MyCC proposes RM4.5mil fine against Megasteel for allegedly abusing position in market

KUALA LUMPUR: The Malaysian Competition Commission (MyCC) has proposed a RM4.5mil fine against Megasteel Steel Sdn Bhd for allegedly abusing its dominant position in the market to drive out its rivals in the downstream industry.

Megasteel is given 30 days to either submit its representation in writing or indicate its wish to make an oral representation before the MyCC.

Stressing that the proposed penalty was less than 10% of Megasteel’s global turnover last year, MyCC said the firm had flouted Section 10 (1) of the Competition Act 2010.

“The MyCC finds that Megasteel’s practice of charging or imposing a price for its Hot Rolled Coil (‘HRC’) that is disproportionate to the selling price of its Cold Rolled Coil (‘CRC’), amounts to a margin squeeze that produces anti-competitive effects in the market.

“Margin squeeze is also regarded as abusive means by a dominant enterprise to leverage its market power in the upstream market so as to drive out the enterprise’s rivals in the downstream market,” said MyCC Chief Executive Officer, Shila Dorai Raj.

The MyCC had taken action following complaints lodged by Melewar Industrial Group Berhad last August, alleging an abuse of a dominant position by Megasteel in the HRC market in Malaysia.

MyCC said it had taken into account the nature of the product, the structure of the market, the market share of the enterprise, entry barriers and the effects of Megasteel’s margin squeeze on its downstream competitors, as well as the seriousness of the infringement in determining the amount of proposed penalty.

MyCC had noted that Megasteel, the only domestic manufacturer of HRC in the upstream market, was also involved in the downstream production of CRC and HRC was an essential input for the downstream manufacturers of CRC.

Noting barriers to entry into the HRC market are high, MyCC said it put Megasteel in a very special position in the market over other CRC producers.

“Although Megasteel’s monthly prices for its CRC were all lower than those charged by its competitors in the downstream market, they could not be considered as competitive prices.  

“The reason is the monthly margins (between CRC and HRC prices) earned by Megasteel were all insufficient for the recovery of its monthly costs of transforming HRC into CRC,” said Shila.

The artificial lower CRC prices that were charged by Megasteel have the effect of hindering, if not lessening, competition in the downstream market, making this type of pricing practice a serious breach of competition law, she added.