Import-parity+pricing+not+a+global+practice,+Crotty,+B+Report



=Import-parity pricing 'is not a global practice'=

Business Report, Johannesburg, March 23, 2006

 * By Ann Crotty**

Johannesburg - There was no other market in the world in which the price of steel was determined by the import-parity price, the competition tribunal was told at yesterday's hearing into complaints brought against Mittal Steel by gold companies Harmony and DRDGold.

International expert Peter Fish, who is the managing director of a consultancy, MEPS International, said he was not aware of a pricing methodology like the import-party price being used anywhere else.

"I'm not saying that there aren't any markets where it is used, but I'm not aware of any … anywhere in the world, said Fish. He added that he was not aware of any other company that used import-parity to set prices.

The two mining firms allege that Mittal Steel's pricing, which is based on import-parity pricing, is excessive and to the detriment of consumers.

The tribunal has heard that local steel consumers are charged on the basis of what it would cost for them to purchase product on the international market and then transport it to South Africa. Further costs such as a 5 percent "hassle" premium were also added.

However, Mittal has argued that it no longer uses the import-parity price and instead uses a pricing mechanism that is based on a basket of international prices.

When asked by tribunal chairman David Lewis why the import-parity price was not used elsewhere, Fish replied: "Because people negotiate on the basis of the merits of the market in which they are in; this may or may not involve consideration of imports."

Lewis then asked: "If producers were in a monopoly or cartel, how would you expect them to price steel? Why is import-parity pricing so unusual?"

Fish replied that it was unusual because "it doesn't reflect the market you're in; the import threat is part of the market and importing is considered". He added that it might be a way for producers to deal with a monopoly situation "but it's odd because I haven't seen it anywhere else".

On the issue of the standard rebate given to South African customers who are buying steel to manufacture products for export, Fish said he had only seen this system being used when governments tended to own steel mills.

He argued that significant changes during the past decade, such as privatisation, consolidation and rationalisation, would ensure that the global industry did not go through the same cycle of peaks and troughs as it had in previous decades. He said Mittal's claim that it needed to be allowed high profits in the cyclical upswing to survive the inevitable downturn did not reflect a realistic view of the long-term strength of an industry that had been significantly restructured.

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 * From: http://www.busrep.co.za/index.php?fArticleId=3170952