Hearings afford rare insight into complex world of steel pricing

Articles: Hearings afford rare insight into complex world of steel pricing

Posted by admin on Monday, March 20, 2006 - 08:24 PM

AUTOMOTIVE industry executives and conveyor belt manufacturers will be among the steel users giving evidence at the Competition Tribunal this week as it enters a second week of hearings into a complaint of excessive pricing against Mittal Steel.
Hilary Joffe

The manufacturers’ stories are likely to provide further insights into the complex web of pricing relationships that Mittal Steel has with its customers. Smaller steel users such as the complainants, gold producers Harmony and DRDGOLD, tend to be charged prices based on import parity. But others pay less because they are larger or are deemed by Mittal to be strategic. In presenting its case, Harmony has marshalled evidence from those who do get special treatment — and those who do not, paying prices well above those Mittal charges its export customers, or those domestic customers that get special discounts. Harmony and DRD- GOLD have accused Mittal of excessive pricing because it uses import-parity pricing to charge domestic customers for flat steel far more than it charges in export markets. To prove the excessive pricing charge, the gold producers will have to show that Mittal is taking advantage of its dominant position to set prices significantly higher than those that would result from effective competition. They also accuse the steel giant of inducement, alleging it uses special deals to segment the market and provide inducements to customers not to import. Mittal counters that if it supplies domestic customers at the same prices it charges in export markets, its business would not be viable in the longer term. It will argue that it no longer employs import-parity pricing, that its prices are in line with international norms — and that its price differentials in the local market are designed to ensure it does not lose customers because they can not export profitably. The tribunal heard on Friday from Stephen Leatherbarrow, the planning director of Barloworld’s Robor Tube, of how Robor negotiated a special pricing deal with Mittal in 2002. The arrangement, which applies to SA’s steel tube and pipe industry as a whole, gives the industry a 17,5% discount on the list price for overland exports into Africa but uses lower, dollar- based pricing for exports elsewhere. Leatherbarrow, whose evidence on the exact size of Robor’s discount was kept confidential, also told the tribunal of the complex volumetric discounting system Mittal operates for large customers. The maximum possible volume discount is 6,8%, “but no one we know is there”, he said. Nampak director Alistair Lang earlier briefed the tribunal on the long-standing special deal on tin plate that Iscor/Mittal has had with Nampak, which manufactures cans for beverages and for the canning industry. The tin plate, automotive and appliances industries are the three “industry-specific” deals Harmony has cited where Mittal has special contracts with manufacturers. That is in addition to the system of export rebates and rebates for value added imports Mittal operates. Harmony’s lawyers argue the special deals are generally where there are strong substitute products (such as plastic), or where local manufacturers are vulnerable to competition from imports. Heavy equipment maker Bell Equipment, by contrast, has no special deal. But CE Gary Bell told the tribunal of how, when Bell switched to importing steel in 2003, Mittal responded by dropping its price significantly, so that Bell, which was locked into a six-month contract with a foreign supplier, found itself importing at a cost that was slightly higher than it could get locally.

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