Summary of Commission Decision

of 4 May 2020

declaring a concentration compatible with the internal market and the functioning of the EEA Agreement

(Case M.9409 – Aurubis/Metallo Group Holding)

(notified under document number C(2020) 2752)

(Only the English version is authentic)

(Text with EEA relevance)

(2020/C 224/06)

On 4 May 2020 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) , and in particular Article 8(1) of that Regulation. A non-confidential version of the full Decision can be found in English on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id=2

I. THE PARTIES

(1) Aurubis is a vertically integrated provider of non-ferrous metals and the leading player in the copper industry in Europe. The core business of Aurubis is the production of copper cathodes both from mined copper concentrate and from copper scrap.

(2) Copper cathodes are the standard copper product traded on the London Metal Exchange. Aurubis is also present in further stages of the copper value chain. It processes copper cathodes into wire rod and shapes. The latter are intermediate products used for the production of flat rolled products which Aurubis also produces.

(3) Metallo, headquartered in Belgium, processes and refines non-ferrous metals, including mainly copper. Metallo is specialised in recycling and refining low-grade and highly complex mainly copper scrap materials, valorising nine different metal types (copper, tin, lead), metal products (zinc oxide, nickel bleed, anode slimes) and minerals. Copper accounts for the largest share of Metallo’s output in refined metals and metal products.

(4) Metallo is a pure secondary copper refiner, ( 2 ) i.e. it uses only copper scrap as input for its refining operations. It has two recycling and refining plants, one in Beerse, Belgium and one in Berango, Spain. Metallo is one of the world’s most technologically advanced players for processing low grade and complex scrap.

II. THE OPERATION

(5) On 30 August 2019, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 ( 3 ) (the ‘Merger Regulation’) by which Aurubis intends to acquire within the meaning of Article 3(1)(b) of the Merger Regulation sole control of the whole of Metallo by way of purchase of shares (hereinafter the ‘Transaction’). Aurubis and Metallo are designated hereinafter as the ‘Parties’. The entity resulting from the Transaction is designated hereinafter as the ‘merged entity’.

(6) Following an initial Phase I investigation, on 25 September 2019, Aurubis withdrew the notification.

(7) The case was re-notified on 14 October 2019. ( 4 )

(8) The Transaction has a Union dimension as the turnover thresholds set out in Article 1(2) of the Merger Regulation are met.

(9) On 11 February 2020 the Commission adopted a Statement of Objections (‘SO’), where it came to the preliminary view that the Transaction would likely significantly impede effective competition in the internal market in relation to the market for the purchasing of Copper Scrap for Smelting and Refining (‘CSSR’) in the EEA within the meaning of Article 2 of the Merger Regulation due to (i) the removal of an important competitor for the purchasing of CSSR in the EEA; and (ii) the creation of a dominant position for Aurubis for the purchasing of CSSR in the EEA.

III. SUMMARY

(10) The market investigation in Phase II revealed that the Transaction would not significantly impede effective competition in the internal market with regard to the market for the purchasing of CSSR in the EEA. Similarly, no significant impediment to effective competition was found with respect to copper scrap no.2 or with regard to vertical relationships between the Parties.

(11) Therefore, the Transaction is declared compatible with the internal market and with the EEA Agreement and therefore, a clearance decision pursuant to Article 8(1) of the Merger Regulation and Article 57 of the EEA Agreement was adopted on 4 May 2020.

IV. EXPLANATORY MEMORANDUM

A. THE RELEVANT PRODUCT MARKETS

(12) The Transaction concerns the purchasing and refining of copper scrap. Copper scrap can generally be divided into copper scrap for refining (which requires smelting and refining by a secondary refiner) and copper scrap for direct melt (which can be directly re-melted by industrial users of copper). Copper scrap for refining is treated to recover the copper and to ultimately produce copper cathodes.

(13) Within copper scrap for refining, the Parties overlap in the purchase of copper scrap for smelting and refining (‘CSSR’) and so-called ‘copper scrap no.2’.

(14) Both CSSR and copper scrap no.2 are separate product markets, which are distinct from other intermediate products used for producing copper cathodes, such as copper blister and copper anodes. They are also distinct from copper scrap for direct melt.

(15) Copper scrap no.2 is a relatively standardised copper scrap category, which is traded as a commodity. Copper scrap no.2 contains high copper content and only limited impurities. A large and diverse set of buyers have demand for copper scrap no.2, including primary and secondary copper refiners, ingot makers and manufacturers of semi-finished products. For example, in addition to secondary copper refiners such as the Parties, primary refineries might purchase copper scrap no.2 and mix it with primary copper for their smelting processes. Also, while in most cases copper scrap no.2 requires a smelting process, in some cases certain manufacturers of copper semi-finished products (as for example rods and copper rolled products) and of copper alloy ingots are capable to direct melt (i.e. without any refining process) a relatively small quantity of copper scrap no.2.

(16) CSSR is highly differentiated and includes a wide range of non-standardised copper scrap materials ranging from less complex, such as certain copper alloy scrap and copper iron scrap, to more complex materials such as metal fractions from municipal solid waste incinerators (incinerator bottom ashes containing copper) or industrial residues. These more complex materials are more difficult to process.

(17) Demand for CSSR and for copper scrap no.2 comes primarily from secondary copper refiners, but to a lesser extent also from primary copper refiners and other buyers such as ingot makers and manufacturers of semi-finished products.

(18) The Transaction gives also rise to two vertically affected markets in copper cathodes, copper rod and in copper shapes. Metallo produces and supplies copper cathodes, which are input products for copper rod and copper shapes (produced by Aurubis).

(19) Copper cathodes constitutes a separate product market.

(20) Copper rods and copper shapes are two separate product markets. Copper rods are typically used for manufacturing cables and wires, while copper shapes are used as input material for copper rolled products.

B. THE RELEVANT GEOGRAPHIC MARKETS

(21) Evidence suggests that the geographic market for the purchasing of both CSSR and of copper scrap no.2 is EEA-wide in scope.

(22) Conditions of competition between the EEA and other regions are heterogeneous and prices for copper scrap differ between world regions, which suggests that global price arbitrage is not effective.

(23) In line with the Commission’s previous practice and confirmed in the course of the market investigation, the geographic market of copper cathodes is global.

(24) As regards the geographic markets for both copper rod and copper shapes, the Commission found indication for both a worldwide and EEA-wide market. However, for the purposes of the present case it can be left open whether the relevant geographic market is global or EEA-wide as the vertical links between the Parties’ activities on these product markets do not result in a significant impediment to effective competition under any plausible geographic market definition.

C. COMPETITIVE ASSESSMENT

(25) While in its SO the Commission articulated preliminary concerns as to the market for the purchasing of CSSR in the EEA, in the light of the submissions by the Parties and new evidence, these concerns are not maintained.

(26) With respect to the market for the purchasing of copper scrap no.2, consistently with the SO, the Commission does not find any competition concern.

(27) The Commission assessed whether an increase in purchasing power by the merged entity would result in lower prices paid to scrap suppliers. In the context of the circular copper value chain, such harm to suppliers could take different forms depending on the sellers of the scrap: (i) for industrial suppliers/sellers of copper scrap (for which scrap is an unavoidable by-product of their production process), a lower price paid for their scrap would be equivalent to an increase in their marginal cost, likely leading to higher downstream prices for their products; and (ii) in the case of other suppliers/sellers of copper scrap such as collectors, traders and pre-processors (which collect and pre-process end-of-life scrap), a lower price paid for their scrap could lower their incentives and ability to invest and collect copper scrap.

1. Horizontal non-coordinated effects in the EEA market for the purchasing of CSSR

(28) In its SO, the Commission preliminarily found that the merged entity would have a combined 2018 share of 40–50 % for all the CSSR sold by EEA-based suppliers. The Parties were preliminarily considered to be close competitors in terms of capabilities and purchasing behaviour. The effective alternative outlets for CSSR, to which suppliers have access to, were preliminarily considered limited.

(29) In light of the submissions of the Parties in response to the SO, further written submissions and further evidence submitted by Aurubis, the Commission in the Decision concludes the Transaction would not give rise to horizontal non-coordinated effects in the EEA market for the purchasing of CSSR for the reasons explained below.

(30) Contrary to what the Commission found on a preliminary basis in the SO, the combined purchasing shares of the Parties are moderate. Although Metallo has purchasing shares of 10–20 %, and Aurubis of 10–20 %, which make them the number 1 and the number 2 purchasers of EEA-supplied CSSR, their combined EEA purchasing share is moderate at 20–30 %. Two refining competitors, Brixlegg and Boliden, have respectively EEA purchasing shares of 5–10 %, followed by a number of other copper refiners with shares of 0–5 %.

(31) The lower combined purchasing share of the merged entity compared to the value presented in the SO results in large part from adjustments made to the Commission’s market reconstruction following additional evidence submitted by the Parties. Given the highly heterogeneous nature of CSSR, which is not an industry-defined category, there were erroneous categorisations of volumes. Additional export data from Eurostat was also submitted by the Parties, enabling the Commission to correct the value of exports.

(32) Post-Transaction, the merged entity will continue to be constrained by a number of effective alternatives to which suppliers of CSSR will continue to have access. In the first instance, these are other copper refiners in the EEA, which are the closest rivals to the Parties. Further, non-EEA copper refiners and other non-EEA purchasers have significant demand for CSSR materials. In effect, EEA suppliers export 40–50 % of their overall CSSR production. Exports therefore represent an important alternative option for suppliers in case of EEA price decrease and, as a corollary, a material constraint on the Parties’ purchasing power. Additionally, ingot makers, manufacturers of semi-finished products and non-copper smelters also purchase certain CSSR materials. Finally, suppliers appear to be capable of reducing the Parties’ buyer power by engaging in practices such as upgrading CSSR to other products or in stocking and de-stocking CSSR to achieve better prices.

(33) Contrary to what the Commission found on a preliminary basis in the SO, the Parties cannot be regarded as particularly close competitors. The Parties’ technical capabilities are to a large degree complementary in terms of metals they can refine, recover and ultimately sell. Therefore, their purchasing activities also result to large degree complementary. By analysing the Parties’ suppliers it also appears that their number of overlapping suppliers is limited when compared to their overall number of suppliers. Finally, certain competitors rival the Parties in terms of their technological capabilities and purchasing behaviour.

(34) While there are significant barriers to entry into copper scrap for refining, capacity and capability expansions of existing players occur regularly. Such expansions would also be possible in case of a significant price decrease for CSSR. Further, in particular copper refiners active in markets neighbouring CSSR, such as in the e-scrap market (which mainly relates to printed circuit boards and is currently of higher margin than CSSR), may find it attractive to enter CSSR refining in case of a price decrease of CSSR following the Transaction.

(35) Overall, the Transaction is unlikely to lead to a significant price effect. Of those suppliers that responded to the market investigation, including suppliers not selling scrap to the Parties, a large number expressed concerns about a reduction of the price at which scrap is being purchased by the Parties. However, the investigation has shown that sufficient effective alternative outlets will be available for these suppliers to sell their scrap.

(36) In addition, the Parties are able to influence only a relatively small price component of the copper scrap, i.e. the so-called refining charge. A reduction of this price component would have a small effect on the overall price for copper scrap because other price components, and noticeably the copper price quoted at the London Metal Exchange, are of some orders of magnitude larger than refining charges and typically have important fluctuations throughout the year.

(37) Finally, and in any case, any price effect would possibly be counteracted, at least in part, by the synergies associated with the Transaction.

(38) The Transaction is also unlikely to result in a significant reduction in incentives for the suppliers to invest and innovate in the treatment and recovery of metals. Better scrap treatment capabilities would post-Transaction be applicable to a larger volume of scrap purchases and therefore be more attractive to engage in.

(39) The Transaction is also unlikely to have a significant effect on CSSR collection. Supply from industrial suppliers of CSSR is in any case highly inelastic, as these market participants generate CSSR in fixed-proportion to their downstream copper-containing products (and minimise their scrap irrespective of the Transaction, because scrap represents a reduction of productivity). Traders, collectors and pre-processors are not likely to reduce their collection, as they can either avoid any price effect by passing it on along the copper value chain, or because, as they submitted during the market investigation, their incentives post-Transaction to collect scrap would not change.

(40) Another important element in the analysis of the Transaction is the limited incentives of the merged entity to reduce its CSSR purchases due to the high costs associated with operating at less than full capacity. Indeed, due to its very high fixed costs, a copper refinery needs to constantly run at full capacity in order to be cost-effective. Therefore, any attempt of the merged entity to reduce the infeed of scrap would result in unaffordable increased costs. Therefore the Transaction will likely not result in a reduction in output.

2. Horizontal non-coordinated effects in the EEA market for the purchasing of copper scrap no. 2

(41) In its SO, the Commission did not raise any preliminary concerns in relation to the market for copper scrap no.2. Despite the relatively large combined purchasing share of EEA-supplied copper scrap no.2 of the Parties, a large number of effective alternatives to the Parties would remain post-Transaction both inside and outside the EEA. This is even more so the case than in the case of CSSR – largely because copper scrap no.2 is a commoditised type of scrap and the technological capabilities required to refine it effectively are widely held by both secondary copper refiners as well as pure primary copper refiners (that primarily process copper concentrate and use additional copper scrap no.2 for controlling their refining processes).

(42) Metallo adds an increment of 5–10 % to Aurubis’ 2018 purchasing share of EEA-supplied copper scrap no.2 of 30–40 %. The merged entity would have a purchasing share of 30–40 %. The EEA refining competitors Brixlegg and KGHM follow with 5–10 % each, followed by further EEA refiners. Exports account for 39 %.

(43) Pre-Transaction, Metallo is not a strong competitive force in the purchasing of copper scrap no.2, because it does not focus on this scrap.

(44) Post-Transaction, a large number of purchasers of copper scrap no.2 will remain. Firstly many copper refiners both inside and outside the EEA purchase and treat copper scrap no.2, irrespective of whether their focus is mainly on secondary or primary copper recovery. These copper refiners have largely comparable technological capabilities to effectively treat copper scrap no.2. Secondly, in addition to these refining competitors, a significant number of other purchasers compete for copper scrap no.2. In particular manufacturers of semi-finished products can use certain copper scrap no.2 materials in their production processes. Finally, it is possible (for suppliers) to further upgrade copper scrap no.2 to remove even further impurities and thereby make the material attractive to an even larger group of potential purchasers.

(45) The ability to export copper scrap no.2 from the EEA (or for smaller suppliers to sell the copper scrap no.2 to a larger trader that is capable to export it out of the EEA) is a significant constraint on the Parties (and on EEA copper refiners more generally). Copper scrap no.2 is an internationally recognised category of copper scrap that generally does not require assaying. Due to this commodity characteristic, it is more easily tradeable than other copper scrap categories, which are more differentiated. A growing demand for copper units, coupled with import restrictions for lower grade materials in China, results in significant current and future export opportunities.

(46) A majority of suppliers expects the Transaction to lead to higher refining charges for copper scrap no.2. However, suppliers also submit that they would have access to alternative outlets for copper scrap no.2. Furthermore, even the Parties recognise that copper scrap no.2 is a commoditised, globally traded product. Therefore, it is likely that suppliers could avoid a price effect.

(47) A competitor of the Parties expressed its concern that post-Transaction the merged entity would lower its refining charges (i.e. pay more for copper scrap no.2), thereby foreclosing it from the copper scrap no.2 input, which it needs to produce its copper cathodes. However, it is highly unlikely for the merged entity to engage in such a practice. Paying more for copper scrap no.2 would be reasonable only if larger quantities could be purchased. However, both Parties only have a limited ability to take in larger quantities.

3. Vertical non-coordinated effects in relation to the markets for copper rod and for copper shapes

(48) The Commission did not raise concerns in relation to vertical non-coordinated effects in relation to the markets for copper cathodes, copper rod and for copper shapes in its SO.

(49) Based on the very small market shares of Metallo and Aurubis upstream in the sale of copper cathodes on a worldwide level of 5–10 % under any plausible product market delineation as well as the clear feedback received in the course of the market investigation, it is unlikely that the merged entity would have the ability to engage in any foreclosure strategy (neither input nor customer foreclosure) post-Transaction.

V. CONCLUSION

(50) For the reasons mentioned above, the decision concludes that the proposed concentration will not significantly impede effective competition in the Internal Market or in a substantial part of it.

(51) Consequently the concentration should be declared compatible with the Internal Market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(1) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) OJ L 24, 29.1.2004, p. 1.

(2) Secondary refiners utilise only copper scrap (also referred to as secondary copper) as input material for producing copper metal. Primary refiners use copper concentrates from mines (also referred to as primary copper) as input material.

(3) OJ L 24, 29.1.2004, p. 1. With effect from 1 December 2009, the Treaty on the Functioning of the European Union (‘TFEU’) has introduced certain changes, such as the replacement of ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology of the TFEU will be used throughout this decision.

(4) Publication in OJ C 356, 21.10.2019, p. 7.