The Competition Commission has recommended the prohibition of a merger between Arcelor Mittal and Duferco Steel Processing (DSP).
The merger would ”substantially prevent or lessen competition”, the commission said in a statement on Thursday.
Arcelor Mittal had intended acquiring 50% of the shares in DSP from the Duferco Group and the other 50% from the Industrial Development Corporation of South Africa (IDC).
The commission said its decision was based on rulings by the Competition Tribunal on: Arcelor Mittal’s 2002 Iscor-Saldhana Steel merger and a recent excessive pricing case; extensive market review; and the behaviour of the companies where their products overlapped.
It said DSP and Arcelor Mittal were the only local producers of cold-rolled coil and galvanised steel, both of which were made from hot-rolled coil produced by Arcelor Mittal.
However, DSP served only the export market, even though restrictions requiring it to do so had been struck down by the tribunal at the time of the Saldanha merger.
The commission found that DSP’s existing weak position in the South African market was directly related to structural conditions described in the tribunal’s ruling on Arcelor Mittal’s anti-competitive behaviour with regard to excessive pricing.
In September, the tribunal fined Arcelor Mittal R691,8-million for fixing prices by making sales at reduced prices, but contractually preventing buyers from passing on the savings.
It ruled that Arcelor Mittal not impose on any customer conditions on the use or resale of its flat steel products, and ordered the company to at all times have publicly available list prices, rebates, discounts and other standard items of sale.
On Thursday, the commission found that an independent DSP with access to competitively priced steel, not sold under actual or threatened restrictive conditions, would be a competitive rival to Arcelor Mittal.
The commission noted that the tribunal’s action in the excessive pricing case against Arcelor Mittal was aimed at ensuring competitively priced steel was available to local customers.
”This remedy should provide an opportunity for a firm in DSP’s position to be an effective competitor to Mittal,” the Commission said.
”Approving the merger would frustrate competition that would otherwise emerge as a result of the tribunal’s ruling in the excessive-pricing case ruling.”
The commission said that, as a priority sector, infrastructure development was a vital contributor to South Africa’s economic growth.
”Competition in the steel industry must be nurtured to protect the downstream market.
”This merger would undermine the competition authorities’ intention to promote more competition in this space,” it said. — Sapa