Aluminium industry awaits policy amendments

According to Non-Ferrous Metal Industries Association (NFMIA) chairperson Bob Stone, the secondary aluminium industry has remained uncompetitive in the world market of beneficiated aluminium products, despite the directive of the preferential pricing on scrap metal, issued by the Department of Economic Development in September last year.

The policy directive, which provides local industry buyers of scrap metal with a preferential price of 20% below the international price, is currently under review.

Stone stated in a financial publication article last month that the policy had not been successful in lowering prices and in stemming the flow of exports, as several aluminium-scrap sellers resorted to excuses, subversion or blocking sales by undermining the policy practices, while uncertainty remained regarding issues such as payment terms.

Without significant amendments, the aluminium, foundry and scrap beneficiation industry, as well as other nonferrous metals industries, will continue to decline, Stone says.

About 52 000 t of aluminium scrap was exported last year and about 25 500 t has been exported since the start of this year, he says, adding that, since last year, more aluminium companies have closed down, the most noticeable of which being the largest aluminium foundry in the Western Cape, last year.

Stone, in his capacity as sales and marketing director of scrap-aluminium beneficiating company Zimalco, adds that the company’s sales of aluminium have decreased significantly since 2002, especially exports, which, in the past, averaged 800 t/m and have been zero for the past 18 months, as the export parity pricing of thescrap metal has resulted in a product that is uncompetitive in the export market.

Without successful adherence to the price preferential policy, more companies in the aluminium industry face the risk of closure, he adds.

Further, he emphasises that the success of NFMIA member and aluminium products producer Hulamin’s R300-million investment in recycling local aluminium scrap this year “is vitally important” and that its continued success depends on “the implementation of the preferential pricing policy and the retention of affordable scrap in South Africa”.

Stone emphasizes that for aluminium smelters to be competitive and to produce competitive products, the aluminium industry would need a borderline figure of at least 25% below the international price.

While providing the aluminium market with the maximum incentive to increase volumes to be competitive against the import markets, this would also encourage international investment in the South African industry, Stone points out.

Nevertheless, industry is looking forward to the streamlining of the referential pricing policy that will hopefully start to show benefits after amendments to the current policy have been publicised, he says.

Factors compounding the current state of the aluminium industry include the increasing price of aluminium scrap, owing to increasing global demand from countries such as China, India and South Korea. China currently imports about 250 000 t of aluminium scrap a month.

Another key industry challenge includes the cost of procuring scrap aluminium as a raw material, which currently amounts to about 70% of a secondary aluminium smelter’s input costs.

If South Africa does not export the aluminium scrap, it can be made available for the local market and for beneficiation. It can also enable the industry to assist in contributing to the building of infrastructure, job creation and the localisation of the country’s National Development Plan, he concludes.