If you want to buy cheap South African steel, go to Ghana. Outdoor equipment and gas cylinder manufacturer Cadac has shown the Mail & Guardian invoices that it says proves South African steel can be bought cheaper in Ghana, China, Thailand and Turkey than it can in the home market.
This, says Cadac manufacturing director Milosh Despotovich, buttresses its claim that South Africa produces among the cheapest steel in the world, yet the prices local consumers pay are the most expensive in the world.
In the past three years, Cadac retrenched 250 workers and shifted most of its production to China, where South African steel can be bought cheaper than it can at home.
“The reason we were forced to move most of our production to China was because we could not get steel at competitive prices,” says Despotovich. “Given the low costs of producing steel in South Africa, this should be a global manufacturing centre. Yet steel being manufactured just down the road can be bought far cheaper in other countries than we can get.”
Cadac has lodged three submissions with the Competition Commission in which it demonstrates Mittal Steel (formerly Iscor), together with steel merchandisers Macsteel and Trident, are in breach of the Competition Act because it engages in price discrimination by offering different prices to different customers. The law requires that all customers be treated equally and that there be no collusion between manufacturer and distributors to maintain higher prices.
Cadac says its complaint to the Competition Commission demonstrates Mittal offers different rebates for steel destined for different markets. The rebate is R764 a ton if the gas cylinder is for retail sales, R1 081 if the cylinder is used for Reconstruction and Development Programme (RDP) housing, and R1 220 for export sales.
Cadac also claims Mittal and steel merchants Trident and Macsteel are abusing their dominant position.
As proof of this claim, Cadac came across a July 2005 quote from Macsteel International offering to sell LPG275 steel (used in making gas cylinders) to a client in Ghana for the equivalent of R3 237 a ton, less than half the price Macsteel was charging Cadac, which in South Africa in February last year was charged R7 388. This was at a time when international steel prices declined by about 25%. Steel exporters benefit from a rebate of R1 234 a ton, but this still does not account for the difference between the local and foreign quotes, says Cadac.
Dave Dawkshas, a spokesperson for Macsteel Service Centres SA, says the price quoted to the client in Ghana was for quantities totalling 637 tons in an unworked condition, delivered in one consignment. This cannot be compared to the quantities of 50 or 60 tons a month ordered by Cadac, he says. He also says it is unfair to compare quotes, given the fluctuations in exchange rates, and the differential between export and local prices, which is controlled by local steel mills (in this case Mittal).
Simon Nash, executive chairperson of Cadac, dismisses Dawkshas’ reply. “We buy double the quantity sought by the client in Ghana for an identical steel specification. We gave Ghana our steel specification and asked them to get a quote for the same steel.”
Dawkshas says Macsteel increased prices of LPG steel by 33,7% between February 2004 and February 2005, after Mittal’s base price increased by 29%. This was because transport and processing costs went up 82% and 16% respectively, “with a minimal increase in gross profit mark-up”.
Dawkshas says Cadac has been challenged to substantiate claims that locally produced steel can be purchased abroad at half the local cost. He further adds that Macsteel Services Centre SA has demonstrated to Cadac that it was making single-digit gross profit margins on its business with the company.
“This is Macsteel playing games,” says Nash. “We showed them quotes from BaoSteel in China and from Thailand that were 35% lower. They just played the same game, trying to claim there were differences (in the steel specifications and quantities). We have now proved that Macsteel steel is cheaper in Ghana by 35% to Macsteel steel sold in Johannesburg.”
Eight years ago, with an arm- full of orders from local oil companies, Cadac invested R20-million in its Roodepoort plant to tool up for the manufacture of industrial gas cylinders. In 2004, it was forced to shut this section down after its customers in the oil sector found it cheaper to import gas cylinders. Today, if you buy a Cadac potjiekos pot it will have been made in China, retailing at 30% cheaper than it costs to produce locally.
“Mittal has taken a completely different approach to the old Iscor,” says Despotovich. “They appear to understand the predicament we are in and are trying to be more competitive in their pricing, but we suspect this may be due to the intervention of the Department of Trade and Industry.”
Though Mittal is more accommodating than the old Iscor, this does not diminish the damage done to Cadac’s business, adds Despotovich.
Macsteel commissioned a report from KPMG to prove that it is not profiteering from Cadac. It purports to show that Macsteel makes single-digit margins on sales to Cadac, against the industry standard of 30%. This is dismissed as “smoke and mirrors” by Cadac, which says KPMG could only come to such a conclusion by including non-production costs.