Summary of Commission Decision

of 7 May 2018

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

(Case M.8444 — ArcelorMittal/Ilva)

(notified under document number C(2018) 2858)

(only the English version is authentic)

(Text with EEA relevance)

(2018/C 351/07)

On 7 May 2018 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 (the EC Merger Regulation) (1), and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision, as the case may be in the form of a provisional version, can be found in English on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/comm/competition/index_en.html.

1. THE OPERATION AND THE PROCEDURE

(1) On 21 September 2017 the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the ‘Merger Regulation’) by which ArcelorMittal S.A. (‘ArcelorMittal’, ‘AM’ or ‘the Notifying Party’) acquires sole control of certain assets of Ilva S.p.A. consolidated (‘Ilva Group’) in Amministrazione Straordinaria (‘Ilva’) (jointly the ‘Parties’) (the ‘Transaction’).

(2) The Transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

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

(4) On 18 January 2018 the Commission adopted a Statement of Objections where it raised preliminary concerns for both unilateral and coordinated effects on the production and supply of hot-rolled (‘HR’), cold-rolled (‘CR’) and galvanised (‘GS’) flat carbon steel products. ArcelorMittal submitted its Reply to the Statement of Objections on 3 February 2018. An Oral Hearing took place on 8 February 2018.

(5) On 15 March 2018, ArcelorMittal formally submitted a remedy package to address the Commission's concerns. Following the market test, the Notifying Party submitted a final set of commitments on 11 April 2018 (the ‘Final Commitments’).

2. THE PARTIES

(6) ArcelorMittal is the largest steel producer in the world. It is a multinational steel manufacturing and mining company based in Luxembourg, whose principal business is the production, distribution, marketing, and sale of steel products. It produces a range of steel semi-finished and finished products, including flat carbon steel products. It supplies steel for various applications including automotive, construction, household appliances, and packaging.

(7) Ilva, based in Italy, is one of Europe's largest steelmakers active in the production, processing and distribution of carbon steel. Ilva operates steel plants in Italy (including plants in Taranto, Genoa, and Novi Ligure) and various steel service centres (‘SSCs’) for product distribution.

3. SUMMARY

(8) The market investigation in Phase II revealed that the Transaction would significantly impede effective competition in the internal market with regard to the markets for the production and supply of HR, CR and GS.

(9) In order to address the Commission's competition concerns in the HR, CR and GS flat carbon steel product markets, the Notifying Party submitted commitments. The Final Commitments address the Commission's concerns.

(10) Subject to full compliance with the conditions and obligations set out in the Final Commitments, the Transaction is declared compatible with the internal market and with the EEA Agreement and therefore, a clearance decision pursuant to Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement was adopted on 7 May 2018.

4. EXPLANATORY MEMORANDUM

4.1. The relevant product markets

(11) The Transaction concerns the production and supply of flat carbon steel products, which are produced in rolling mills from semi-finished steel products (slabs) and may be further processed. HR products are produced through hot rolling and can be delivered in various forms – coils (oiled or not oiled, pickled or not pickled), sheets or narrow strips. HR coils can be further rolled into thinner gauges by cold-rolling into CR products. Finally, the coils can be coated with thin layers of metals or paint, resulting in GS, organic-coated (‘OC’) steel, or in metallic coated steel for packaging (tinplate ‘TP’/chromium steel ‘ECCS’).

(12) Following its market investigation, the Commission finds that the established market definitions for the production and supply of HR (excluding quarto plates) and CR are still valid for the present Transaction. Evidence shows that due to limited demand and supply substitutability, the market for GS may be further sub-segmented into hot-dip galvanised (‘HDG’) and electro-galvanised (‘EG’). However, as the outcome of the competitive assessment remains the same and the Final Commitments entered into by the Notifying Party address the Commission's concerns under all alternative market definitions, the exact product market definition as regards the production and supply of GS can be left open. Likewise, the exact definition of the relevant product market for metallic coated steel for packaging is left open as the Transaction would not raise competitive concerns under any market definition.

(13) With regard to the downstream carbon steel products (welded tubes) and steel distribution, the Commission's market investigation shows that the exact definition as regards tubes and steel distribution can be left open, as it does not have an impact on the competitive assessment of the Transaction.

4.2. The Relevant Geographic Markets

(14) The Commission finds that the relevant markets for the production and supply of those finished flat carbon steel products where the Transaction raises competitive concerns (HR, CR, HDG and EG) are EEA-wide, however, with strong indications of geographic differentiation. The geographic differentiation is particularly pronounced for lower value added products, such as HR, whereas it is less pronounced for high value added products such as HDG. The differentiation exemplified by the following factors, among others. (a) Suppliers and their market shares differ across different regions of Europe, and in particular between the North (ThyssenKrupp, Salzgitter, Tata Steel), and the South (Ilva, Arvedi, Marcegaglia). ArcelorMittal is the only company operating steelworks throughout Europe; (b) European suppliers sell the large majority of their output in the country where their facilities are located and in neighbouring countries; (c) The structure of demand and customer basis differs between Northern and Southern Europe, with Northern markets characterised by steelmakers having a more pronounced presence in distribution and increased sales of specialty grades, including contract sales; and Southern markets characterised by a prevalence of spot sales, commodity grades, and more fragmented independent distribution; (d) The sales share of imports is more important in Southern Europe; (e) The base index prices for the main products (HR, CR and HDG) differ between the North and the South, with the Southern European prices being lower and the spreads across the two varying over time; (f) ArcelorMittal [company strategy]; (g) Market participants confirm different conditions of competition between north and south, which they most often attribute to a different demand and supply balance, and different levels of import penetration.

(15) The geographic market definition for the production and supply of metallic coated steel for packaging (TP and ECCS) and welded carbon steel tubes is left open, as it would not have an impact on the competitive assessment of the Transaction. For the purposes of the current Transaction, the markets for the distribution of flat carbon steels through SSCs are considered national in scope.

4.3. Competitive Assessment

4.3.1. Unilateral effects

(16) The Transaction creates overlaps in the production and supply of HR, CR, HDG, EG, metallic coated steel for packaging, welded carbon steel tubes and distribution, whereby the Commission found competition concerns in HR, CR, HDG and EG. These concerns are particularly pronounced in Southern Europe.

(17) The Commission's concerns in relation to HR, CR, HDG and EG are based on a number of considerations and findings, including the following.

4.3.1.1. Capacity and market shares

(18) The Commission considers that, already prior to the Transaction, ArcelorMittal is the largest EEA producer and supplier for HR, CR, HDG and EG. The Transaction would further add to the ArcelorMittal's market position.

(19) In terms of production capacity, the Parties combined have 40–50 % of the EEA production capacity for HR, CR and HDG, and 50–60 % for EG if taking into account the Parties' and their competitors' readily available capacity (2016). If considering capacity that is not currently available but that can be brought to the market with limited investments and time, the combined share would be 40-50 % for all of the products (2016). The Commission considers that such a share of the capacity would give the merged entity market power.

(20) In addition to a significant capacity shares, the Parties have significant sales market shares. The Parties' combined EEA market shares for HR would be 20-30 %, and 30–40 % for each of CR, HDG and EG (2016). The Parties mostly interact in Southern Europe, in particular in Italy, where their combined market shares would be even higher. Overall, the Parties combined market shares are approximately three times as large as the next competitor in HR, CR and HDG, and the merged entity would be by far the largest supplier of EG as well in the EEA.

(21) In addition to capacity and sales market shares, the Commission assessed consumption shares of the Parties and their competitors for HR and CR. Consumption shares approximate the share of the overall demand fulfilled by a given entity, including both merchant market demand and captive demand. This metric provides an indicator that reflects the importance of different producers in terms of production capabilities while also accounting for imports, and it is useful when assessing the market position for products that are significantly used in further downstream production such as HR and CR.

(22) Even under the consumption share metric, the Parties combined are by far the largest operator in the EEA with a consumption share of 30–40 % for HR and 40–50 % for CR. The shares would further increase if looking at Southern Europe where the Parties mostly interact.

4.3.1.2. Competitive interaction — closeness of competition

(23) The Commission considers that ArcelorMittal and Ilva are close competitors in the production and supply of HR, CR, HDG and EG. This is based on the following elements: (a) Ilva's product offering directly competes with ArcelorMittal's product offering; (b) The Parties' geographic footprints in the EEA significantly overlap; (c) The Parties are integrated steel producers, which makes them better positioned than a non-integrated producer to respond to competitive challenges, and both use a basic oxygen furnace (‘BOF’) technology; (d) The Parties' customers overlap is in the areas where the Parties compete against each other; (e) ArcelorMittal's internal documents [discussion of ArcelorMittal internal documents]; (f) The Commission's quantitative analysis finds significant gains for ArcelorMittal following the imposition of the capacity cap on Ilva; (g) Feedback from market participants confirms that the Parties are close competitors.

4.3.1.3. Ilva — an important competitive force

(24) For the following reasons, the Commission considers that Ilva is an important competitive force in the EEA, and particularly in Southern Europe: (a) Ilva has significant capacity which can impact EEA markets (as regards HDG, Ilva has even increased its capacity over the last years); (b) Ilva has historically followed an aggressive pricing policy; (c) Ilva is capable of impacting rivals' commercial policy; (d) Ilva's impact on prices goes beyond the commodity market.

4.3.1.4. EEA suppliers would not be able to or have incentives to constrain the merged entity

(25) The Commission considers that EEA competitors would be unlikely to offset anti-competitive effects stemming from the Transaction due to the following: (a) The main EEA flat carbon steel producers are primarily active in Northern Europe and have limited presence in Southern Europe; (b) EEA competitors appear to have limited spare capacity readily available, and hence have limited ability to expand their sales, and it is unlikely that they would increase their capacity with further investments; (c) There is no reason to believe that exports by EEA competitors would be likely redirected into the EEA; (d) EEA competitors located in Northern Europe can already obtain relatively higher margins in their area where they are mostly active. In the event of a price increase by the merged entity particularly affecting customers in Southern Europe, those competitors will be unlikely to shift sufficient volumes to Southern Europe to defeat such price increase.

4.3.1.5. Imports are not a sufficient constraint to offset the non-coordinated effects of the Transaction

(26) The Commission considers that imports would not be a sufficient constraint to offset any anti-competitive effects of Transaction stemming from the loss of the competitive pressure exerted by Ilva. This is due to the main following reasons: (a) Significant import volumes are not necessarily an indicator of sufficient price pressure from imports; (b) Non-EEA producers are individually small and act opportunistically – they are not strategically present in the EEA; individually have limited influence on prices in the EEA; and do not represent a stable, lasting and dependable source of supply for EEA customers; (c) Empirical evidence shows that non-EEA producers do not have the ability and incentive to discipline price increases in the EEA; (d) While significant import volumes at low prices have affected EEA markets in recent years, this was due to dumping practices which perturbed the market, and have now been addressed by anti-dumping measures. The trade measures against major steel exporting countries appear to remove the market perturbation and thus reduce undue pressure exerted by imports in the recent years of market distortion resulting from dumping prices; (e) Imports can only substitute a certain amount of EEA supply for flat carbon steels (even for commodity grades); (f) While imports may account for a more significant share on the merchant market, their aggregate share in the overall consumption of HR is much more limited; (g) EEA suppliers are, to a certain extent, also gatekeepers for imports.

4.3.2. Vertical effects

(27) The Commission did not conclude on whether the Transaction raises input foreclosure concerns related to the upstream production and supply of various finished flat carbon steel products (HR, CR, HDG and EG) as the final commitments would in any event address such potential concerns caused by the Transaction.

(28) The Transaction does not raise any other concerns due to vertical effects.

4.3.3. Coordinated effects

(29) Following its market investigation, the Commission considers that the Transaction may lead to coordinated effects, including in light of the following findings: (i) there is sufficient transparency to enable coordinating firms to monitor deviations from the possibly coordinated price level; (ii) ArcelorMittal is a recognised price leader by market participants; (iii) base prices can act as a focal point for coordination; (iv) there is evidence suggesting the existence of deterrent mechanisms against deviations; (v) outsiders are unlikely to disrupt coordination; and (vi) a number of merger-specific effects would make price coordination easier, more stable or effective.

(30) The Commission however considers it not necessary to conclude on this issue in view of the final commitments, which would in any event address such potential horizontal coordinated effects caused by the Transaction.

4.3.4. Evidence on the effects of the transaction

(31) The Commission's assessment that the Transaction would lead to anti-competitive non-coordinated effects in the markets for the production and supply of HR, CR, HDG and EG (or the combined GS market) in the EEA are supported by the views of customers and other third parties, and seem to be in line with [evidence from ArcelorMittal on the Commission's file.]

4.4. Commitments

(32) ArcelorMittal offered to divest a package of production assets in Belgium (Liège), in the Czech Republic (Ostrava), in Luxembourg (Dudelange), in Italy (Piombino), in Romania (Galati) and in the Former Yugoslav Republic of Macedonia (Skopje). Furthermore, ArcelorMittal offered to divest a number of distribution assets in France and Italy. ArcelorMittal also committed to remove Marcegaglia from the AM Invest consortium and sever any other structural links with Marcegaglia created by the Transaction. ArcelorMittal further undertook a number of other obligations, for instance concerning other tangible and intangible assets and personnel.

(33) Based on its own analysis of the evidence on the file, as well as on the feedback from market participants, the Commission found that the commitments submitted by the Notifying party, as described below, fully address the Commission's concerns on the production and supply of HR, CR, HDG and EG. This is for the following main reasons: (a) the Commitments adequately address the capacity overlap brought about by the transaction across all the products concerned; (b) the Commitments consist of assets which are suitable to address the competitive concerns in the areas where the concerns are most prominent; (c) the divested assets have the capability to produce similar products as Ilva produces today; (d) the Commitments can offset the disappearance of Ilva as an independent competitor by allowing new entry or significant expansion in the EEA for each of the products for which concerns were raised; (e) the Commitments remove envisaged structural links between ArcelorMittal and Marcegaglia; (f) the Commitments ensure that downstream assets in the Package can be operated viably due to benefits from vertical integration; (g) the Commitments cover the entire value chain and include distribution assets; (h) the Commitments provide for an open and non-discriminatory sales process.

5. CONCLUSION

(34) For the reasons mentioned above, the decision concludes that subject to full compliance with the conditions and obligations set out in the Final Commitments, the proposed concentration will not significantly impede effective competition in the internal market or in a substantial part of it.

(35) 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(2) of the Merger Regulation and Article 57 of the EEA Agreement.

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