The Competition Commission’s case against 12 wire manufacturers, which stand accused of running a national cartel, is set to focus on how smaller players have arranged themselves into a coalition.
Two weeks ago the Competition Commission referred a case against four South African steel manufacturers to the Competition Tribunal.
The companies — ArcelorMittal South Africa, Cape Gate, Cape Town Iron & Steel and Scaw South Africa — are alleged to have been running a cartel for almost 10 years. This was followed by the commission’s referral to the tribunal last week of 12 wire manufacturers which stand accused of running a national cartel between 2001 and 2008.
The two cases appear to be linked, with Scaw and its subsidiary, Consolidated Wire Industries (CWI), having triggered the two cases last July by coming forward to blow the whistle on the cartels in exchange for corporate leniency, which will see them avoid prosecution.
Central to the commission’s case against the wire manufacturers is the fact that 10 of the 12 accused have Rick Allen as a director or a ‘substantial shareholderâ€.
The commission’s referral affidavit seems to suggest that Allen may be a ringleader of the cartel, detailing a number of alleged meetings held between the wire manufacturers, including some where Allen is said to have represented numerous wire manufacturers.
However, Allen has denied this to the Mail & Guardian, stating that he is a director of the Allens Meshco group, made up of 10 of the wire manufacturers listed in the affidavit, which was set up to establish buying power on steel and improve distribution, because the industry was being run by the steel manufacturers.
Allen said that to suggest that Allens Meshco is a ringleader is ‘far-fetched and does not stack up against the factsâ€.
The commission’s case against the 12 wire manufacturers is that between 2001 and 2008 they were involved in price-fixing, market division and collusive tendering. This follows a referral by the commission in January 2007 against six wire manufacturers which were alleged to have fixed prices for galvanised wire, nails and other wire products.
The 2007 referral was set to go before the tribunal on October 5 2009. However, the commission has asked for a postponement so that it can consolidate both cases.
In the 2007 case, Allens Meshco, Wireforce Steelbar, Hendok, Galvwire, Independent Galvanising and Meshrite stand accused of price-fixing, while in the 2009 case Cape Gate, Allens Meshco, Hendok, Wire Force, AgriWire, AgriWire North, AgriWire Upington, Cape Wire, Forest Wire, Independent Galvanising, Associated Wire Industries and CWI are accused of various forms of collusion.
However, CWI has been granted conditional corporate leniency by the commission after coming forward to spill the beans on its fellow colluders.
CWI’s majority shareholder is Scaw South Africa, the steel manufacturer that blew the whistle on the alleged steel cartel in July last year. It appears that through Scaw, CWI applied for leniency at the same time.
Some of the wire manufacturers are alleged to have rigged tenders for Harmony Gold, African Cables and Malasela Technologies by discussing their bids between them. ‘With regard to each of these tenders, the respondent agreed on the prices at which each of the firms would submit its tenders in order to ensure that the identified firm would win the tender in question,†says the referral affidavit.
The referral affidavit also details email correspondence between manufacturers that the commission alleges amounts to market allocation.
On October 30 2006 Andries Serdyn of AgriWire emailed Ronnie Kallan of CWI complaining that CWI was poaching one of its customers. ‘DIY Bloem is now our client. Please stop talking to them, we have lost a lot of tonnage from them,†states the affidavit quoting the email.
The email continues: ‘I will send you a copy of our prices to customers and will appreciate it if you could adapt your prices to correspond with ours.â€
Hendok’s director, Freddie de Kock, said that it would be opposing the allegations made by the commission. Attempts to contact the other wire manufactures were unsuccessful.
Rick Allen responds
We deny these allegations and will be opposing them in the Competition Tribunal.
First, the Allens Meshco group (AMG) is a group of companies we created and of which I am a
director.
The group as an economic entity served to unleash entrepreneurial flair, establish buying power on steel and improve our distribution, enabling us to compete against the downstream wire operations of the vertically integrated steel mills such as Cape Gate, Scaw and Mittal.
Our access to competitive steel was destroyed by the Competition Commission with its referral of our steel agreement (as allegedly anti-competitive) with Mittal to the tribunal.
The pending Barnes [Fencing] complaint against Mittal is now six years old. This steel agreement between the AMG and Mittal was our raison d’être.
The commission has destroyed our ability to compete, the value of our businesses and the competitiveness of the industry at the behest of a competitor. The interests of a competitor, rather than competition, were served. We do not own a steel mill.
Small companies within the AMG are entirely dependent upon the steel mills (also our competitors in the downstream market) for our steel supplies and it is preposterous to suggest we are in a position to boss these vertically integrated steelmakers around.
CWI, the whistle-blower, is owned jointly in an ‘unholy alliance†by ArcelorMittal and Scaw Metals (Anglo), who happen to produce between them 75% of SA’s wire rod.
Why is such a dominant position allowed, let alone granted conditional leniency by the commission?
The steel mills are already involved in a referral of cartel activity to the tribunal. To suggest that the AMG is a ringleader is far-fetched and does not stack up against the facts.
We are kept subservient and compete as best we can. This is a highly competitive industry by steel industry standards and unlike the steel producers, margins are tight.
The steel mills run the industry. It is mischievous of CWI to have appointed some of our distribution companies as agents for their products in certain regions and then apply for leniency and allege that we are in contravention of the Competition Act.
The wire industry has been a highly competitive and marginal business for more than 30 years — since Iscor disposed of 50% of its wire interests to Haggie Rand (Anglo).
The relevance of the wire industry is its value to the steel mills as an outlet for high-priced domestic steel. The profits are generated by the mills at the expense of the downstream industry consisting of small wire companies like ourselves.
The financial accounts of the various parties easily substantiate this and reveal who the victims really are. The issue is not really about wire, as we are merely marginal convertors, but about the stability of local steel prices. It is all about steel.