Steel sector to come under scrutiny
Competition Commission gazettes scope for market inquiry
SOUTH AFRICA: The Competition Commission (Commission) gazetted the draft terms of reference (ToRs) for a market inquiry into the South African steel industry at the beginning of April and has invited public comment on the scope of the inquiry.
In 2014, the South African steel industry was ranked 19th in terms of global crude steel production and was the largest producer on the African continent, producing more than half of the continent’s steel output. By 2021, South Africa had slipped to rank as the 32nd largest crude steel producer in the world, with an output of 5.0Mt. The Commission has in the past intervened in this industry through merger control and enforcement investigations.
The inquiry will be confined to only two levels of the steel value chain:
- the raw materials and inputs; and
- the upstream steel production level.
In addition, the inquiry will focus on the impact of these levels of the value chain on the domestic downstream steel market. The themes of the inquiry will be categorised as follows:
- Inputs and raw materials level of the value chain
- Specific focus will be on iron ore and coking coal. With respect to iron ore, the inquiry will seek to foster effective competition and eliminate barriers to entry and expansion. In terms of coking coal, the inquiry will focus on addressing supply constraints and the costs of procuring this input.
- Upstream steel production
The inquiry’s objective is to address the barriers to entry and expansion as well as promote competition for the benefit of the economy and consumers. At this level of the value chain, the inquiry will focus on the following:
- Review of ownership patterns of steel mills in South Africa and the state of competition;
- Measures to promote entry and expansion of steel producers, in particular firms owned by small and medium businesses and/or firms controlled or owned by historically disadvantaged persons;
- Challenges faced by steel producers and factors surrounding the closure of some steel mills;
- Price setting mechanisms (including pricing trends in South Africa vs international pricing – and South Africa’s price cohesiveness; pricing to downstream players and the role that traders play in price setting;
- Assessment of historical and current industrial policies in place to support steel producers and;
- Impact of the upstream steel producers’ behaviour on the downstream market - including availability of supply, pricing, and quality.
The Steel Industry Inquiry will therefore seek to determine if there are market features impeding competition at the inputs level of the value chain particularly in respect of market concentration, pricing of inputs, and barriers to entry and expansion.
The Inquiry is scheduled to begin 20 days after the publication of the final Terms of Reference with the final report being completed within 18 months.
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