ArcelorMittal SA's pricing parity policy likely to boost domestic steel sector

KAMPALA (Scrap Monster): ArcelorMittal SA has signed a deal with the Department of Trade and Industry, thereby removing the import-parity pricing with immediate effect. The new pricing agreement is expected to bring in more transparency to prices of imported steel. The model will also contribute to revival and growth of South African domestic steel industry.

The South African government had launched an investigation in 2008 to determine ways to lower domestic steel prices after allegations by customers that Arcelor Mittal SA was charging high prices. The investigations also covered other steel firms including Cape Town Iron and Steel Works, Scaw Metals, Cape Gate and Highveld Steel and Vanadium.

The Competition Commission had stated that the South African subsidiary of ArcelorMittal admitted its involvement in long steel and scrap metals cartels. At the same time, it had denied interfering in the flat steel and wire rod markets. Consequently, ArcelorMittal SA was fined SA R1.5bn for its anti-competitive pricing policies. It also agreed to limit price increases of flat steel products. Further, it committed R4.64bn to capital expenditure for the next five years. Following this, the Commission stated that all proceedings against the company have come to an end.

According to the Commission, the penalty on ArcelorMittal SA is the biggest penalty imposed on a single company for anticompetitive pricing policy. The company had later agreed to pay the fine in five annual installments of SA R300 m. Wim de Klerk, CEO clarified that the fine will not directly impact any jobs immediately as it plans to identify other sources to finance the fine. He further demanded increased protection from uncompetitive Chinese steel imports.

Klerk noted that the fine would definitely put more pressure on the company. Incidentally, ArcelorMittal SA had reported loss of SA R8.6 billion in 2015. Also, the company has reported a loss of R450 million during the first half of 2016.

The new pricing principles will be applicable only to flat steel products. According to the new pricing agreement, local price for flat steel products would be based on an import-weighted average basket of products that SA competed against. The basket comprises of the EU (50%), Asia (30%) and the North America Free Trade Area plus Brazil (20%). Also, Russia and China will be excluded from the basket.

Hereafter, a steel committee headed by the International Trade Administration Commission, would monitor the import-weighted basket and ensure that ArcelorMittal complies with the pricing mechanism for all flat steel products. A review of flat steel pricing will be carried out using a transparent mechanism based on the forecast basket price and one month forward rand to dollar exchange rate.

Trade and Industry MinisterDr Rob Davies noted that the agreement will act as a big relief for the domestic steel industry and at the same time will bring about structural changes to existing pricing mechanism. The basket will ensure fair price during times of ups and downs. The policy will make upstream steel mills more sustainable and ensure competitiveness of steel-dependent industries in the country.

Headquartered in Vanderbijlpark, Gauteng, ArcelorMittal South Africa is the largest steel producer on the African continent. The company supplies over 61% of the steel used in South Africa and exports the rest to sub-Saharan Africa and elsewhere.