The Competition Commission has published draft terms of reference for a market inquiry into the steel industry after intermediate industrial products were identified as a priority sector for the commission’s attention.
Steel is such an essential input for many strategic and core segments of the economy and therefore, it is no surprise that the commission considers it important to determine whether the industry is functioning optimally, says Lara Granville, director at law firm Cliffe Dekker Hofmeyr’s department of competition law.
Taigrine Jones from the same department adds that the steel industry faced the attention of the commission before, including prosecutions for excessive pricing of steel products and investigations into alleged cartel conduct by various players within the steel value chain, such as the producers of long and flat steel products, wire rod, and scrap metal.
“Now the commission’s gaze is less focused on discrete conduct by discrete entities as the commission proposes an extensive scope of inquiry allowing it to consider conditions and conduct across players across the value chain,” he says.
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According to the terms of reference, steelmaking remains a key strategic industry for South Africa, representing 1,5% of the country’s gross domestic product (GDP) and accounting for approximately 190 000 jobs.
However, the country’s global position as a steel producer is declining. Although the local steel industry was ranked 19th in terms of global crude steel production and largest on the African continent in 2014, it ranked a meagre 32nd place in 2019.
Despite the decline, the terms of reference still recognise that the domestic iron ore industry has the potential to be globally competitive thanks to the high quality of iron ore the country produces.
The inquiry will be confined to two levels of the steel value chain, namely the provision of inputs and raw materials for steel production and primary steel production.
The terms of reference imply that a particular focus in analysing the input level of the supply chain will be on iron ore and coking coal as the main inputs for steel production, but the supply of other inputs, such as scrap metal, also appear to be within scope, Granville says.
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The inquiry aims to determine if there are market features impeding competition at the input level of the value chain, particularly in respect of market concentration, pricing of inputs and barriers to entry and expansion.
“It will be interesting to see how the Commission weighs the consideration of small- and medium enterprises owned by formerly disadvantaged people with the acknowledged high capital costs required to establish a steel plant and mine and supply iron ore,” Granville says.
The scope of the inquiry is wide. In its present form, it includes everything from inputs and logistics to import duties and environmental concerns in a range of different markets including mining iron ore, importing coking coal and steel production.
Jones says this will involve canvassing the views and submissions of a huge range of industry participants and will in turn result in recommendations affecting players across multiple markets.
Members of the public are encouraged to comment on the draft scope of the Inquiry on or before 5 May 2023. Written submissions can be sent to ccsa@compcom.co.za for the attention of Mapato Ramokgopa and Tlabo Mabye.
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