On 15 April 2016, Lion Corporation Berhad made an announcement to the stock exchange in Malaysia that its subsidiary, Megasteel Sdn Bhd (“Megasteel”), received a non-infringement notice from the Malaysia Competition Commission (“MyCC”). In the said notice, MyCC has determined that Megasteel has not infringed the abuse of dominant position prohibition under Section 10 of the Competition Act 2010 (“CA 2010”) as stipulated in the MyCC’s earlier proposed decision.
In 2012, MyCC initiated an investigation against Megasteel pursuant to a complaint lodged by its competitor. The complaint alleged Megasteel, an integrated steel producer operating in both upstream (HRC or hot rolled coils) and downstream (CRC or cold rolled coils) value chain, is selling the HRC at a high price to the complainant. At the material time, the complainant is a downstream CRC re-roller and a competitor to Megasteel’s CRC arm.
Upon investigation into the complaint, the MyCC issued a proposed infringement decision in October 2013 concluding in essence that Megasteel is a dominant enterprise in the HRC market and it has abused its dominant position by charging a high price for its HRC and imposing a low price for its CRC, the combination of which amounts to a margin squeeze. Such practice results in the inability of the CRC producer from making a reasonable margin or profit when they produce CRC from the HRC. MyCC then proposed to impose a financial penalty of RM4.5mil on Megasteel for infringing Section 10(1) of the CA 2010.
In Dec 2013, Megasteel through its solicitors, Tay & Partners, submitted its written representation and made oral representations to MyCC in July 2014.
After issuing the proposed infringement decision for more than 2 years, MyCC finally agreed to a non-infringement decision after carrying out careful reassessment of the case with more detailed information obtained through Megasteel’s representation as well as further analysis by MyCC.
Brief arguments and grounds of decision
Whilst looking forward to MyCC’s reasons for its non-infringement finding to be published at its website, below are some insight of the arguments made by Megasteel and agreed by MyCC –
Wrong analysis of relevant market
MyCC initially formed the view that Megasteel holds a dominant position in all forms of HRC market in Malaysia. MyCC admits that this view was inferred based on the fact that Megasteel has been the only producer and supplier of HRC in Malaysia. During the representation session, it was heavily argued that Megasteel is not a dominant supplier of HRC consumed in Malaysia (even though it was the sole producer then) because of the cheaper availability of imported HRC. In its grounds of decision, MyCC acknowledged that its definition of relevant market in the proposed decision is inaccurate and it has to be redefined albeit on different grounds.
Steel market is distorted due to dumping issue
Megasteel highlighted to MyCC that the market for both upstream and downstream products were distorted by international trade and MyCC was looking at the issues too narrowly. It had not considered dumping of steel products by international producers from China and Indonesia. MyCC now agreed that the Malaysian steel industry market is distorted as a result of the dumping issue. Steel manufacturers from China and Indonesia have been dumping their excessive supplies of HRC in Malaysia at much cheaper prices compared to their domestic markets.
No margin squeeze
MyCC determined the complainant’s allegation that Megasteel often undercut its CRC prices was not substantiated. Instead, MyCC found the complainant was the market leader insofar CRC market is concerned. This is in line with Megasteel’s contention that its de minimis presence in the CRC market would not have any effect on the price of CRC in Malaysia or confer on it an ability to drive other equally efficient CRC producers out of the market.
After scrapping its first abuse of dominance case, the focus will now turn on another Section 10 case initiated by MyCC against MyEG in last year. Please refer to our earlier InsiderTAPs on “Oh MyEG! MyCC’s attempt in breaking up monopoly”.