The Australian Competition and Consumer Commission has identified potentially significant competition concerns regarding the proposed acquisition of Smorgon Steel Limited by OneSteel Limited, ACCC Chairman, Mr Graeme Samuel, said today.
"In particular, the ACCC has formed the preliminary view that the proposed acquisition will merge the two major domestic producers of long steel products, and will result in a supplier that is vertically integrated from ore mining and steel production through to processing, distribution, engineering support and retail for most long steel products.
"While imported steel products, both as final products and as feedstock for local processing and fabrication, will limit the competitive impact of the acquisition for some types of long steel product, the ACCC is concerned that imports will not act as an appropriate competitive constraint across the range of all long products".
In particular, the ACCC's preliminary view is that the acquisition will lead to a substantial lessening of competition in the domestic supply of steel reinforcing products and grinding media used in mineral extraction and other crushing processes. The ACCC also has concerns that the acquisition may lead to a substantial lessening of competition in the domestic supply of wire products, structural sections used in manufacturing and construction, and steel products used in mining applications.
"The ACCC is seeking market comment and further quantitative data to assess conflicting arguments that the merged entity will or will not be effectively constrained by imports of steel feedstock (in the form of rod and bar, or hot and cold rolled coil) or by semi-finished or finished long steel products, particularly in regard to the products mentioned above.
"The ACCC also has significant concerns about the level of vertical integration post-acquisition, including the dominance of the merged entity in the national distribution of long steel products. While OneSteel has provided the ACCC with a draft undertaking which seeks to address this competition concern through a demerger of the Smorgon Steel distribution business, the ACCC has strong concerns that this divestiture undertaking will not be adequate. In particular, the ACCC is concerned that specific distribution assets offered under the undertaking will not create a viable and competitive competitor in distribution post-acquisition.
"Import competition post-acquisition may also be stymied by the strategic use of anti-dumping claims by industry participants. To address this concern, OneSteel has offered the ACCC an undertaking providing for consultation on future anti-dumping actions. The ACCC is concerned that the undertaking does not adequately address the issue of anti-competitive anti-dumping claims. For example, it creates no penalty for OneSteel if it makes unsuccessful anti dumping claims that harm competition post-acquisition.
"The ACCC has issued a Statement of Issues outlining its competition concerns and seeking informed market responses to concerns identified in a range of product markets and in relation to the adequacy of the proposed undertakings to address these concerns.
"The ACCC seeks comments on the Statement of Issues and OneSteel's draft undertaking by Wednesday 23 August 2006 to enable it to make a final decision on the proposed acquisition by Wednesday 6 September 2006".