Johannesburg -
South Africans are paying through their noses for steel because, ever since 2004, when ArcelorMittal's prices have consistently outstripped those of competing countries like China, Russia, South Korea, Taiwan and even Japan.
A Department of Trade and Industry comparison of ArcelorMittal's prices for hot rolled steel, which is internationally regarded as the reference product for steel prices, shows that ArcelorMittal's average prices in 2009 were 14.4% higher than the global average, and to date this year are 9.5% higher than the average global price.
South African consumers have also, with the exception of 2007 and 2008, each year paid even more than competitors in the European Union (EU).
Virtually only US prices have matched South African prices over this period, but even the Americans paid almost 12% less for steel in 2009 than we did.
The department's comparison also shows that only in 2008, when global steel prices went sky-high, Mittal's prices were under the global average.
Because steel is an important input product for the economy, it plays an important part in an economy's global competitiveness.
Mittal's South African market share for flat steel is estimated to be more than 80%, and it is therefore in a very strong position to fix prices for the domestic market.
Flat steel is used, for example, for pipe manufacture and in the motor industry.
In the market for long steel, used principally in construction, there is more competition and Mittal?s prices are more in keeping with international market prices.
The comparison does not include ArcelorMittal's surcharge of about R600/ton that becomes effective on May 1.
Kumba said in February that it would no longer deliver around 6.25m tons of iron ore to ArcelorMittal at the giveaway price of cost-plus-3% because the steel manufacturer had neglected to apply for new-order mineral rights for the Sishen mine in the Northern Cape.
Mittal now wants to recover the additional cost of its iron ore from consumers, although its former savings were never passed on to consumers.
The comparison of its prices over the past six years points to a bigger problem: despite its "comparative" pricing policy, South African flat steel prices are out of kilter with international cycles.
Mittal's prices were particularly steep from 2004 to 2006, when it was still determining prices on an import parity basis.
Over this period Mittal's prices for flat steel, including hot-rolled steel, were subjected to an investigation by the competition authorities following complaints from Harmony and Durban Roodepoort Deep (DRD), and Mittal was eventually fined R691.8m for "exorbitant" pricing.
Mittal appealed against this and the matter was eventually settled out of court by Harmony and DRD.
Mittal estimated that it had earned an additional R20.7bn in turnover between 2000 and 2005 as a consequence of its pricing policy.
It then adjusted its pricing policy in a basket of countries - China, Brazil, the United States and Europe - but in its 2007 finding the tribunal said that the outcome of the new model did not materially differ from the import parity model.
In 2007 and 2008 Mittal's prices were however more in line with those of world markets, but this is probably attributable more to the massive price increases experienced worldwide during this period.
When the start of the global economic crisis caused prices to tumble almost overnight at the end of 2008, the same sharp decreases were not passed through to South African consumers and since 2009 the picture tends, rather, to hark back to 2004 and 2005.
The competition authorities also made it clear that, if its instructions to Mittal did not improve competition in the market in future, it would order the company to dispose of certain assets.
Mittal has steel plants in Saldanha, Vanderbijlpark and Newcastle.
This threat has recently been echoed by the Department of Trade and Industry, which wants the competition authorities to re-investigate Mittal's steel pricing.
- Sake24.com
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