On 7 April 2023, the Competition Commission (the "Commission") published for public comment Draft Terms of Reference to establish a market inquiry into the South African steel industry.

The establishment of the so-called Steel Market Inquiry (the "SMI") follows a research study by the Commission (based on previous and ongoing investigations through merger control, enforcement and publicly available information) which shows that South Africa's competitiveness in the production and supply of steel has steadily declined over the past several years.

Broadly, the Commission's rationale for the SMI is to examine whether there are any features of the steel industry or the steel value chain which impede, distort or restrict competition.

The SMI will be confined to two levels of the steel value chain:

  • raw materials and inputs; and
  • upstream steel production.

The SMI will focus on the impact that these two levels have on the domestic downstream steel market. The Commission's objective will be to foster effective competition and the elimination of barriers to entry and expansion.

The Commission has noted concerns relating to, inter alia, market concentration, pricing dynamics / behaviour and barriers to entry and expansion at both the inputs and upstream production levels of the steel value chain. It has also identified the following broad themes in respect of each of the identified levels of the steel value chain which may have the ability to impede, distort or restrict competition in the steel market:

  1. Market concentration

At the input level, the Commission will consider the highly concentrated nature of the iron ore and coking coal markets, and whether incumbents possess a degree of market power which enables them to act without constraint from competitors or customers.

Insofar as the upstream steel production level is concerned, the SMI will focus on reviewing the pattern of ownership of steel mills in South Africa.

  1. Pricing dynamics

Concerning iron ore, the Commission will focus its analysis on the price-setting mechanisms utilised by iron ore producers, including the pricing of iron ore which is set relative or close to export prices and the impact of this on the competitiveness of the steel industry. Insofar as coking coal is concerned, the SMI will analyse supply constraints, the steel industry's reliance on imported coking coal and the potential negative impact of this on:

  • the sustainability of steel production; and
  • price setting by local producers (which may seek to set prices at import parity levels).

The focus of the Commission under this theme insofar as the upstream steel production level is concerned will be an analysis of price-setting mechanisms (including pricing trends in South Africa vs international pricing and South Africa's price 'stickiness') including the role that traders play in price setting.

  1. Barrier to entry, expansion and participation

Under this theme, the Commission will focus its analysis on key transport and logistics infrastructure required by emerging iron ore miners and other exporters, including an assessment of the allocation of rail and port capacity and the provision of differentiated pricing based on the size of suppliers of iron ore. The SMI will also assess high regulatory barriers to entry and expansion and whether regulatory requirements are distorting competition in the iron ore market. Insofar as coking coal is concerned, the SMI will focus on policy interventions that may facilitate localisation, encourage entry and support expansion by assisting potential entrants in overcoming barriers. The SMI will also consider any off-take agreements in place in the coking coal market.

Insofar as the upstream steel production level is concerned, the SMI will focus its analysis on the challenges faced by steel producers and factors surrounding the closure of some steel mills, the lack of investment in steel plants in South Africa, and historical and current industrial policies in place to support steel producers. The SMI will also focus on identifying measures to promote the entry and expansion of steel producers, particularly for firms owned by small and medium businesses and/or firms controlled or owned by historically disadvantaged persons.

The public is invited to submit comments on the draft Terms of Reference by 5 May 2023. Written submissions can be sent to ccsa@compcom.co.za for the attention of Ms Mapato Ramokgopa and Mr Tlabo Mabye.

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