The International Trade Administration Commission of South Africa (Itac) has Gazetted only modest changes to the contentious price preference system (PPS) for scrap metal, reducing the discount for domestic ferrous scrap consuming industries from 30% to 25%.

The PPS has been in place since 2013 and 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 out by Itac and which is again outlined in the Gazette.

In addition, any ferrous scrap exported from South Africa is subject to a 20% export tax.

Chief Commissioner Ayabonga Cawe told Engineering News that the changes to the guidelines had followed on from a process that had taken 13 months to complete.

The new discount on ferrous scrap, he added, was decided on the basis of developments in the market that had affected international demand, as well as economic modelling conducted by Itac.

No changes were made to the nonferrous scrap discount.

He said the outcome was unlikely to please any of the participants in the scrap value chain, but said that it sought to strike a balance that was in the interests of ensuring that the PPS met its stated goals until its proposed expiry on July 31, 2027, in a way that supported local value addition.

“We have a likelihood here of a decision that will not make any of the parties happy, and that's often, in policy terms, the best decision,” Cawe said.

The amended guideline sustains the controversial stipulation that the seller of the scrap be responsible for the cost of transporting and delivering the material to the buyer, and Cawe indicated that this stipulation had also been considered when reducing the discount.

The PPS and export tax on ferrous scrap have both come under intense scrutiny during the course of 2025, largely owing to the fact that steel producer ArcelorMittal South Africa (AMSA) has attributed a decision to place its integrated Newcastle mill into care and maintenance and to start winding down its long-steel business partly to the policy.

The decision was initially delayed to allow for further consultations and after the JSE-listed company received a R1.68-billion interest-free loan from the Industrial Development Corporation in March. But no solution has been announced subsequently, despite several reports of a possible buy-out of AMSA.

AMSA has persistently argued that the PPS and the export tax created an uneven playing field between its integrated KwaZulu-Natal operation and those mills producing steel using the discounted scrap in electric arc furnaces.

Following a review, Itac Gazetted amended PPS guidelines on October 31, 2025, that also confirmed changes to the administrative aspects of the scheme, including the establishment of a Technical Working Group (TWG) to assist it with the administration of the PPS.

Membership of the TWG would include a representative from the Metal Recyclers Association, the South African Iron and Steel Association, the Copper Development Association Africa, the Nonferrous Metal Association, the International Zinc Association of Southern Africa, and the Recyclers Association of South Africa, and would be convened at the request of Itac.

Cawe said the TWG would be a standing structure that would ensure ongoing dialogue that would help inform Itac of “any shifts and developments that are happening in any of the materials that we regulate”.

XA Global Trade Advisors CEO Donald MacKay told Engineering News that the amendment introduced a “very small reduction to the discount rate”, while retaining the rule stating that the seller is responsible for covering the cost of transporting the scrap.

“That’s problematic because it’s an effective discount on top of the normal discount – one that disproportionately harms those recyclers that are further away from Gauteng, where most of the scrap consumers are based.

“So if you have a scrap yard in Kimberley, the size of your discount to the buyer is considerably larger than a facility in Gauteng.

“Retaining that seems negative, as it’s not obvious to me why you should be penalised because you happen to be collecting scrap somewhere outside of Gauteng,” MacKay said.

He is also concerned that the 15-day period previously stipulated for concluding a purchase from the date of the offer is no longer included in the amendment of the PPS. This could result in buyers delaying their purchases to place further pressure on the seller to reduce the price.

MacKay also saw nothing in the updated PPS that would result in AMSA changing its mind with regard to the wind down of its longs business.

“Given that this is taking place within a context of an export duty and significant investment by the IDC into the mini-mills, there is a risk that the amended PPS will continue to increase demand for scrap, but reduce the incentive to supply scrap by capping the price, which could result in shortages.”

Asked whether he felt the changed to the PPS had struck the correct balance, Cawe said that Itac had made a determination based on the balance of evidence that had been placed before it and the economic modelling it had conducted.

“We are never going to always get it right, but certainly, our reading at this stage is that this strikes the right balance.”