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Crime and Fraud
Monday, December 1, 2008
Fraud abounds

With steel prices still relatively high, members of South Africa’s equally buoyant crime industry have been helping themselves to every manhole cover - or any other scrap of metal not bolted down or electrified with Eskom’s priciest. 
“In short, metal theft, along with the theft of the alloys used in the production of steel, is on the increase - posing both a financial and liability risk to the industry,” says Simon Baker, Business Unit Manager, Alexander Forbes Risk Services.
Apart from the likelihood that many scrap metal dealers and even steel producers knowingly receive stolen material, the risk for the industry doesn’t end there. Fraud and theft, loss and liability threaten almost every part of the scrap metal and steel production chain in South Africa.
For example, fraud abounds. “Scrap trucks are rolled on to weigh bridges with their water tanks filled, registering a higher tonnage. Weigh bridge operators are bribed to recalibrate weigh bridges or allow the same trucks to be weighed twice,” says Baker.
Furthermore, radio-active material can be illegally hidden in scrap metal. Most scrap dealers should have Geiger counters to weed out radio-active scrap. In South Africa, however, many scrap dealers either don’t have these counters or assume that any scrap they receive has already been scanned.
Radio-activity survives the smelting process and can end up in new steel. It will also permanently radiate the smelter and all future metal that passes through it. “You can imagine the insurance implications in liability, lost production and plant replacement, for a smelter that became radiated through the receipt of radio-active scrap,” says Baker.
Also, the production of steel involves adding various special alloys. Since these are expensive and are currently increasing in price, it makes financial sense, on paper, to buy them in bulk and store them ahead of production.
Given the value of alloys, however, they pose a high theft risk.
If producers bulk storing alloys do not insure them and they are stolen before production, they will have to be replaced. In the current market uninsured alloys will need to be repurchased at higher prices which could, says Baker, “Result in several months steel production being sold at a loss as input costs exceed selling price.”
And even if alloys are insured, producers need to make sure they keep updating their insurance in line with alloy price increases.

Copyright © Insurance Times and Investments® Vol:21.11 1st December, 2008
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