ArcelorMittal eyes the exit. West Coast.

October 27, 2008 by: admin

Cape Town – ArcelorMittal South Africa, the steel giant fending off a precedent-setting R692 million antitrust fine, has given its strongest signal yet that it could pull out of the country if it is not allowed to charge prices deemed “excessive”.

Owen Rogers, the group’s legal counsel, told the competition appeal court on Friday that the company must be allowed to charge prices that would enable it to cover its costs and generate profit.

“Mittal needs the revenue from the domestic sales to achieve a ‘reasonable’ return on its total sales,” said Rogers.

He argued that Mittal had no power in the international market for steel and it was therefore a “price taker” for its export sales.

As it was unable to secure attractive prices in the international market, it was obliged to charge South African consumers a high price to ensure it would be profitable.

Rogers added that if the company could maximise profit by selling more steel at lower prices in the domestic market, it would do so.

Judge president Dennis Davis countered this by asking: “Why would it bother, because it is superdominant [it] can squeeze as much as it wants out of the domestic consumer?”

The company had in previous tribunal meetings said that it was not making profit and implied that this might result in it exiting South Africa.

Despite this, the steel firm has been steadily increasing its investments in South Africa, which analysts say are justified by the attractive returns the company has earned here.

The competition tribunal found in March last year that the firm had contravened the Competition Act by charging an excessive price for its flat steel products.

In addition to the fine, the tribunal imposed structural remedies aimed at stopping ArcelorMittal SA from blocking the sale of excess product in the local market.

The structural remedies were focused largely on preventing the conditions under which ArcelorMittal SA supplied its joint venture operation, MacSteel International, with flat steel products.

David Unterhalter, the counsel for Harmony, the gold producer that initiated the case against ArcelorMittal SA’s pricing policy in 2005, described the arrangement between Mittal and MacSteel International as a “devil’s bargain”.

He told the court that this arrangement resulted in MacSteel International receiving exclusivity to supply the international market, “as long as no steel was allowed back into South Africa”.

In providing reasons for the need to prohibit ArcelorMittal SA from imposing these resale restrictions, tribunal chairman David Lewis said that the restriction enabled the firm to enjoy the cost advantages of mass production, while securing excessive prices from domestic users.

Unterhalter urged the court to do what it could to expedite a resolution of the case.

“If this has to go back to the tribunal [for further consideration] it must go back with the strictest restrictions on what can be done there.”

He said his client, Harmony, was now in a “very different situation to that which prevailed when it made the complaint … At that stage, it had the resources to take an abuse of dominance case against one of the largest firms in the country.” It no longer had these resources.

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