Two gold mining companies have lodged a complaint with the Competition Commission against steel giant Iscor, the complainants said on Monday.
Harmony and Durban Roodepoort Deep allege that Iscor is acting anti-competitively as understood in terms of the Competition Act.
The Act provides for cases of ”abuse of dominance” by an entity that is dominant in a market, such as the South African flat primary steel products market.
The gold companies allege that Iscor is potentially guilty of two abuses of dominance. These are: Iscor charges excessive prices for its local flat steel products, and Iscor provides active inducements to discourage purchasers of its steel from importing competing products.
The filing with the Competition Commission argues that Iscor uses a principle of import parity pricing which has meant prices are artificially inflated to meet the prices of similar imported products. This would not be possible if the market were competitive.
Local steel prices have risen by approximately 50 percent in the last year, the complainants said. They said Iscor’s policy of ”import parity prices” raises prices artificially to the level of imported steel, with notional shipping, tariff, transport and delivery costs added.
This bears no relation to Iscor’s advantages of low rand-based production costs, including being able to buy its iron ore at a cost plus a management fee from Kumba, resulting in the company becoming one of the lowest cost steel producers in the world. The complaint alleges that local prices are far above the export price charged by Iscor for the same products when these are sold abroad.
The complaint argues that the second kind of abuse of dominance is active inducements by Iscor to discourage purchasers of its steel from importing competing products. For example, Iscor sets its local price above the import parity level, but then reduces the price to meet the import price by rebates to its current suppliers.
Some 30% of this rebate depends on whether the purchaser has engaged in imports for a specified period. This way, Iscor maintains its excessive prices at all times and uses the pricing system to discourage competing imports by inducements to those who have to pay Iscor’s domestic prices. Typically, the benefits of these rebates are not made available to end consumers like Harmony and Durban Roodepoort Deep.
Iscor has dismissed criticism of its steel price increases as ”misinformed”.
Iscor representative Phaldie Kalam said Iscor’s pricing policy is highly defendable and that it would oppose any charges brought against it.
”There seems to be a superficial understanding of the fact that steel is an internationally traded commodity and that it follows the same process that internationally traded commodities like gold, platinum and petroleum follow in response to global price fluctuations.
”Since Iscor operates in this global environment, the company is subjected to all the same effects that the global steel industry undergoes. Consequently when huge steel overcapacities exist — and supply exceeds demand — global prices have been pushed down quite dramatically reaching its lowest levels in 30 years. In turn, we have been obliged to lower local prices to maintain our domestic market share and this has benefited South African consumers,” said Kalam.
”Similarly, if international dollar prices for steel rise then Iscor re-aligns its domestic prices in line with the international price changes.” Kalam says that what the current debate around the company’s pricing policy fails to take account of is that Iscor also faces price increases from both domestic and international sources, which the company builds into its prices.
”Some 30% of our input costs are directly dollar-based and around 17% are indirectly dollar-based. So when the rand weakens against the dollar… our cost structures increase accordingly and we have to take account of that in our pricing actions. Similarly we also — like other South African companies — had to contend with domestic price increases in electricity, transportation and gas costs.” – Sapa