ArcelorMittal South Africa Used `Exploitative' Prices

By Carli Lourens

Oct. 24 (Bloomberg) -- ArcelorMittal South Africa Ltd., the biggest steelmaker in Africa, used its ``overwhelming'' dominance to charge local customers ``exploitative prices,'' Harmony Gold Mining Co. told the Competition Appeal Court.

In rebuttal to ArcelorMittal's attempt to reverse a Competition Tribunal finding that the company overcharged for flat steel, Harmony said the steelmaker demanded prices that bear ``no reasonable relation to prices under competitive conditions.'' ArcelorMittal is also seeking to have a record 691.8 million-rand ($65 million) fine canceled.

``There is entrenched dominance,'' David Unterhalter, counsel for Harmony and co-complainant DRDGold Ltd., told the court in Cape Town today. ``Nothing is going to make this a contestable market.''

The Competition Tribunal didn't establish or quantify the ``economic value'' of the flat steel ArcelorMittal sold and therefore couldn't prove that the prices were excessive, the steelmaker argued yesterday. South African law bans a dominant company from charging an excessive price, defined as a price for a product that bears no reasonable relation to the economic value of that product.

``Superdominance in itself tells you nothing about whether the price is at economic value'' or higher, Robert Peterson told the court yesterday.

`Not the Clearest'

Peterson, an advocate, is one of two so-called amici requested by the judge to give their view of the interpretation of part of South Africa's competition law and its general application to cases of alleged excessive pricing. The amici are not remunerated.

The Competition Tribunal's determination of excessive pricing ``is not the clearest determination I've ever encountered as a judge,'' Judge Dennis Davis said. The antitrust body ``reached their conclusions long before them came to the Act,'' the judge also said.

ArcelorMittal South Africa, based in Vanderbijlpark, says it sets domestic charges based on a basket of prices for the metal in developed and developing countries. Four years of talks with the government to reduce the cost of steel to local users ended without a resolution and were described as a ``sham'' by the tribunal.

ArcelorMittal exercised the full extent of its market power, Unterhalter told the court. The company has a share ``of the order of 80 percent'' of the local market and is probably in the bottom 10 percent of steel producers in terms of the cost of producing the material, he said.

The steelmaker isn't ``assailed'' by competition from imports, because by its own admission it is in a ``naturally protected'' market, Unterhalter said. At the southern tip of Africa, the company is far from any significant rivals, he said.

ArcelorMittal South Africa fell 3 rand, or 3.6 percent, to 80 rand as of 2:10 p.m. in Johannesburg, giving the company a value of 35.7 billion rand.

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net