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Predatory behaviour seems hotwired into ArcelorMittal’s DNA – Patel

Cape Town – Predatory behaviour seems to be hotwired into the DNA of steel conglomerate ArcelorMittal, Minister of Economic Development Ebrahim Patel said on Thursday.

Patel was speaking at the Competition Commission’s annual competition law, economics and policy conference focusing on competition policy and economic growth in Cape Town.

On August 20, ArcelorMittal agreed to pay a R1.5bn fine for price-fixing and collusion in the steel industry, as well as invest R4.6bn in new capital spending to upgrade plants and improve competitiveness.

Patel said the Competition Commission’s case against ArcelorMittal illustrates the complexities for the competition authorities and government.

“ArcelorMittal is a large, multinational corporation whose behaviour locally suggests – I dare say – that predation is hotwired into its DNA,” he said.

“Complaints to the commission against ArcelorMittal stretch back to 2003,” he said.

Deep legal pockets

The fact that it took the commission 13 years to investigate and settle the dispute with the steel manufacturer should be a lesson for the commission, according to Patel.

“The conclusion of the abuse of dominance case … was made more difficult in the view of the commission by the deep pockets of the litigant, the lack of clarity on the test for excessive pricing and the evidential burden that the commission would need to meet,” he explained.

“Yet this predator recently found itself in a rather unusual position, where it was facing injury from forces beyond its control,” he said. “China’s sharp pivot in its economic strategy contributed to a large and growing glut of steel in global markets.

“The company realised it needed the support of government to weather the storms,” he explained. “Government recognised the need to carefully manage the competing claims between the company and its downstream producers to enable South Africa to have a primary steel industry standing at the end of the great shake-up in markets that will conclude the current period of overproduction.”

Largest penalty yet issued

“The settlement between the commission and ArcelorMittal required the company to pay the largest penalty yet issued against one company – some R1.5bn – (and) to invest in additional R4.6bn in moderning (sic) its steel works so it competes on price and performance rather than on collusion and abuse of dominance,” he said.

“A cap was set on its pricing policies based on a 10% ebit (earnings before interest and taxes) margin, subject to some variation in defined circumstances,” he said.

“It’s quite a significant agreement dealing with pricing as a means to addressing rent-seeking behaviour and will no doubt be an important learning experience for the competition authorities.”

Patel said that while the commission was investigating ArcelorMittal, the industry was also in deep crisis. As such, he said government brought four instruments in the policy tool kit to address this.

The Competition Commission’s work was backed up by trade remedies through adjustments in import tariffs, public procurement provisions to buy steel locally and investment commitments by the Industrial Development Corporation to strengthen industries in the steel sector.

ArcelorMittal: deal provides closure

Responding to the speech, ArcelorMittal South Africa said it welcomed the agreement with the Competition Commission as it provides closure on the company’s negative association with former legacy issues.

“This association was deeply damaging to our business, to our reputation and to our relationships,” ArcelorMittal SA told Fin24 in an emailed statement on Thursday. “The settlement is part of a holistic approach to address our challenges and mend relationships with all our stakeholders.”

“The cases which were before the commission relate to activities that occurred more than eight years ago and we can confidently say that these anti-competitive practices ceased many years ago, thanks to the extensive work that has been done in the company to ensure that this behaviour never again finds place in our organisation.

“This includes strengthening internal controls and governance processes and training employees, contractors and other stakeholders with whom we do business on the company’s code of conduct.

“We are a company with strong values and sound governance at the very foundation of how we operate,” it said. “The CEO, Wim de Klerk, his management team and ArcelorMittal South Africa employees – who are shareholders in the business – are aligned on the business imperatives to return the company to profitability, and a fundamental driver of this strategy is to ensure that we maintain our licence to operate and remain a supplier of choice, supportive of the downstream industry.”

ArcelorMittal said the company will honour its agreement, which is pending Competition Tribunal approval.

Committed to being a good corporate citizen

ArcelorMittal said it was gratifying to hear that the government has acknowledged the centrality of a local primary steel industry in a country’s economy.

“Being a leading steel producer in the country brings with it a certain responsibility,” the company said. “We are firmly committed to being a good corporate citizen and making a valuable contribution to the socio-economic development of the country and the communities in we operate.

“Our intention to invest capital, and uphold the pricing principles which have been agreed with government, reflects our commitment to the growth of the South African economy through creating a sustainable business and growing the downstream industry by supporting our customers.

“As the country’s largest steel company, we are committed to continue contributing to the country’s GDP, creating employment and making a difference in the socio-economic development of the country, especially in the areas that we operate.”

Source – Fin24