THE Competition Commission’s Steel Industry Inquiry has been established to examine whether or not there are any features or a combination of features in its value chain that impede, distort, or restrict competition in the South African steel industry.
Gazetted on April 7, the market inquiry is a general investigation into the state, nature, and form of competition in a market, rather than an investigation of specific conduct by any particular firm.
The steel industry is a driver of inclusive growth in the South African economy. As such, the South African steel value chain and the competitive dynamics therein, are among the Commission’s key focus areas for competition intervention and enforcement. The Commission has prioritised the intermediate and industrial sectors since 2008 due to the sector being linked to the production of various consumer goods and the potential of the sector to create significant employment opportunities.
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. In 2021, South Africa was ranked as the 32nd largest crude steel producer in the world, with an output of 5.0 Mt. This indicates that South Africa’s competitiveness in the production and supply of steel has been declining. 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; namely:
(i)Â Â Â Â Â Â Â Â Â Â Â the raw materials and inputs; and
(ii)Â Â Â Â Â Â Â Â Â Â 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
The 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.
Public comments are invited on the scope of the inquiry on or before May 12 2023.
