South Africa: Scrap Metal Price Preference System Under Review

• Informal scrap metal collectors in South Africa are struggling financially due to low resale prices and perceived exploitation by buyers.
• The Recycling Association of South Africa (RASA) is advocating for the suspension of the Price Preference System (PPS), introduced in 2013.
• The PPS mandates a 30% discount and freight payment to local steel mills before scrap metal can be exported, impacting collector earnings.
• RASA has engaged Parliament's trade industry committee, presenting data showing the sector processes 2.5-3 million tonnes annually and supports 400,000 informal waste pickers.
• Scrap metal prices are complex, determined by supply companies and global market fluctuations, contributing to the financial precarity of collectors.

This national trade policy, while intended to bolster domestic industry, has increasingly burdened the lowest-income participants in the scrap recycling value chain.

Informal scrap metal collectors in South Africa are facing significant economic hardship, with many reporting a substantial decrease in their earnings despite their arduous work. Individuals like Nhlanhla Lucky Dladla, who resides in the Emandleni informal settlement near Benoni, dedicates up to ten hours daily to sorting discarded metal at a dumpsite, often walking five kilometers to reach it. He, along with others, finds it increasingly difficult to secure a decent livelihood from reselling collected materials, with prices for various metals at scrapyards ranging from R1.50 to R140 per kilogram.

Dladla, who has struggled to find stable employment since 2016, relies on this income to support his elderly parents and younger siblings still in school. He collects items such as copper, brass, steel, and aluminium, noting the physical difficulty of gathering even a single kilogram. While he typically sells his recyclables in bulk weekly, he sometimes sells smaller quantities for R200 to R300 when immediate cash is needed. Collectors occasionally pool resources to hire a vehicle to sell their scrap in town, hoping for better prices, but often find it challenging to turn a profit. Dladla voices concerns over low prices offered by buyers, accusing them of exploiting collectors and profiting disproportionately from their labor.

Dau Thaisi, another Benoni-based collector with seven years of experience, focuses on copper due to its higher resale value, earning approximately R600 weekly, which he sends to his family in the Free State. Thaisi consistently attempts to negotiate better prices but is met with refusal from buyers. Both Dladla and Thaisi highlight the perceived exploitation within the system and call for government intervention, emphasizing their contribution to the economy.

At the heart of these financial struggles is the South Africa scrap metal Price Preference System (PPS), a national trade policy currently under review by the Department of Trade, Industry and Competition (DTIC) and the International Trade Administration Commission (ITAC), and set to expire in July 2027, which the Recycling Association of South Africa (RASA) is actively campaigning to suspend. Introduced in 2013, the PPS was designed to ensure that domestic steel producers had priority access to locally generated scrap metal at competitive prices before it could be exported. However, this regulatory framework requires metal scrapyards to offer scrap at a 30% discount to local steel mills and also mandates them to cover the freight costs to these domestic mills before they are allowed to export any material.

While the PPS aimed to bolster local industry, its implementation has had a detrimental effect on the financial viability of the lowest earners in the scrap recycling chain, including informal collectors and smaller scrapyards. The mandated discount and additional freight expenses significantly reduce the profit margins for suppliers, directly impacting the prices paid to collectors. This mechanism, intended to create a competitive advantage for local manufacturers, inadvertently exacerbates the economic challenges faced by those at the initial stages of the recycling process.

The Recycling Association of South Africa (RASA) has been a vocal advocate for the suspension of the South Africa scrap metal Price Preference System, engaging extensively with parliamentary bodies to highlight its adverse effects. Geoff Borrajeiro, RASA's chairperson, confirmed that the association presented a comprehensive sector assessment to Parliament's portfolio committee on trade, industry and competition earlier this year. Further written submissions were provided in June and July, followed by a presentation at the committee's industrial development strategy colloquium in early August.

RASA's submissions underscore the significant scale and economic contribution of the metal recycling sector. The association estimates that approximately 2.5 to 3 million tonnes of scrap metal are processed through yards annually. Data from 2024 indicates 3,552 registered scrap metal dealers. Based on an average of about 20 staff per site, RASA calculates that over 70,000 individuals are formally employed on yard payrolls. Crucially, the sector also supports an estimated 400,000 informal waste pickers, whose right to dignity and the freedom to earn an honest living RASA champions.

The pricing dynamics within the scrap metal industry are inherently complex, as explained by Pius Tsenang, who operates a cash-for-scrap business in Booysens with his brother. Tsenang notes that the prices they receive for scrap are determined by the companies they supply, with rates fluctuating daily. These variations are directly influenced by broader shifts in global metal markets, meaning that the prices scrapyards pay to collectors can change frequently.

This volatility means that scrapyard operators sometimes pay more and sometimes less for materials, reflecting the unpredictable nature of the market. Tsenang acknowledges the need for businesses like his to maintain profitability amidst these fluctuating conditions. However, this commercial reality often clashes with the expectations of informal collectors, who perceive the low and variable prices as exploitation, further fueling the call for regulatory review and intervention in the ZA scrap metal export policy.

Lawyers advising clients in the South African metal recycling and steel sectors must understand the implications of the Price Preference System (PPS) on pricing and export, and monitor the Recycling Association of South Africa's (RASA) ongoing efforts to suspend it, as regulatory changes could significantly alter market dynamics and compliance obligations for businesses in this sector.

Source: Original reporting via GroundUp