The department notes with concern today’s SENS announcement by ArcelorMittal South Africa (AMSA) to increase domestic steel prices in the form of an additional iron-ore surcharge.
The Department of Trade and Industry (DTI) is of the view that this surcharge is unjustifiable on a number of grounds.
The surcharge arises from a commercial dispute between AMSA and Sishen Iron Ore Company (SIOC) for the supply of 6.25 million tons per annum of iron ore from SIOC at cost plus three percent. This supply arrangement in turn flowed from AMSA’s 21.4 percent undivided share in SIOC held under old order mining rights.
It appears that AMSA has committed a grave commercial error in failing to convert its old order mining rights to new order mining rights by the cut-off date prescribed in the Mineral and Petroleum Resources Development Act.
The announcement of an additional iron-ore surcharge on steel products signals that the South African economy is expected to bear the cost of this commercial error, which in turn will hamper our industrialisation efforts.
AMSA has consistently argued there should be no link made between its costs of production and it’s pricing of steel in the South African market, in the context of a long period of concessional access to iron ore on a cost plus basis.
AMSA claims to price its steel according to a ‘basket’ of international steel prices comprising four countries: United States of America (USA), Germany, China and Russia. Producers in all of these countries are subject to commercial costs of iron ore. Hence the addition of an iron ore surcharge to this basket amounts to double counting. Further since at least January 2009 AMSA has been pricing steel above its own international ‘basket’ price.
In the light of this announcement and recent pricing behaviour, DTI will be requesting the Competition Commission to investigate AMSA’s conduct on the grounds of potential breaches of the Competition Act including abuse of dominance.
In this regard DTI takes note of the statement of the competition tribunal in its findings on 27 March 2007 in the Harmony/Mittal matter, that absent effectiveness of alternative remedies �" “divestiture may constitute the only appropriate remedy.”
Enquiries:
Sidwell Moloantoa Medupe
Tel: 012 394 1650
Cell: 073 522 6801
E-mail: MSMedupe@thedti.gov.za
Issued by: Department of Trade and Industry
30 March 2010
