered first to the domestic market, and, second, by requiring that scrap be sold to domestic buyers at 20% below the price which can be fetched on export markets. This is an unusual way to deploy Itac, which is supposed to deal with tariffs and dumping and the like. But it could be good for steel manufacturers such as mini-millers, for example, who use scrap as their raw material but have to compete with ArcelorMittal SA which relies on favourably priced iron ore to make its steel from scratch. Whether this would enable the makers of pots and pans to be more competitive and save jobs is, however, not clear. The DTI has always been convinced that competitiveness in downstream industries is all about the cost of raw materials such as steel or chemicals and that international pricing is the problem. But it is not that simple — and poorly conceived price caps are as likely to hurt manufacturers as to support them. |