Plastics News - The Cost of Polymers
June 27, 2012 at 11:05 AM
THE South African Competition Commission is looking to challenge industrial giant Sasol over their "excessive pricing" of polymers, the key material used in the manufacturing of plastic containers and buckets.
Because it targets two key South African industrial policy objectives (the commission accuses Sasol of lowering input prices for manufacturing and acting against firms that use import parity pricing) the case is viewed as important by the government. Briefing members of parliament’s portfolio committee on economic development, CEO Shan Ramburuth stated that the case against Sasol went to the heart of its work to increase the South African companies competitiveness.
"This is the most effective way we can make South African firms more competitive — to stop monopolistic firms from charging excessive prices. It is one of the central organising principles of our work."
He also stated that Sasol’s monopoly polymer pricing was preventing plastics companies from manufacturing basic products such as plastic buckets, industrial plastic food containers, lunch boxes and rulers because the "costs of inputs are so high".
Sasol produces propylene, used to create polypropylene, as a by-product of its synthetic fuel production process. The only other similarly sized company doing this is the South African Petroleum Refinery. Sasol also exports large quantities of polypropylene abroad and to other parts of Africa.
The commission has also put together allegations that Sasol charges its domestic customers more than its export clients. The commission claims they are derived from the "import parity price". This is basically how much manufacturers would pay if they imported the product themselves. This is deemed to be "excessive".
If the commission manages to secure a ruling that the import pricing parity is defined as an abusive practice, it will clear the way for action being taken against other companies acting similarly. Sasol has disputed these claims and plans to contest them.
Defending their pricing policies, Sasol claimed polymers are a globally-traded commodity and that "worldwide supply and demand primarily determines prices". Already, the competition authorities have attacked Sasol’s market dominance. The most recent case, involving fertilizer production, Sasol was fined R250m for collusion and were forced to agree to certain measures.
The case against Sasol is a timely development as the commission is currently being critcised by the parliamentary committee on economic development for not doing enough to help change the structure of the economy.
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