ArcelorMittal South Africa admits to price fixing for scrap metal, long steels

South Africa’s Competition Commission has reached a settlement agreement with ArcelorMittal South Africa Limited (AMSA), finalizing all pending investigations and prosecutions against AMSA for the steel company’s part in price fixing for both long steel products and scrap metal purchases.

As part of the agreement, AMSA admits that it has been involved in cartels involving both long steel and scrap metal. The company also has agreed to pay a penalty of 1.5 billion rand (US $111 million). Furthermore, AMSA has agreed to a number of steps relating to complaints against its pricing conduct without admitting that its pricing conduct constituted a contravention of South Africa’s Competition Act. In this regard, over the next five years AMSA will limit its EBIT (earnings before interest and tax) margin to a cap of 10% for flat steel products sold in South Africa. In addition, AMSA has committed to a R4.6 billion (US$ 336 million) capital expenditure over the next five years.

In concert with AMSA agreeing to the changes, South Africa’s Competition Commission has agreed that the settlement will cover all pending cases against AMSA, including those still under investigation.

The agreement relates to various cases that the Commission has investigated against AMSA over the past ten years, some of which were subsequently referred to the Tribunal for adjudication.

The following is a summary of the cases and the Commission’s findings.

In April 2008, the Commission initiated an investigation against long and flat steel producers in South Africa, including AMSA. This investigation was initiated following concerns about high and increasing prices of steel products observed by the Commission despite South Africa being a net exporter of steel. As part of the investigation, the Commission raided Cape Town Iron and Steel Works Ltd. (CISCO), Highveld Steel and Vanadium Corp. Ltd. and the South African Iron and Steel Institute (SAISI). Subsequently, Scaw South Africa Ltd, a subsidiary of Anglo American Plc, applied for and was granted leniency for its involvement in collusive practices.

The Commission’s investigation found that AMSA, CISCO, Scaw and Cape Gate Ltd, all producers of long steel products, engaged in collusion by fixing prices and discounts, allocating customers and sharing commercially sensitive information through SAISI and the South African Reinforced Concrete Engineers’ Association. The Commission referred its findings to the Tribunal for prosecution.

In regards to the scrap metal cartel, in December 2009, the Commission initiated an investigation against AMSA, Highveld, Cape Gate, CISCO and Columbus Stainless Steel Ltd for collusive practices. The Commission’s investigation found that AMSA, Columbus Steel, Cape Gate and Scaw fixed the purchase price of scrap metal. In this regard, the Commission found that these firms collectively negotiated and agreed to a standard formula, which was used to determine the purchase price of scrap metal as a buyers’ cartel.

The Commission found that AMSA, Columbus Steel, Cape Gate and Scaw collaborated and acted in tandem with the upstream cartel of scrap merchants. In August 2013, the Commission referred this matter to the Tribunal for adjudication.

For flat steel, in April 2008, the Commission initiated an investigation against Highveld and AMSA. The Commission found that between 1999 and 2009, AMSA and Highveld had an understanding in terms of which Highveld would follow AMSA’s lead on pricing in the flat steel market. The Commission also found that AMSA and Highveld used SAISI to exchange commercially sensitive information such as sales volumes. This conduct constituted price fixing and market allocation in contravention of the Competition Act. On 30 March 2012, the Commission referred a complaint against AMSA and Highveld to the Tribunal.

In December 2003, the Commission received complaints from Barnes Fencing Industries Ltd, F&G Quality Tubes Ltd and Dunrose Trading Ltd against AMSA and other wire producers. The complaints alleged that AMSA differentiated between its customers in terms of discounts offered for low carbon wire rod and that this conduct amounted to price discrimination in contravention of the Competition Act. The Commission’s investigations found that AMSA engaged in the conduct of price discrimination in contravention of the Competition Act. This complaint concerned the period 2000 to 2003.

The complaints were referred to the Tribunal for adjudication in January 2007. In the second complaint received in December 2008, the same complainants alleged that the conduct complained of in the first complaint had continued from 2004 to 2006. The Commission referred the second complaint to the Tribunal in November 2012.

In July 2011, the Commission initiated a complaint into AMSA’s pricing policy for its flat steel products based on a complaint by the Department of Trade and Industry. The investigation pertained to AMSA allegedly charging excessive prices for its flat steel products in contravention of the Competition Act. The Commission has not made a finding in this matter.

The Commission and AMSA have agreed to resolve the above complaints on the following terms:

• AMSA admits that it engaged in collusion with CISCO, Scaw and Cape Gate by fixing prices and discounts, allocating customers and sharing commercially sensitive information in the market for the manufacture of long steel products, in contravention of the Competition Act. AMSA also admits that it fixed the purchased price of scrap metal with Columbus Steel, Cape Gate and Scaw.

• In respect of the flat steel complaint and the Barnes Fencing complaints, AMSA admits the conduct as alleged by the Commission, but does not admit that this conduct constituted a contravention of the Competition Act.

• In relation to the pricing complaint, AMSA does not admit that it acted in contravention of the Competition Act. However, it has agreed to remedies to address competition concerns arising from its pricing conduct.

“The Commission is delighted to bring an end to these longstanding proceedings. The penalty sends a strong message of deterrence and is an important milestone in the Commission’s enforcement against cartels,” says Commissioner Tembinkosi Bonakele. “In addition, the pricing remedy reflects our desire to protect South African consumers against dominant firms, particularly on key industrial products. This remedy is a safeguard in the event that AMSA were to revert to the historical prices that the Commission regards as excessive.” 

ArcelorMittal is the largest steel producer in Africa.