When ArcelorMittal South Africa (AMSA) initially announced in January that it would be closing the Newcastle mill and winding down its long-steel businesses in KwaZulu-Natal, Gauteng and Mpumalanga, much attention was suddenly given to the price preference system (PPS) for scrap metal.

The PPS has been in place since 2013, and was always known to be unpopular among metal recyclers. However, it did not gain much public attention until AMSA’s announcement, owing to its dire implications for 3 500 workers, downstream consumers, as well as the town of Newcastle.

The scrap policy disallows the export of both ferrous and nonferrous scrap unless it is first offered for sale at a discounted price to domestic industry, with the discount calculated using a formula set by the International Trade Administration Commission of South Africa (Itac). In addition, any ferrous scrap that is not absorbed locally faces a 20% export tax.

AMSA argued that the PPS, the export tax, together with surging electricity tariffs and unreliable rail logistics, had made it impossible for Newcastle to compete not only with cheap imports, but with mini-mills benefiting from the scrap policy implemented by government.

Fully aware of AMSA’s discontent, as well as that of the scrap industry, Itac had already initiated a review of the PPS, which was viewed as one component of a broader suite of interventions being considered by the Department of Trade, Industry and Competition to salvage Newcastle and the longs business.

Work on these initiatives intensified after AMSA’s closure announcement and the JSE group twice deferred the shutdown of Newcastle and the wind-down of its longs business after it received financial breathing space in the form of loans from the Industrial Development Corporation (IDC), including a R1.7-billion interest-free loan to keep the longs business operational until the end of September.

Despite ongoing rescue discussions and an IDC due diligence, Newcastle has been placed into care and maintenance, and the longs wind-down is proceeding. While there have been several reports of a possible buy-out, no firm announcement had been made at the time of writing, but AMSA continued trading under a cautionary.

Where some certainty has emerged, however, is in the contentious area of the PPS, with Itac having gazetted new guidelines that include a small reduction in the discount to be offered to domestic scrap consumers, from 30% to 25%.

That notice has been met with strong opposition from both AMSA and the metal recyclers.

Three recycling associations have jointly argued that the outcome flatly ignored their submissions and the plight of more than 400 000 informal scrap collectors, who face declining earnings due to depressed scrap prices.

AMSA, meanwhile, expressed serious concern with the gazetted amendments, arguing that they again prioritise a small group of scrap-based mini-mills to the detriment of the broader steel manufacturing ecosystem.

What this all means for the steel industry is not immediately clear, other than that the scrap over scrap is set to continue.