Mr Steel in pricing investigation

Eric Samson is probably South Africa’s richest resident, though you don’t hear much of him. His unlisted Macsteel Holdings business empire generates revenue of nearly R70-billion a year, roughly equivalent in size to Sasol, and supplies much of the steel used in the local industry.

Macsteel, one of the 10 largest companies in South Africa, is part of a probe into steel pricing by the Competition Tribunal.

This month the tribunal will hear final arguments in the case brought by Harmony Gold against steel-maker Mittal and its 50% joint venture Macsteel International, which markets Mittal’s products internationally. The two companies have been named as respondents in the first case of excessive pricing ever brought before the tribunal. Though Macsteel International is named as a respondent in the case, it chose not to put up a defence. One reason for its “supine” response, according to documents before the tribunal, is the adverse publicity this would generate for the company.

Harmony and fellow gold producer DRD Gold have accused Mittal of excessive pricing for charging local consumers the equivalent of what it would cost to import steel, which is known as import parity pricing (IPP). Local consumers have long complained that even if they send their own trucks to pick up steel from Mittal’s Vanderbijlpark plant, south of Johannesburg, they are charged the same as if the steel was imported from Europe or Asia. Lack of competition in the sector allows Mittal to load fictional costs such as shipping, wharfage, inland transport and a 5% “hassle” fee on to locally made steel.

One of Harmony’s complaints against Mittal and Macsteel is that the joint venture between them effectively eliminates arbitrage in the domestic steel market. In other words, it prevents a customer buying discounted steel intended for export and then on-selling it into the local market at prices below what Mittal charges domestic buyers. This would undermine Mittal’s domestic pricing structure.

Evidence presented by Harmony to the tribunal earlier this year alleged Mittal’s average domestic prices were between 46% and 76% higher than similar products on the export markets. Harmony CEO Bernard Swanepoel says had Mittal’s steel prices increased at the inflation rate, Harmony would have saved R100-million a year over the last four years.

Government is also rounding on the steel cartel. It supported Mittal’s acquisition of majority control of Iscor in 2003 on condition that it come up with a developmental pricing model — in other words, cheaper prices for local consumers. This hasn’t happened. Earlier this year government lost patience with Mittal and decided to scrap a 5% import duty and was furious when Mittal raised prices on certain steel products last month, the third increase in as many months. The department of trade and industry is reportedly keen to invite other steel producers to set up in South Africa to free up the steel sector. It also wants to amend the Competition Act to outlaw import parity pricing.

Later this month the Competition Tribunal will start deliberating on what action, if any, to take against Mittal. Competition experts say proving excessive pricing is difficult, and there are relatively few international precedents on which to base a decision. But there is growing public anger over perceived abuses of market dominance in sectors such as steel and telecommunications, and government has signalled that it may not wait for a decision.

It has proposed amending the Competition Act to allow the Competition Commission to initiate investigations even where no law appears to have been broken. It also wants to modify the definition of excessive pricing to target prices deemed way out of line with production costs. It also wants dominant companies to improve their pricing transparency.

Should the tribunal find in favour of Harmony, it could then force it to stop discriminating between domestic and overseas customers, and perhaps impose a hefty fine. Though it has not been asked to dismantle the arrangement between Mittal and Macsteel International, this could be an option once proposed amendments to the Competition Act have been promulgated. Competition authorities also have the power to break up monopolisitic entities into competing units, though this remedy is not being sought and would likely run into constitutional obstacles, particularly those relating to private property rights.

In June the tribunal prevented Harmony from amending its complaint to force Mittal to divest its 50% shareholding in Macsteel International. However, the tribunal did allow an amendment that would force Mittal to disclose its list prices, rebates and discounts on flat steel products.

The Financial Mail recently reported that Macsteel, which is 100% owned by the Samson family, generates sales of about $9-billion (R67-billion), about twice the size of De Beers, Pick ‘n Pay or Sappi. Mittal, by constrast, generated sales of just R24-billion last year. This makes Macsteel one of South Africa’s largest companies in terms of revenue. It operates in 39 countries and employs more than 4 500 people. According to the Financial Mail, the company manufactures, trades and ships more than 32-million tons of steel a year, and has built up a strong presence in the United States, where it is rated as one of the top 10 steel service centre businesses.

Macsteel also owns MUR Shipping, headquartered in Dubai, which has between 90 and 130 ships operating at any one time.

The extraordinary growth of the family-owned Macsteel from humble beginnings to become the dominant steel merchant in South Africa, generating revenue that dwarfs the likes of Anglo Platinum and De Beers, has gone largely unnoticed in South Africa.

The group under Eric Samson, now 67, was able to fund its own growth, allowing it to steer clear of the stock exchange and the reporting requirements that go with being a listed company. Samson, who counts Nelson Mandela as a close friend, is notoriously publicity-shy, but as he told the Financial Mail: “We’ve never needed glorification. We have simply got on with our business.”

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Ciaran Ryan
Guest Author

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