7 February, 2014

On January 9, 2014, CCI dismissed allegations of cartelisation in the steel industry. The investigation against steel producers was initiated by the erstwhile Monopolies and Restrictive Trade Practices Commission (‘MRTPC’) on the basis of news articles reporting unjustified price increases creating an inflationary impact. Following this, the Engineering Export Promotion Council filed a formal complaint with MRTPC in March 2008 alleging that the price of steel had been increased more than three times between April 2007 and January 2008, by an average of 10%.

 
Accordingly, MRTPC ordered its investigative wing, DG (Investigation & Registration) to investigate 34 steel producers for cartelisation. However, before the investigation was completed, the case was transferred to CCI. In 2010, CCI, based on the material available, formed a prima facie opinion and ordered an investigation by DG.

 
DG’s Investigation

 
DG narrowed the scope of its investigation to only four steel companies, namely Steel Authority of India Limited (‘SAIL’), Rashtriya Ispat Nigam Limited (‘RINL’), Tata Steel Limited (‘TSL’) and JSW Steel Limited (‘JSW’) and their conduct in pricing four products, i.e. flat products (HR coils and HR Plates) and long products (bars and rods). DG’s investigation concluded the existence of (i) price parallelism in the four products; (ii) concentrated domestic steel industry susceptible to concerted price fixation; (iii) lack of transparency in deciding prices; (iv) collusive price leadership amongst top steel producers; and (v) circumstantial evidence of coordinated pricing.

 
After having received the objections of the four steel manufacturers, CCI found DG to have followed an inconsistent approach in arriving at its conclusions. Accordingly, CCI directed DG to re-investigate the matter and gave specific instructions to DG.

 
DG’s Supplementary Report

 
Pursuant to CCI’s instructions, DG confined the scope of its investigation only to HR coils, on the grounds that there were no specific allegations pertaining to cartelisation in the long steel segment. DG also noted that the HR coil segment was the most concentrated segment within the steel industry, making it susceptible to collusion. As to the parties, DG confined his investigation to five companies, namely, SAIL, TSL, JSW, Ispat Industries and Essar Steel on the basis of their collective market share of 90% for domestic production, and 75% market share for domestic sales for HR coils.

 
DG’s supplementary investigation did not find any cartelisation for the period between 2007-08 to 2009-10. CCI agreed with DG’s conclusions.

 
CCI’s Decision

 
On the basis of statements made by the steel companies, as well as the customers of HR coils, CCI made the following findings:

• Price changes: Prices were subject to frequent monthly or quarterly changes. Where there were long term contracts, they would remain stable for a month but would change thereafter. For spot sales, price fluctuation was daily or weekly.
• Price negotiations and transaction prices: After the steel companies declare their prices, buyers negotiate prices for supplies. This results in the actual prices differing from the declared prices in most cases- depending on the buying power of the customers and terms of the contract.
• Transport costs: Consumers confirmed that there was no restriction of supply, and that they prefer to buy from the nearest plant to avoid additional transportation costs.
• No fixed pricing pattern: While SAIL announced price changes quarterly, others announced it on a monthly basis. In addition, prices were subject to negotiation.
• No price leadership: No single player was found to declare prices at a regional or national level.
• Price parallelism: While CCI found price parallelism amongst the steel companies, it was attributed to independent price changes on the basis of market conditions and import prices. CCI observed that steel companies did not under-cut each others prices as they competed mostly with the prices of imports.

 
Based on the above, CCI concluded that there was no cartelisation in the steel industry and closed the matter.

For further information, please contact:

Zia Mody, AZB & Partners
[email protected]

Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]

Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]

Aditya Bhat, AZB & Partners 
[email protected]