One of South Africa’s largest fine penalties has been charged to ArcelorMittal SA (ADR) (NYSE:MT) for anti-competitive behavior. This fine was issued after the company admitted that they had been involved in cartels with regards to long steel and scrap metal.
The company admitted to the fact that they had been in collaboration with cartels; fixing the pricing of steel. The consequence of this ArcelorMittal has agreed to pay a fine of $110 million – This is approximately 1.5 billion rand.
Furthermore, it came to light that the company which in February had raised 4.5 billion rand due to a rights issue, admitted that they had fixed the pricing of particular steel products and in addition to this that they had shared commercially sensitive information with their competitors.
An investigation towards overpricing was launched in 2008. These concerns were raised due to the fact that since 2002, consumers were being charged import parity pricing.
However, the South African Steel industry, which extends to the state-controlled Scaw Metals together produced an abundant amount of steel – more than capable of meeting the local demands for this metal.
It is evident that in the coming years ArcelorMittal is bound to face pressure, this is due to the fact that over the next 5 years a minimum of 300 million rand has to be paid annually.
On top of this annual fee, there is also an inclusive year-long 10% cap EBIT margin. The fine is not the only thing that this company has to face, however, paired with decreasing demand, higher costs, and cheaper imports.
This company has failed to make a profit In almost half a decade, therefore an agreement was made that as part of the settlement 4.6 billion rands in capital expenditure will be issued, this was reported by the commission.
Although due to the fragility of the steel industry at this current time as well as the position of the company it has been stated that for the first 18 months there will be no interest on the administrative penalty.