The Competition Authority of Kenya (CAK) has hit nine steel manufacturers who control the industry with a Sh338 million fine, the largest in its history, for causing artificial shortages and fixing prices of the key construction material. This, the watchdog said, led to a sharp increase in the cost of building homes and public infrastructure.
Corrugated Steel Ltd had the biggest fine at Sh86.9 million, followed by Tononoka Rolling Mills Ltd (Sh62.7 million), Devki (Sh46.3 million) and Doshi (Sh41.6 million).
“The companies engaged in cartel conduct whose effect was to increase the cost of construction of homes and infrastructure by artificially inflating the cost of steel products,” CAK said in a statement on Wednesday.
The nine companies are: Corrugated Steel, Tononoka Rolling Mills, Devki Steel Mills, Doshi & Hardware, Jumbo Steel Mills, Accurate Steel Mills, Nail and Steel Products, Brollo Kenya, and Blue Nile Wire Products. Below are the amounts they were fined each.
Corrugated Steel Ltd Sh86,979,378.53 Tononoka Rolling Mills Ltd Sh62,715,074.03 Devki Steel Mills Ltd Sh46,296,011.25 Doshi & Hardware Ltd Sh41,554,290.58 Jumbo Steel Mills Ltd Sh33,140,459.40 Accurate Steel Mills Ltd Sh26,826,344.31 Nail and Steel Products Ltd Sh22,816,546.01 Brollo Kenya Ltd Sh9,360,429.48 Blue Nile Wire Products Ltd Sh9,160,894.30
CAK said a years-long probe had revealed that the firms had colluded to collectively agree on prices of steel products and when they would adjust prices owing to the fact that they controlled the vast share of the local steel market.
“The companies engaged in cartel conduct whose effect was to increase the cost of construction of homes and infrastructure by artificially inflating the prices of steel products. Contextually, steel products such as bars, pipes, beams, and sheets, account for over 20 per cent of the total cost of constructing a house,” said CAK in a statement.
The competition watchdog found that eight of the nine firms, excluding Accurate Steel Mills, had collectively agreed to limit their imports of steel to create an artificial shortage of the commodity and therefore increase prices.
The Competition Act allows CAK to impose a financial fine of up to 10 per cent of a company’s gross annual turnover of the year preceding Authority’s decision. The severity of the penalty is influenced by many factors including duration and scale of the violation, harm to consumers, as well as cooperation by the parties.
“Price fixing and output restriction are illegal under the Competition Act since they hinder competition in markets (business-customer environment). Competitive markets benefit consumers through lower prices, increased choice, and quality of goods and services. Business rivals are also motivated to innovate,” said CAK.
The regulator commenced a probe into the steel industry in August 2020 through a countrywide covert field screening and in December 2021, it raided the premises of eight firms in Nairobi, Mombasa and Kisumu where it seized electronic and physical evidence.
In March last year, the competition watchdog issued notices of investigations to six other steel firms which had not been searched but were considered as parties of interest.
The probe revealed that the companies had held discussions where they agreed to restrict importation of 0.9 millimetre coils and plates, coordinated release of pricelists through analysis of ex-factory prices, monitoring the stock levels and volumes of their competitors and agreeing to skip importation of raw materials to stabilize steel prices.
“Upon reviewing the evidence and rebuttals, the Authority determined that the companies breached the Competition Act,” says CAK.
CAK acting Director-General Dr Adano Wario said the penalties are proportionate to the offence, specifically harm to consumers who have been decrying the high cost of steel products in the country.
“Cartels are conceived, executed, and enforced by businesses to serve their commercial interests, and to the economic harm of consumers. In this matter, the steel firms illegally colluded on prices and margins as well as output strategies,” said Dr Wario.
“This penalty is the highest-ever imposed by CAK...it should send a clear message that cartel conduct is illegal under the Competition Act.”
“The steel sector is critical to the Government achieving its priority agenda, including affordable housing, and thereby supporting the country’s economic performance in boosting infrastructure and manufacturing,” said Mr Shaka Kariuki, Chairman, CAK Board of Directors.
“The intervention by the Authority is backed by strong evidentiary information in our possession supporting the illegality of price fixing and output restriction. Consumers should always buy goods and services that are competitively priced and not faced with artificially determined prices”, he added.
This is however not the first time that CAK has penalised firms for fixing prices. In 2021, the Authority penalised four paint manufacturers a total of Sh66 million for cartel conduct, including price fixing.
The four were Crown Paints, Basco Products Kenya, Kansai Plascon Kenya and Galaxy Paints and Coatings.
