The Competition Commission of South Africa has gazetted the draft terms of reference for a new market inquiry into the South African steel industry, which will examine whether or not there are any features or combination of features in its value chain that impede, distort or restrict competition in the domestic steel industry.

The commission highlights that, in 2014, the South African steel industry was ranked nineteenth in terms of global crude steel production and was the largest producer on the African continent, producing more than half of the continent’s steel output.

In 2021, South Africa was ranked as the thirty-second largest crude steel producer in the world, with an output of five-million tonnes. This indicates that South Africa’s competitiveness in the production and supply of steel has been declining.

"The commission has in the past intervened in this industry through merger control and enforcement investigations," it points out.

The inquiry will be confined to only two levels of the steel value chain, namely the raw materials and inputs and the upstream steel production level. In addition, the inquiry will focus on the impact of these levels of the value chain on the domestic downstream steel market.

Specific focus will be on iron-ore and coking coal. With respect to iron-ore, the inquiry will seek to foster effective competition and eliminate barriers to entry and expansion. In terms of coking coal, the inquiry will focus on addressing supply constraints and the costs of procuring this input material.

In terms of upstream steel production, the inquiry’s objective is to address the barriers to entry and expansion, as well as promote competition for the benefit of the economy and consumers, the commission notes.

"At this level of the value chain, the inquiry will focus on reviewing of ownership patterns of steel mills in South Africa and the state of competition, and measures to promote entry and expansion of steel producers, in particular firms owned by small and medium-sized businesses and/or firms controlled or owned by historically disadvantaged persons.

The inquiry will also consider challenges faced by steel producers and factors surrounding the closure of some steel mills.

Further, the inquiry will investigate price setting mechanisms, including pricing trends in South Africa compared with international pricing and South Africa’s price cohesiveness, as well as pricing to downstream players and the role traders play in price setting.

The commission will also undertake an assessment of historical and current industrial policies in place to support steel producers, and the impact of the upstream steel producers’ behaviour on the downstream market – including availability of supply, pricing and quality.

The steel industry is a driver of inclusive growth in the South African economy. As such, the South African steel value chain and the competitive dynamics therein, are among the commission’s key focus areas for competition intervention and enforcement.

Further, the commission has prioritised the intermediate and industrial sectors since 2008 owing to the sector being linked to the production of various consumer goods and the potential of the sector to create significant employment opportunities, it notes.

A market inquiry is a general investigation into the state, nature, and form of competition in a market, rather than an investigation of specific conduct by any particular firm, the commission adds.

The public have until May 12 to comment on the scope of the inquiry by emailing written responses to ccsa@compcom.co.za.