Cape Gate appeals Competition Tribunal finding on scrap metal market price-fixing

Steel producer Cape Gate (Pty) Ltd is appealing a Competition Tribunal finding that it contravened a section of the Competition Act by participating in price-fixing in the market for the purchase of scrap metal in South Africa. 

Cape Gate and three other scrap metal buyers - ArcelorMittal, Columbus Stainless, and Scaw South Africa - were found to have operated as a cartel when buying scrap metal from merchants.

Cape Gate chairman, Oren Kaplan, said they were extremely disappointed in the finding.

"The matter was argued in mid-2019 and the Tribunal took more than six years to produce a decision. The Tribunal failed to take any cognisance of the fact that the pricing formula in issue was the outcome of transparent negotiations between the scrap buyers and the scrap merchants. 

“It was not imposed by the scrap buyers, including Cape Gate. Both the DTI (department of Trade and Industry) and the Competition Commission were fully aware of these negotiations and the pricing formula, which was aimed at keeping scrap within South Africa for the benefit of the country’s steel consumers. Cape Gate has always vehemently denied that this can be characterised as collusive cartel conduct. It has already filed an appeal against the decision in the Competition Appeal Court,” said Kaplan.

Scrap metal, which includes waste metal from cans, household appliances, and other metal items, is a key input in the production of steel products.

The Tribunal said: “The Tribunal has found that certain large buyers of scrap, including Cape Gate, entered into an agreement to fix the purchase price of scrap metal.  

“ArcelorMittal and Columbus both admitted liability and concluded settlement agreements with the Competition Commission, which were later confirmed by the Tribunal. Scaw was the corporate leniency applicant.”

According to the Competition Commission, the buyers’ cartel conduct ended in 2008. The Commission’s investigation showed that the cartel activity began in 1998. 

The commission alleged that Cape Gate contravened the Competition Act by fixing the price, trading conditions, and dividing the market for long steel products.

According to the commission, the objective of the buyers’ cartel was to standardise and coordinate the purchase of scrap metal by the respondents to ensure that they were charged similar purchase prices by scrap merchants and further that the buyers’ cartel collaborated and acted in tandem with the scrap merchants.

The commission further alleged that the respondents adopted two main interrelated mechanisms in coordinating the purchase of scrap metal from scrap merchants, namely, a standard pricing formula and standard premiums (discounts). 

Meanwhile, in March 2023, despite denying the allegations of misconduct, Cape Gate signed an agreement and paid admin penalty fees of R1.375 million to settle the dispute.

The Tribunal said: “The commission submitted that the firms operated as a buyers’ cartel, working together to use the same pricing formula and premium when buying scrap metal from scrap merchants. The commission contended that collective negotiations by competitors to directly or indirectly agree on a purchase price for scrap, in contrast to individual and independent negotiations between each of them and each of the scrap merchants, is prohibited by the Act.

“Cape Gate denied the allegations; however, the Tribunal dismissed its defences. Further proceedings in relation to remedies will be determined in due course.”

ArcellorMittal spokesperson, Tami Didiza, said: “The matter you refer to relating to the Competition Tribunal was settled by the company in 2016 and was reported on in our Integrated Annual Reports at the time, thus we have no further comment.” 

Earlier this year, the Competition Tribunal dismissed an application for interim relief brought by Cape Gate and Scaw against ArcelorMittal, alleging that it was engaging in predatory pricing. 

The firms claimed that, following a financial bailout from the government, ArcelorMittal had engaged in predatory pricing by announcing significant price cuts on certain long steel products on April 14, 2025. 

The firms argued that the price cuts occurred when the rest of the industry was increasing prices due to a chronic shortage of scrap metal, and that ArcelorMittal was intentionally sacrificing profits in the short term to weaken or exclude rivals to secure higher profits in the longer term, due to reduced rivalry.

Cape Gate and Scaw asked the Tribunal to interdict ArcelorMittal from engaging in predatory pricing and direct it to charge prices not less than those that pertained on April 14, 2025.

After a hearing and considering the submissions from all parties, the Tribunal dismissed the application for interim relief sought by Cape Gate and Scaw.