Declining Foundries Industry
South Africa’s foundries have been in decline for more than a decade. In the 1980s there were about 450 foundries, till now more than half has been closed, and employment in the industry has declined by 30%.
This attributes to several reasons: increasing input cost of raw materials like scrap metal, expensive and erratic electricity supply, poor local demand for foundry products, as well as rising imports.
Due to the poor local demand, the industry has not invested in the required capital equipment and new technologies.
Restrictions to Stem Exports of Scrap Metals
Scrap metal is the key raw material in the foundry industry. In South Africa, the high foreign demand and highly favorable exchange rate for scrap exporters are driving market inequities, meanwhile charging local buyers export parity prices.
To curb the exports of scrap metal, in September 2013, restrictions came into full effect, which require that the scrap metal should first be offered to local buyers such as foundries, mills and secondary scrap processors at a preferential price of 20% below international spot price before the dealers can be granted an export permit.
However, scrap merchants have blamed foundries for not making valid offers to purchase scrap. They have to face longer waiting periods for export permits, and some permits have been rejected for silly reasons.
Foundries have blamed merchants for finding ways to inflate the preferential price. Bob Stone, chairman of the
Non-Ferrous Metal Industries Association, said that the scrap metal merchants refuse to sell at the preferential price. The policy had not been successful in lowering prices.
In 2013, 52,000 tonnes of scrap aluminium was exported while in the first six months of 2014 exports totalled 25,500 tonnes.
The Amendment of the Policy
In Sept. 2014, the country made amendments to the policy. Certain definitions were added to clarify concepts such as what a valid offer entails.
However, the industry players think that the amendments will not remedy long-standing viability issues in the sector since the restriction’s enactment.
Until March 2015, scrap metal exports continued to take place with and without necessary permits.