Money with handcuffs

What you need to know about the largest competition law fine in South Africa to date

Over the past 16 years there have been various competition law cases pending against Arcelor-Mittal (Mittal).

In order to bring these cases to finality, Mittal has reached a settlement agreement with the Competition Commission to pay an eye-watering and record-breaking R1.5billion fine (payable in annual installments over the next 5 years) for its involvement in cartel conduct.  The fine (together with other remedies) is significant and represents the largest fine paid by a single firm to date for anti-competitive conduct.

The elements of Arcelor-Mittal’s settlement agreement that are worth highlighting relate to:

  • Cartel conduct in relation to long steel products and scrap metals.
  • Excessive pricing in relation to long steel products.

Mittal admits to having engaged in collusion (i.e. fixing prices and discounts, allocating customers and sharing commercially sensitive information) with fellow cartel members CISCO, Scaw and Cape Gate in the market for long steel products. Mittal also admits to having fixed the purchase price of scrap metal with Columbus Steel, Cape Gate and Scaw.  Although collusion in relation to the flat steel and wire rod markets was investigated, Mittal made no admission in this regard.

The Excessive pricing provision in the Competition Act only applies to dominant firms.  In 2007, the Competition Tribunal found that Mittal contravened the Act by charging excessive prices for flat steel products when gold mining companies, Harmony Gold and Durban Roodepoort Deep, complained to the authorities.  A fine of R691.8 million rand was imposed on Mittal and the Competition Tribunal prohibited Mittal from imposing resale conditions on any of its flat steel products. The finding of excessive pricing was overturned on appeal and sent back to the Competition Tribunal for reconsideration.

In the current settlement agreement Mittal does not admit to the charge of excessive pricing. However, it has agreed to remedies that address competition concerns arising from its pricing conduct.  The remedies include capping its earnings before interest and tax on flat steel to 10% (with a tolerance of up to 15% being permitted depending on market circumstances).  From an industrial policy perspective there is an expectation that this pricing remedy could assist downstream industries for which flat steel products is a key input.

A further significant aspect of this settlement is that Mittal has agreed to a capital expenditure of R4.64bn for the next five years.

This settlement agreement is subject to final approval by the Competition Tribunal.