AMENDMENT TO THE SOUTH AFRICAN PREFERENTIAL PRICING SYSTEM (PPS) FOR SCRAP METAL. AGAIN.

By Donald MacKay | May 27, 2021

Yet another change to the PPS rules. For a system due to euthanised on 1 August 2021, when export duties on scrap metal are imposed, an inordinate amount of tinkering is still happening. Tinkering designed, as always, to transfer ever more value from the recyclers to the consumers, ironically at a time when the consumers have so much scrap on hand that some are refusing to take in more.

Cape Gate, one of the largest consumers of scrap metal, recently put out an advisory stating

“Please note that due to Cape Gate limiting order quantities, all deliveries to CG must be stopped by Wednesday, 26th of May 2021. Any trucks arriving after this date may be rejected. Order (sic) will resume in June 2021.”

What is this PPS thing?

The PPS forces scrap recyclers to offer their scrap metal to local consumers at a discount to the global price of scrap before they are given a permit to export. If they have no offers for their scrap, then ITAC will issue them with a permit and they can export. The global price of scrap is a derivative of the primary metal the scrap is made out of so the various varieties of scrap steel will be tied to the global price of steel.

When enough scrap has been collected by a recycler, they will offer this to the local consumers of scrap, via ITAC, who circulates these offers to the consumers. If a consumer makes an offer at the PPS price or better, within 15 days of the list being circulated, then the recycler will not be given an export permit. If they are not given an offer then, in theory at least, ITAC has to issue their export permit within 5 working days.

The PPS in other words shifts the market power to an oligopsony (word of the day! – Highly concentrated group of buyers). This oligopsony is made up of a small group of buyers whose market power is disproportionately increased by way of government decree. The PPS is the dompas system for scrap metal. With the dompas, black labour was constrained to a small area, which meant that users of that labour could force down its value by stopping the person looking for work somewhere else. In much the same way, the PPS constrains the area the scrap can be sold in (South Africa only), thus removing the competition of foreign buyers.

The scrap consuming industry is a hungry beast, because of the artificial market which PPS creates. How is it that a local foundry cannot afford to buy local scrap at normal market prices, yet an Indian consumer of that scrap can? What is wrong with our market, that we can only extract value from our scrap metal if government intervenes aggressively too force down prices?

Nevertheless, another round of changes, without prior consultation or notice.