Specialist steel pricing mechanism under scrutiny

Date: 15/01/1998

By Chris Johnstone

SPECIALIST steel producers are facing a European Commission probe into the way in which price changes for alloys are coordinated between companies across the EU.

The investigation by competition officials is expected to reach a conclusion before the summer and could lead to important alterations in the price system or its disappearance altogether.

Under the current regime, alloyed steel producers have a bench-mark price for the various alloys they use. Market prices for alloys, which can fluctuate quite sharply, are monitored, with average changes automatically built into the price charged for the end product. Most producers have signed up to the system which industry insiders describe as "as old as the hills".

But the phenomenon of uniform price rises for alloys across the EU sparked worries among Karel van Miert's competition officials about close price collusion, and raised questions about cartel-like activity by the steelmakers.

Officials claim that uniform price rises fail to take account of the different times when alloys are bought, the varying efficiency of producers in using them, and the use of existing stocks.

But steelmakers insist the mechanism is merely a practical instrument for adjusting prices which companies find useful and easy to apply. "Without such a mechanism, adjusting prices can be quite unwieldy," said one industry spokesman. "Commission officials understand the reasons behind the arrangement, but have not come to any firm conclusions," he added.

Alloyed steel is a relatively small part of the overall steel market, accounting for around 10% of total EU steel production in 1994. However, high prices can be charged for specialist combinations. Production is usually broken down into stainless steel, featuring big names such as Sheffield's Avesta, and all other alloy production, which is shared amongst a host of specialist firms. Germany is the Union's biggest producer of alloyed steel.

The price-fixing system is already showing signs of breaking up ahead of any Commission decision. Some steel companies have pulled out of the arrangement, preferring instead to use their own individual pricing mechanisms. "Some British companies have already left it," said an industry spokesman.

The latest focus on the steel industry follows a decision by the Commission last November to ban an agreement between German steel firms to share sensitive data on products. The Commission ordered the Germany steel industry association to stop sharing monthly information on market share and product quality of flat steel, beams and stainless steel wire.

Officials said such sharing of information threatened to prevent companies from attempting to increase their market share and encroach on their rivals, with some of the products already largely shielded from competition from imports.

The Commission's decision followed European Court of Justice rulings that exchanging data in restricted markets was a breach of competition rules.

However, the Commission has said it would not challenge such swapping of information where there was active competition in a market. The German steel industry association has confirmed that it will appeal against the Commission's decision.