2004/270/EC: Commission Decision of 30 October 2001 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.2420 — Mitsui/CVRD/Caemi) (notified under document number C(2001) 3363) (Text with EEA relevance)
Date: 2001-10-30
Institutions: European Commission
Subjects: economic concentration, exchange of information, iron ore, merger control, production, sale

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COMMISSION DECISION

of 30 October 2001

declaring a concentration to be compatible with the common market and the functioning of the
EEA Agreement

(Case COMP/M.2420 — Mitsui/CVRD/Caemi)

(notified under document number C(2001) 3363)

(Only the English text is authentic)

(Text with EEA relevance)

(2004/270/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area, and in particular Article 57(2)(a) thereof,

Having regard to Council Regulation (EEC) No 4064/89 of 21
December 1989 on the control of concentrations between
undertakings (1), as
last amended by Regulation (EC) No
1310/97 (2), and in particular Article 8(2) thereof,

Having regard to the Commission's decision of 26 May 2000
to initiate proceedings in this case,

Having regard to the opinion of the Advisory Committee on
Concentrations (3),

Having regard to the final report of the Hearing Officer in this
case (4),

Whereas:

(1)

(CVRD)

notified

On 31 May 2001, Mitsui and Companhia Vale do Rio
a
Doce
concentration pursuant to Article 4 of Regulation (EEC)
No 4064/89 whereby Mitsui and CVRD would acquire
joint control over Caemi Mineração e Metalurgia SA
(Caemi) by way of a purchase of shares.

Commission

the

to

(1) OJ L 395, 30.12.1989, p. 1 (corrected version in OJ L 257,

21.9.1990, p. 13).

(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ C 79, 30.3.2004.
(4) OJ C 79, 30.3.2004.

(3)

(4)

(5)

After examination of the notification, the Commission
concluded on 3 July 2001 that the notified operation
fell within the scope of Regulation (EEC) No 4064/89
and that it raised serious doubts as to its compatibility
with the common market and the EEA Agreement. On
29 August 2001, the Commission issued a statement of
objections, which was followed by an oral hearing of
the parties on 24 September 2001.

I. THE PARTIES

Mitsui
is a Japanese company conducting worldwide
trading in various commodities and other products,
including iron ore, and having minority and controlling
stakes in a number of Australian and Indian iron ore
mining companies, including a significant minority stake
in the world's second largest iron ore mine, Robe River.
Mitsui also arranges financing and other project support
for the trading activities of other companies.

CVRD, based in Brazil, is a diversified mining company
and the world's largest iron ore producer.
It already
jointly or solely controls most of Brazil's iron ore
production, with the principal exception of Mineração
Brasileiras Reunidas SA (MBR), a subsidiary of Caemi.
CVRD recently acquired Ferteco Mineração SA (Ferteco),
Brazil's third-largest iron ore producer. It is also active
in commercial transport (railways, port operations and
shipping). Apart
CVRD also
from iron
manufactures a number of other products including
fertilisers, kaolin, metallurgical bauxite, pulp and paper.

ore,

is a publicly held company organised under
Caemi
in
Brazilian law which holds
companies active in the production and sale of iron ore

investments

equity

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it

is active

in Brazil and Canada, of kaolin and refractory calcified
bauxite in Brazil, and in related logistics businesses
(railway and port operations in Brazil). In the iron ore
sector
through its 84,6 % controlling
participation in MBR (Brazil), and through its 50 % joint
controlling interest in Quebec Cartier Mining Company
(QCM) (Canada), the other controlling shareholder being
Dofasco, Canada's largest integrated steelmaker. MBR is
Brazil's second-largest iron ore producer (behind CVRD)
and the fourth iron ore producer worldwide (behind
CVRD, Rio Tinto and BHP).

II. THE OPERATION

(6)

Mitsui currently owns 40 % of
the voting shares of
the voting shares of
Caemi. The remaining 60 % of
Caemi are owned by ‘the Frerings' (two brothers of the
Frering family and […] (*)). For the purpose of
the
a wholly owned
acquisition Mitsui has
subsidiary ‘the Mitsui Holding Company'
this
(MHC);
entity will ultimately be jointly controlled by Mitsui and
CVRD (see below).

created

III. COMMUNITY DIMENSION

(9)

The undertakings concerned have a combined aggregate
worldwide turnover of more than EUR 5 billion (Mitsui:
EUR 78 billion in its financial year ending on 31 March
2000; CVRD: EUR 5,5 billion in its financial year
ending 31 December 2000; Caemi: EUR 560 million in
its financial year ending on 31 December 2000). Each
of them has a Community-wide turnover in excess of
EUR 250 million (Mitsui […]*; CVRD: EUR […]*; Caemi
EUR […]*, but
than
two-thirds of their aggregate Community-wide turnover
within one and the same Member State. The notified
operation therefore has a Community dimension.

they do not achieve more

(10) None of the undertakings concerned by the operation is
active in the production or distribution of iron ore in
the territories covered by the ECSC Treaty, but are
engaged in such activities in third countries. Therefore,
those aspects of the present concentration do not fall
within the scope of Article 66(1) of the ECSC Treaty.

(7)

The acquisition of joint control over Caemi by Mitsui
and CVRD will be effected in two stages as described
below:

(11)

[The first stage of the concentration involves Mitsui's
its pre-existing]* right of
exercise of
in
respect of
the Frerings' holding. The second stage
involves CVRD's purchase of 50 % of Caemi's voting
shares from Mitsui]*:

first refusal

(i)

[…]*

(ii) […]*

(8)

Accordingly, within a legal instant Caemi's voting shares
jointly controlled by CVRD and Mitsui.
will be
According to the parties,
the MHC/Frerings purchase
agreement and the strategic alliance agreement are
conditional upon each other in a manner such that
the concentration could not happen
stage one of
without stage two also taking place. Therefore,
the
necessary end result of the set of transactions as notified
joint control by the notifying
is the acquisition of
parties over Caemi. Consequently, this staged operation
would constitute a single concentration within the
meaning of Article 3(1)(b) of Regulation (EEC) No
4064/89.

(12)

(13)

(*) Parts of

this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

IV. GENERAL DESCRIPTION OF THE IRON ORE
INDUSTRY

The only affected markets will be in the iron ore sector.
Iron ore is a raw material, sold almost exclusively to the
steel industry. It is sold to steel producers by iron ore
mining companies in three principal forms: sinter fines,
lump, and pellets. A detailed explanation of why the
Commission considers these three forms of ore as
constituting distinct relevant product markets is given in
section V below.

A. The supply of iron ore

Iron ore mining

Iron is the second most commonly-occurring metal
(after aluminium) and makes up around 4,6 % of the
earth's crust. Despite the large variety of mineralogical
forms in which iron naturally occurs, only a few are
commercially important, principally the ferrous oxides
magnetite, hematite, limonite and ilmenite. In the iron
making process, the first step in producing steel, the
oxygen is removed by a process known as ‘reduction'.
Other forms of iron ore that are also mined include
carbonates such as siderite, sulphides and silicates.

vary

considerably

in chemical
Iron ore deposits
composition throughout different parts of
the world.
The largest resources of iron ore are found in what are
known as banded iron formations (BIFs), also known as
taconites and itabirites. These BIFs can be hundreds of
metres thick and thousands of kilometres wide. The

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most commercially important are found in Brazil,
Western Australia, the Lake Superior area of Canada,
Krivoi Rog in Ukraine and Kursk in Russia.

(14) World reserves of iron ore are currently estimated at
around 140 000 Mt (5). The largest reserves of ore
(measured by iron content) are found in Ukraine, China,
Australia, Russia, United States, Brazil and Kazakhstan
iron ore varies
respectively. The
iron content of
considerably between countries: Chinese ore,
for
example,
(approximately
is very low in iron content
32 %), whereas Brazilian ore is high in iron content
(approximately 63 %).

(15)

In excess of 95 % of all iron ore is mined using open pit
methods, because of economies of
scale and the
relatively low unit value of
iron compared to other
metals. The only iron ore mining company producing
significant amounts of ore from an underground mine is
Sweden's LKAB. In open-pit mining, the initial process
involves stripping the ‘overburden' from the layers of
ore. Blasting is often then required to reduce the ore to
a size that can easily be loaded by shovels and/or
front-end loaders into trucks, railcars or onto conveyor
belts
for primary
crushing and sizing.

transportation to a crusher

for

(16) Almost all

iron ore is then ‘beneficiated' (6), which
involves the crushing, grinding, separating, screening,
and sizing of the ore. These processes remove impurities
such as silica and alumina from the ore, and reduce it to
the form and size desired by the mining company. The
degree of beneficiation depends on the nature of the
iron ore deposit, the levels of impurities present in the
ore and on customer specifications. Lump and fine ores
are usually produced after
the crude ore has been
crushed and ground. Further beneficiation may also
produce an iron ore concentrate which is usually
pelletised (turned into iron ore pellets) at a pelletising
plant located close to the mine.

(17)

Every mine produces both lump ore and fine ore as the
inevitable result of the mining process. However, the
fine and lump production of each mine is
ratio of
determined by the nature of its iron ore deposits (such
as hardness). Many mines produce relatively little lump,
owing to the tendency of its ferrous material to break
into small particles upon extraction and handling. (This
tends to be the case for much of the Brazilian ore, for

example.) As a result, much of the lump ore imported
into the Community comes from Australia, South Africa
and India. Brazilian and Venezuelan mines do produce
some lump ore, but it represents a comparatively much
lower percentage of their overall ore production. Mines
containing ore with low ferrous content (of the order of
30 to 35 %), such as those in the United States, Canada
and China, sell little or no lump ore, as it is necessary
to crush the ore finely in order to produce iron ore
concentrates with a commercially viable iron content.

(18)

Similarly, it appears that not all ores can adequately and
economically be used for
the production of pellets.
Pellets have traditionally been produced in the Americas
and in Europe, with most of the pellet plants intended
in Sweden,
to serve the export market being built
Canada, Venezuela and Brazil. One of the reasons is that
pellet feed is produced by grinding and concentrating
natural
fines, and not all ores are well suited for
concentration. In particular, the parties have indicated
that, although pelletising has been tried in the past in
Western Australia, it was not a success.

(19) Another important consequence of the geology of the
mine is the quality of the ore. Quality is principally
measured in terms of ferrous content (which should be
maximised) and level of impurities (which should be
minimised). Particular attention is given to the loss on
ignition (‘LOI', mainly crystal water) and to the presence
of silica, phosphorus and alumina, which have adverse
effects on the blast furnace operation.

(20) According to the data provided by the parties, there are
significant variations in the quality of the ore produced
in the different regions. Generally speaking,
it can be
said that (i) Brazilian ore is a high grade product; (ii)
Australian ore has also traditionally been considered a
high quality product, but
these mines are being
progressively depleted, and they are replaced by newer
mines (Yandi, Robe River, etc.) with higher silica and
LOI contents […]*, (iii) South African ore has a high
level of alkalis, limiting its use in the blast furnaces; (iv)
Swedish ore is a good quality sinter feed of high ferrous
content, and produces a very pure pellet with excellent
performance; and (v) as indicated above, iron ore found
in Canada, the United States or China has a low ferrous
content (of the order of 30 to 35 %, compared with
more than 60 % in Brazil or in Australia).

(5) The Economics of Iron Ore, fourth edition 2000 (Roskill).
(6) Ore sold directly from a mine without beneficiation is known as

‘run-of-mine' or direct shipping ore.

iron ore pellet plants are generally
(21) As noted above,
located adjacent
to mine sites or exporting ports
because pellets do not disintegrate during transport. The
highest quality pellets are produced from Brazilian,

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Canadian and Swedish ore. Most mines located outside
Australia could, at least in theory, make the investments
necessary to engage in the production of
iron ore
pellets. In general, pellet production can be achieved by
constructing a pellet plant, at a cost of approximately
tonne of capacity,
USD 50 to USD 60 per annual
provided that
an
the
appropriate quality.

fine ore production is of

Forms of iron ore

(22) Approximately 99 % of all

iron ore is used in steel
production, mostly in those steel mills which produce
iron through the blast furnace method. A blast furnace
converts iron ore into pig iron, which is then fed into a
basic oxygen furnace (BOF) and converted to steel. The
types of iron ore and their percentage usage are defined
(and modified from time to time) by the steel maker as
a
and metallurgical
technological
considerations and market conditions (availability and
price of iron ore, and demand for steel products).

function

of

(25) As a result of

the development of

sintering and
pelletising, blast furnace operators gained the ability to
select between fines (to be sintered by the blast furnace
operator), lump and pellet. For complex reasons related
to the fine-tuning of
furnace operation to
the blast
maximise overall efficiencies and minimise costs, most
blast furnaces operate using a mix of the three.

sintered fines

less than 10 % of

iron ore. As a result,

(26) Owing to such considerations, the percentage of sintered
fines used in a blast furnace tends to vary from mill to
mill. However, subject to certain exceptions, steel mills
within one region tend to face the same conditions of
supply and therefore to procure comparable proportions
of each form of
the parties
represent approximately
estimate that
(the feed) used by typical blast
60 % of the ‘burden'
furnaces in Europe and Asia, whereas sintered fines
represent
the burden of a typical
United States blast furnace. Blast furnace operators also
relative
have differing preferences
lump
weighting of lump ore in their feed. In Europe,
usage tends to be approximately 20 % of total burden,
whereas in the United States it is closer to 10 %. In Asia,
the usage is around 25 % (due principally to the
proximity of
the Australian mines, which produce a
higher percentage of lump ore). Again the relative use
of pellets varies considerably among the regions.
In
Europe, pellets tend to represent about 20 % of the feed,
whereas in the United States it is about 80 % and in
Asia only 5 % to 10 %.

regards

the

as

(23) When extracted from the mine, iron ore comes in two
forms: lump (6 to 30 mm in diameter) and fines (less
than 6 mm in diameter). For technical reasons, only
lump ore can be directly loaded into a blast furnace
(fines are too small and tend to block the reduction
process undertaken in the blast
In earlier
times, the only type of iron ore marketed was lump ore,
and the fines which were mined were considered waste
materials.

furnace).

(27)

Finally,
iron ore can also be produced for conversion
into direct reduction iron (DRI) in a DR furnace. The
DR furnace uses two main forms of DR iron ore, lump
and pellets; the ore must be of a particularly high grade
(high iron content and low levels of impurities such as
silica, phosphorous and sulphur). The DRI can then be
fed into an electric arc furnace for conversion into steel.

(24)

the

fines,

to take

advantage of

In order
two
agglomeration processes were subsequently developed:
sintering and pelletising. Sintering agglomerates fines (or
sinter
feed, with diameter between 1 and 6 mm),
whereas pelletising agglomerates super fines (or pellet
feed with diameter of less than 1 mm) into pellets. Steel
mills usually have their own sintering plants since sinter
tends to disintegrate during transportation. In contrast,
pellets do not disintegrate in transport, and pelletising
plants can therefore be located at or near the mines.
Certain European steel mills have thus shifted a portion
of their imported ores to pellets, rather than make the
investments necessary to improve the performance of
their sintering plants from an environmental perspective
(sintering is environmentally costly). This same trend
has not occurred in Japan, where the steel mills have
in their
elected to invest
sintering plants.

instead in improvements

World production of iron ore

(28)

Total world production of iron ore in the year 2000
amounted to some 931 million tonnes (Mt), up from
868 MT in 1999 and 878 Mt in 1998. Production of
iron ore closely follows output of steel and so is cyclical
in nature. Demand for steel is in turn largely a function
of economic cycles, and particularly of
the business
cycles in the automotive and construction sectors. Iron
ore production has grown by an average rate of 2,6 % a
year since 1950, reaching a peak of 967 Mt in 1988.

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Worldwide production

Fines

509

510

540

Lump

Pellet

141

135

145

228

223

254

(in Mt)

Total

878

868

938

1998

1999

2000

Parties' estimates and data from UNCTAD.

(29)

(30)

The largest iron ore producing countries in the world
are (using production figures for 2000): Brazil (236 Mt),
Australia (176 Mt), China (96 Mt), Russia (87 Mt), India
(75 Mt), United States (63 Mt), Ukraine (55 Mt), Canada
(36 Mt), and South Africa (34 Mt). However,
the
proportion of iron ore production that is exported from
very considerably
each of
(tonnage exported in 2000): Brazil (160 Mt), Australia
(165 Mt), China (no exports), Russia (15 Mt), India (35
Mt), United States (6 Mt), Ukraine (19 Mt), Canada (27
Mt), and South Africa (21 Mt).

countries

varies

these

Seaborne trade in iron ore

Before the Second World War, steelworks tended to be
located close to iron ore mines, on account of the high
cost of transporting the ore. The development of the
large, high quality reserves (BIFs) in Brazil and Australia
has changed the structure of
the iron ore industry,
however, from a preponderance of relatively small-scale
producers located close to the main steelmakers, to the
development of an increasing number of
large-scale
mines located far from consumers. This has occurred
largely as a result of the economies of scale associated
with very large mines of this kind. The development of
these mines has
in the
caused a sharp increase
transportation of
iron ore by seaborne large bulk
carriers (today about half of world production), which
has in turn required investment
facilities to
handle ever larger ships which offer reductions in unit
transport costs.

in port

(31) Much of

iron ore

the world's production of

is
nonetheless still not transported to customers by sea.
The most notable examples are the United States,
eastern Europe and China, which still have significant
domestic iron ore production, and where most of that
production is still consumed domestically. Furthermore,
much of
in the
United States, for example, steel companies own around
60 % of domestic production capacity, and so most
production there does not reach the open market. Iron
ore production in western Europe (with the main
exception
almost
by
disappeared.

this domestic production is captive;

Sweden),

contrast,

has

of

Indeed, western Europe and East Asia
recent years.
(Japan, South Korea and Taiwan) have become largely
dependent on imported seaborne iron ore. Despite its
domestic iron ore production, consumption of imported
iron ore in China is also growing rapidly to meet
increasing demand.

Seaborne trade

(Fearnleys estimates (7))

1998

1999

2000

Fines

260

253

288

Lump

Pellet

85

87

85

72

71

82

(in Mt)

Total

417

411

455

(33)

(34)

Iron ore exports are dominated by shipments from
South America (mainly Brazil) and Oceania (mainly
Australia), and this dominance is growing:
in 1989,
60 % of iron ore exports worldwide were from Oceania
in 1999, this combined share had
or South America;
grown to 70 %. The trend is expected to continue.
Freight
rates vary considerably, depending on the
shipping route taken, and from year to year. These rates
are particularly sensitive to oil price movements, and to
the availability of suitable ships.

Partly as a result of a deliberate policy of diversification
Japanese steel companies (to avoid
on the part of
over-dependence on the
two Australian suppliers),
Brazilian iron ore exports are more widely distributed
than those from Australia. Other reasons for this wider
distribution of Brazilian ore include the wider product
range of Brazilian producers (there are almost no pellets
offered by Australian suppliers, for example), the fact
that some Japanese steelmakers own stakes in Brazilian
pellet plants, and the Japanese customers' policy of
freight-sharing (described in more detail below).

Barriers to entering the iron ore market

(35)

There are a number of factors which make entry into
the iron ore market difficult and the costs of entry high.
Indeed, there has been no significant new entry to the
market
in recent years. Moreover, any new entry is
likely to take the form of acquisition of an existing
operator.

(32)

Principally as a result of the abovementioned decline in
iron ore production in western Europe, and also as a
result of growth in the Asian steel industry, demand for
seaborne iron ore has been growing significantly in

(7) These statistics are based on figures published by the Norwegian

shipping company Fearnleys.

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(36)

iron ore

reserves with
Locating new commercial
sufficient quality and economies of scale to compete on
the world market involves significant exploration and
feasibility study costs. Obtaining mineral rights for new
mining sites and the required permits to develop and
operate such sites, as well as adjacent rail and port
facilities, usually require extensive negotiations with
governmental authorities over a number of years. In a
few countries, such as Liberia and Guinea, development
of high quality ore deposits has been prevented by
the world's
political
known high quality reserves are already in the hands of
the three-biggest iron producers: CVRD, Rio Tinto, and
BHP.

instability. Moreover, many of

(37) Occasionally, a new mine can take advantage of the
existing rail and port infra-structure of adjacent mines.
port
Normally,
development costs are very substantial, ranging from
several hundred million to billions of euro. For these
reasons, new mines need to have very large economies
of scale in order to compete in worldwide trade.

however, mine,

link

and

rail

(38) Most new capacity has therefore taken the form of
expansion of existing mines or the opening of new pits
adjacent to existing mines (‘brownfield' expansion). The
last major ‘greenfield'
iron ore mine development was
CVRD's Carajas mine in northern Brazil, which was
opened with an initial capacity of 35 Mt at a cost of
USD 3,5 billion in the mid-1980s, and was
then
expanded to a capacity of 50 Mt at an additional cost of
USD 500 million.

(39)

(40)

Constructing and operating pelletising plants are subject
to fewer obstacles. The cost of constructing a pelletising
plant is currently about USD 50 to USD 60 per tonne
of annual capacity. Pelletising plant capacity may range
from as little as 1,5 Mt to 7 Mt or more, with total
costs ranging from USD 100 million to USD 420
million.

In their response, the parties submit that, although the
barriers to greenfield entry are significant, they are not
insurmountable. In particular, the parties indicate that
certain equipment and know-how used in the iron ore
industry are common to other mining sectors, and that
there
are no technical barriers. The Commission
considers that this does not affect the above conclusion,
since the main barriers to entry are not in the area of
mining equipment or know-how.

High rate of capacity utilisation

(41) According to some key market participants, capacity
utilisation in the seaborne iron ore industry is operating
at close to 100 %, and this has been the pattern for

much of the past 10 years. Moreover, iron ore does not
tend to be stocked in significant quantities, either by the
iron ore mining companies or by steelmakers; iron ore
stocks are expensive to hold. Producers and consumers
only tend to hold stocks
to allow for
short-term fluctuations in production and consumption.

in order

largest

(42) A forecast increase in world demand for steel has led
in new
iron ore producers
the
production capacity,
this new
capacity will replace exhausted mines (8). In addition to
the expansion of existing mines, a number of new
mines are planned in Brazil and Australia, by CVRD,
BHP and Rio Tinto. Other expansions in capacity are
planned for India and Canada.

although much of

to invest

(43) Any significant increases in capacity outside Brazil and
Australia are, however,
likely to be on ‘brownfield'
rather than ‘greenfield' sites, for two reasons. First, the
cost of developing new iron ore mines means that it is
far more economical to expand existing operations in
most cases. Second, there is increasing opposition to
open-pit mining in many parts of the world, especially
in developed countries.

(44)

(45)

(46)

In that context, it is expected that the current situation
of tight supply will continue for a number of years. In
particular, data provided by the parties indicates that the
capacity utilisation rate, which reached 93 % in 2000, is
still expected to be in a range between 88 % and 92 %
in 2005.

First,

the parties

In their response, the parties submit that excess capacity
that year 2000
exists.
corresponds to a year of unforeseen, all-time high
demand, and that the coming years will show a very
different picture.

indicate

the actual

Secondly, the parties consider that the capacity figures
used by the Commission (provided by the parties)
level of capacity in the
underestimate
industry. In particular, the parties rely on a study which
they commissioned to be carried out by an economic
consultant.
consultant
considers that ‘capability' rather than capacity is a better
measure of a firm's maximum capacity to supply iron
ore
the
economic consultant considers that nominal capacity
may have been improved by de-bottlenecking, so that
the
‘capability', which is calculated on the basis of

export market. More

specifically,

economic

in the

In its

study,

the

(8) This

forecast

increase in demand is

in the
construction of nearly 100 Mt per year of new capacity in the near
fourth edition 2000
future: see The Economics of
(Roskill).

likely to result

Iron Ore,

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the

economic

highest observed production levels, may therefore
provide a better indication of capacity to supply. For
instance,
the
capability of CVRD's northern system by observing that
it had reached a peak shipment rate of 4,9 Mt in March
2001 and extrapolating that figure on an annual basis
(thereby reaching an annual capability of 58,5 Mt).

consultant

calculated

The Commission cannot accept the parties' arguments
about capacity (9). The Commission considers that the
capability figures calculated by the economic consultant
significantly overestimate actual capacity in the industry.
In particular, the Commission considers that deriving
annual capacity by extrapolating on the basis of the
highest monthly production is not appropriate. This
methodology supposes that an iron ore supplier can
every month reproduce the ideal conditions which it
enjoyed during the ‘best' month, a scenario which seems
unlikely in view of the complexity of the logistic chain
transport and ship loading)
(production, storage, rail
and the bottlenecks at every level.
the
economic consultant's methodology assumes that there
is always the optimal production level available,
the
right iron ore train capacity available and the right ship
this methodology
present at
seasonal
ignores
character of demand and of weather conditions), which
industry. The Commission
are
in that
therefore considers that
the capacity figures initially
provided by the parties, which are consistent with those
provided by third parties, should be those used for the
assessment of the present transaction.

In addition,

significant

(especially

the port.

In short,

seasonal

factors

the

capability figures

the
consultant,

capacity utilisation rates

In addition, the Commission notes that, even on the
calculated by the
basis of
economic
are
expected to remain close to 90 % for the whole of the
2000-2005 period , which is already a high figure given
the frequent disruptions caused by factors such as
weather conditions (delaying ships and trains, affecting
the extraction process, etc.). Given that
the actual
capacity utilisation rate (on the basis of real capacity)
will exceed those estimates, the Commission maintains
that
the industry is and will continue to be in a
situation of tight supply.

about

arguments

the parties'

Furthermore,
lower
demand in 2001 and 2002 are not confirmed by the
results of the Commission's investigation. In particular,
the first- and second-quarter results of CVRD in 2001
show an increase
sales when
compared to 2000. In a presentation of those results
long-term
made in May 2001, CVRD indicated that
perspectives are for a 1 % annual growth for all iron ore

and pellet

in fine

(47)

(48)

(49)

(9) It should be pointed out that the parties never questioned the
capacity figures which they had provided until two weeks after the
issuance of the statement of objections.

products, and 4 % annual growth for pellets; and that,
in the short term, demand should remain firm, the only
risk being a slowdown of current market growth (rather
than a contraction in demand). Rio Tinto's half-year
results show the same pattern, with demand for iron ore
‘remaining quite strong'.

(50)

Even a lower demand for steel, and therefore a lower
demand for iron ore than that currently forecast, will
not materially affect that conclusion, since it will also
lead iron ore suppliers
to postpone their capacity
expansion schemes. As the parties explain in their
response,
to add capacity
ahead of demand as it would reduce the industry
capacity utilisation rate. No bank would finance projects
on this basis.

it would be uneconomical

readily expandable

(51) More generally, it should be noted that the arguments
made by the parties in their response (significant excess
capacity, presence of
capability,
homogeneous products and low marginal costs) all
point to the conclusion that iron ore markets are close
to a situation of perfect competition. In such a scenario,
one would expect iron ore producers to be experiencing
very low (if any) profit margins. However, the results of
In
the investigation show a very different
particular, a presentation made by CVRD and Merrill
Lynch in May 2001 indicate that all major iron ore
suppliers
profit margins
considerable
(EBITDA (10) margins between 27 % for BHP, and 46 %
for CVRD) as well as very high returns on capital
(reaching 30 % in the case of CVRD). Similarly, a
presentation made by BHP presents the iron ore sector
as a sort of aberration among commodity markets,
iron ore
because, of all the commodities considered,
provides the highest return on capital for (paradoxically)
the lowest risk and volatility. These features demonstrate
the presence of substantial rigidities in the iron ore
sector, enabling the major producers to enjoy very
comfortable profits.

achieve

reality.

The main suppliers of seaborne iron ore

(52)

The main suppliers of seaborne iron ore to western
Europe and worldwide are as follows:

C V R D

(53) As mentioned above, CVRD is based in Brazil and is the
world's largest iron ore producer. It already jointly or
solely controls most of Brazil's iron ore production,

(10) Earnings before interest, taxes, depreciation and amortisation.

30.3.2004

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Official Journal of the European Union

L 92/57

in Brazil:

with the principal exception of Mineração Brasileiras
Reunidas SA (MBR), a subsidiary of Caemi. CVRD's iron
ore mining operations are essentially located in two
geographic regions
the ‘northern system',
mines located in the Carajas region of the State of Pará
(with a capacity of some 50 Mt); the ‘southern system',
mines located in the State of Minas Gerais (with a
capacity of some 60 Mt). Both mine systems are linked
by dedicated freight railways to deep-water ports, some
of which facilities are owned by CVRD. Furthermore,
CVRD has recently acquired controlling interests in SA
Mineração da Trindade (Samitri), also located in the
‘southern system' (having high grade reserves, and an
estimated annual production capacity of 17 Mt), as well
(having an
as
estimated annual production capacity of 7 Mt). Each of
these mines is located in Brazil and produces fine and
lump ores.

in the Socoimex mining companies

CVRD holds interests variously of 50 % to 100 % in
nine pelletising plants, with a 10th wholly-owned plant
under construction in Brazil, and an 11th 50 % owned
pelletising plant in Bahrain (Gulf Industrial Investment
Company). In Brazil, Nippon Steel has a 49 % interest in
two of those pelletising plants, Riva of Italy and Aceralia
of Spain each has a 49 % interest in one of those plants,
and Posco of Korea has a 50 % interest in one of those
plants. Two pelletising plants in Brazil are 50 % held
through Samarco (an iron ore pellet exporter and
formerly a subsidiary of Samitri), with BHP holding the
other 50 % interest. Pellets produced by each of these
joint venture companies are sold either to the joint
venture pellet customer or to CVRD under long-term
sales
venture
company is distributed to CVRD and the joint venture
pellet customer as dividends.

from each joint

agreements.

Profit

In 2001, CVRD acquired Ferteco Mineração SA
(Ferteco), then Brazil's third largest iron ore producer,
based in the State of Rio de Janeiro. It has a production
capacity of some 15 Mt per year of
iron ore and
mineable reserves of approximately 263 Mt of ores.
Ferteco operates two open-pit iron ore mines located in
the ‘southern system', and a 4 Mt per year pellet plant,
also in the State of Minas Gerais. Ferteco also holds a
10,5 % stake in MRS Logistica SA, a freight railway
network serving the ‘southern system' and linking it
with the deep-water port of Sepetiba, Rio de Janeiro.
railway linking the
CVRD owns
‘southern system' with the deep-water port of Tubarão,
where many of CVRD's pelletising plants are located.
Ferteco moreover operates a marine terminal through
its wholly owned subsidiary, Companhia Portuária Baía
de Sepetiba SA (CPBS), in the port of Sepetiba.

the other

freight

(54)

(55)

(56)

(57)

(58)

(59)

R i o T i n t o

Rio Tinto,
is based in Australia and is the world's
second-largest iron ore producer; sold some 116 Mt in
2000 (including the sales of North Limited — see
below). Of
this 113 Mt were sold on the seaborne
market.

Channar mine

in Western Australia

Rio Tinto owns 100 % of the Marandoo, Mount Tom
Price/Paraburdo and Yandicoogina mines and 60 % of
the
(the
‘Hammersley' mines), with total listed capacity of some
[…]* Mt per year, and which is to expected to increase
to some […]* Mt by 2002 and to some […]* Mt by
2010. According to public sources, production of
marketable iron ore from the Hammersley iron ore
mines amounted to 65,7 Mt (with total sales of 67,1 Mt)
in 2000, substantially all of which was exported. Sales
in 2000 included […]* Mt to Japan, […]* Mt to China,
[…]* Mt to Korea, Taiwan and elsewhere in Asia and
[…]* Mt to Europe (11).

In the autumn of 2000, Rio Tinto acquired North
Limited, which held a 53 % indirect shareholding in the
Robe River Iron Associates mine. Rio Tinto directly
controls 65 %, and markets as sales agent 100 % of
Robe River production, which amounted to some […]*
Mt in 2000, all of which was exported. Robe River's
annual capacity is expected to be increased by an
additional […]* Mt by 2009, commencing with […]* Mt
in 2003,
the West Angelas
deposit in Western Australia (12).

through development of

Rio Tinto also owns some 56 % of the shares of the
Iron Ore Company of Canada (IOC). The IOC open-pit
mine in Newfoundland can currently produce […]* Mt
of fine iron ore (concentrate), of which […]* Mt are
being sold in the form of pellets produced near the
mine site. Ore is exported through a port in Quebec.
Rio Tinto has announced that it is renovating its Sept
Îles, Quebec pelletising plant, which is to reopen in
2002 with a capacity of […]* Mt to increase to […]* Mt
per year in 2004. IOC's annual sales in 2000 amounted
to […]* Mt of which a portion was sold to Canadian
steelmakers and […]* Mt were exported. Rio Tinto also
owns a mine in Brazil (Corumbá), with a current annual
capacity of some […]* Mt (13).

B H P

(60)

BHP is based in Australia and is the world's third-largest
iron ore mining company, accounting for about 8 % of
world production. The parties estimate that sales of iron

(11) All figures provided by the parties.
(12) All figures provided by the parties.
(13) All figures provided by the parties.

L 92/58

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Official Journal of the European Union

30.3.2004

ore controlled by BHP (including 50 % of Samarco's
output — see below) represented some […]* Mt
in
2000.

S N I M

(61)

in the Middleback Range

BHP owns 85 % interests in the Mount Newman, Yandi
and Goldsworthy joint ventures in Western Australia
and 100 % interests
in
Southern Australia and the Jimblebar mine in Western
listed capacity of
Australia. These mines have a total
some […]* Mt, which is expected to increase to some
[…]* Mt by 2003. BHP also owns the Taharoa and
Waikato mines in New Zealand, with a capacity of
approximately
under
[…]* Mt. Current
development would, according to the parties, expand
capacity controlled by BHP by an additional […]* Mt for
2003 and a further […]* Mt in the following years (14).

projects

(62)

interest

In 2000, BHP acquired an additional
in the
Samarco mine and pelletising plants in Brazil, bringing
its total equity interest to 50 %. The remaining 50 %
interest in Samarco is held by CVRD. The Samarco mine
currently has a rated capacity of […]* Mt per year,
which includes […]* Mt of pelletising capacity. Total
sales amounted to […]* Mt in 2000 (including […]* Mt
of pellets) (15).

(65)

Société Nationale Industrielle et Minière (SNIM) is the
only producer of iron ore in Mauritania, and has a total
capacity of some […]* Mt per year. All of its production
is exported, with almost all of its exports (over 90 % in
1998) going to western Europe, predominantly to
France, Italy, and Belgium (17).

L K A B

(66)

The Swedish iron ore producer Luossavaara Kirunavaara
AB (LKAB) produces and sells fine iron ore and pellet
and currently has a total capacity of some […]* Mt
([…]* Mt of pellets and […]* Mt in fines). Total sales
amounted to […]* Mt in 2000 ([…]* million tonnes of
pellets), of which approximately […]* million tonnes
were exported. LKAB therefore accounted for [<5]* % of
import
worldwide production and [<5]* % of global
trade in 2000. However, owing to its advantageous
shipping costs to Europe, LKAB accounts for a much
higher percent of iron ore consumption in the European
Union (18).

C A E M I

I S C O R

controls

in several

(63) As mentioned above, Caemi
is a Brazilian holding
iron ore mining
company with stakes
companies in Brazil and Canada, and in related logistics
businesses. Caemi
the Brazilian mining
company Mineração Brasileiras Reunidas SA (MBR),
the voting shares; MBR is
where it holds 85 % of
Brazil's second largest iron ore producer (behind CVRD),
with a seaborne export capacity of some […]* Mt per
year, and is currently operating three open-pit mines
producing fine and lumpy ores. Caemi also jointly
(QCM)
controls Quebec Cartier Mining Company
(Canada), where it holds 50 % of the voting shares (the
remaining 50 % are held by the Canadian steel
company, Dofasco); QCM produces fine ore and pellets,
and has a seaborne export capacity of some […]* Mt
per year. Worldwide, Caemi is the number four iron ore
producer (behind CVRD, Rio Tinto and BHP) (16).

(64) As regards logistics (railway and port operations in
inter alia, a 32 % stake in MRS
Brazil), Caemi holds,
Logistica SA, Brazil's most
important general cargo
railway network serving the ‘southern system' of iron
ore mines, and linking it with the deep-water port of
Sepetiba.

(67)

Iscor is the main South African producer of iron ore,
with a production capacity of some […]* Mt per year.
Just under half of its production is consumed internally
by its own steelworks. The rest (around […]* Mt)
is
exported, mainly to Asia (19). Although Iscor intends to
increase its export capacity in the near future, this is
likely to be affected by difficulties in expanding rail and
port capacity in South Africa.

M i t s u i

(68) As mentioned above, Mitsui is a Japanese company with
minority and controlling stakes
in a number of
Australian and Indian iron ore mining companies.
Mitsui controls 51 % of
the Indian mining company
SESA Goa Ltd, which produced some […]* Mt of iron
ore in 2000, some […]* Mt of which was exported to
Europe. Mitsui's minority holdings include a significant
minority stake in the world's second-largest iron ore
mine, Robe River in Australia, whose other stakeholders
include Rio Tinto and two Japanese steel companies.
Mitsui has further interests in the Yandi, Goldworthy

(14) All figures provided by the parties.
(15) All figures provided by the parties.
(16) All figures provided by the parties.

(17) All figures provided by the parties.
(18) All figures provided by the parties.
(19) All figures provided by the parties.

30.3.2004

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Official Journal of the European Union

L 92/59

and Mount Newman mines (7 % each), along with the
controlling shareholder BHP (85 %). Finally, as was
described in more detail above, Mitsui also currently
holds 40 % of the voting shares in Caemi. As SESA Goa
is the only company controlled by Mitsui, only this
company's (negligible) production and sales are taken
into account in the competitive assessment made below,
including the calculation of market shares.

(72)

in 1998 and then
to 772 Mt
production again fell
rebounded in late 1999 and 2000. The International
Iron and Steel Institute estimates that total crude steel
production in 2000 was over 840 million tonnes.

Viewed regionally, production of crude steel in western
Europe and the United States has grown only modestly
during the last decade. Production of crude steel in the
CIS countries fell by nearly half from 207 Mt in 1990 to
less than 103 Mt in 1998, but then increased in 1999
and 2000 as a result of very aggressive export policies
to offset the fall in domestic consumption. Chinese and
Korean production of crude steel (and imports of iron
the
ore)
decade.
imports has
Competition from relatively cheap steel
placed considerable pressure on US and,
to a lesser
extent, European steel producers. This competition also
indirectly affects Brazilian, Australian, Swedish and
other iron ore producers for the seaborne trade, which
furnish most of the iron ore requirements of western
European steel-makers and only small amounts
to
eastern European steel producers.

grew substantially

throughout

in

the

iron

(73) During the same period, changes in the demand for
steel were mirrored
ore market.
Notwithstanding the Asian crisis, the demand for iron
ore has grown by approximately 1,5 % per year since
iron ore production
the 1991-1992 recession. Global
did fall from a high of 921 Mt in 1997 to slightly less
than 900 Mt in 1999 and seaborne iron ore trade fell
from 417 Mt in 1998 to 411 Mt in 1999. Increased steel
production in 2000 was reflected by an increase in
global iron ore production to over 931 million tonnes,
and in seaborne trade from 411 Mt in 1999 to 455 Mt
in 2000. Prices for iron ore fell sharply in 1999 as a
result of the Asian crisis, and then increased in 2000
and 2001, but still did not match the record 1998
levels.

(74) World steel production has been following an upward
trend since 1992. A faster than expected recovery of the
steel industry after the Asian crisis is evident when the
1999 production figures are compared with those of
2000, when a record level of 847 Mt of crude steel
production was reached. Looking towards 2005, CVRD
expects
this positive trend in steel production to
continue in the future, with crude steel production
reaching 890 Mt by 2005, an annual average increase of
about 1 %. Analysing steel growth by region, the biggest
absolute increase is likely to occur in Asia (+26 Mt),
followed by Latin America (+7 Mt). European demand is
forecast to remain constant.

B. Demand for iron ore (20)

Trends in demand for iron ore

(69) As indicated above, the demand for iron ore originates
from the steel manufacturers, which use iron ore as a
raw material
for the subsequent production of steel
products. Iron ore consumers can be divided into two
types: first, the basic oxygen furnace (BOF) steel mills
producing pig iron from sinter (fines), lump, pellets and,
the direct
to a lesser extent,
reduction segment using pellets and lump to produce
direct reduction iron (DRI) for electric arc furnace (EAF)
steel production.

scrap, and secondly,

(70)

(71)

The relatively high cost of energy in the European
Union means that almost all iron ore sold there is for
steel production which uses the blast furnace method
(DR iron ore accounts for less than 10 % of total world
consumption of iron ore); the only Western European
EAF production facility using DRI (21)
is a 0,45 Mt
capacity plant operated by Ispat in Germany (22). It is,
for the same reason, considered unlikely that new EAF
facilities using DRI will be constructed in the EU (23).

In the last decade, world production and consumption
of crude steel has closely followed trends in the US,
Asian and European economies. From 770 Mt in 1990,
world crude steel production fell to a low of 720 Mt as
a result of the US and European recession in 1991-1992
and the deepening economic crisis in the CIS countries,
and then gradually increased to a high of 799 Mt in
1997. As a result of the Asian crisis at the end of 1997,

(20) The data contained in this section is based on information

provided by the parties.

(21) There are many EAF facilities in the EU which use ‘scrap'

iron
than DRI) as an input. EAF production using DRI

(rather
consumes very large quantities of energy, usually gas.

(22) This plant has been temporarily shut down, principally on account
of high gas prices, but is expected to be reopened in October
2001; Ispat expresses confidence that the plant is viable long-term,
in the expectation of lower gas prices following liberalisation of
energy markets in Europe.

(23) The Economics of Iron Ore, fourth edition 2000 (Roskill).

(75) World iron ore production is expected to follow the
trend of steel production although at a lower growth

L 92/60

EN

Official Journal of the European Union

30.3.2004

rate, since steel production which uses scrap instead of
iron ore is expected to increase more rapidly than steel
produced via the blast
furnace route. On the other
hand, international trade in iron ore is expected to grow
faster than world iron ore production since a large part
of the growth in steel production will be in countries
which import iron ore.

Consumption of iron ore in the European Union

to change the composition of

injection and low volumes of

their
highly reluctant
burden, and that they rarely do so. In particular, the
parties state that in Europe, blast furnaces run at high
productivity levels by utilising high levels of pulverised
coal
coke. These
conditions can only be achieved and maintained if all
feedstock parameters are kept as stable as possible. This
need for stable operating conditions limits the raw
material buyer in his ability to switch between input
materials on a short-term basis, and also explains why
iron ore has traditionally been contracted for multi-year
periods.

(76) As indicated above, steelmakers in the European Union
are today almost totally reliant on seaborne iron ore.
Western European steelmakers all import large quantities
of iron ore from a variety of sources outside the EU,
and mainly from Brazil (by far the largest exporter of
iron ore to Europe), Australia, Canada and Mauritania.
The
of
consumption that is not imported (principally, about 5
Mt
consumed
of
domestically).

production which

below includes

Swedish

amount

small

table

is

a

Fines

95,0

83,1

88,6

Lump

18,3

17,1

19,6

Pellet

34,9

32,8

35,7

Total

148,2

133,0

143,9

1998

1999

2000

Parties' estimates and data from UNCTAD

Limited change in the iron ore mix

(77)

properties

in different

indicated above,

Iron ore cannot be regarded as a typical commodity.
Indeed, as the parties have stated during the procedure,
regions have highly
products made
differentiated
as
intrinsic metallurgical
described above, and clients are conservative in their
purchasing behaviour. As was
the
demand for iron ore emanating from each customer is
determined by the particular burden used by that
customer. The composition of that burden defines the
relative proportions of sinter fines,
lump and pellets
required, as well as the quality (and therefore the
geographic origin) of each type of ore. Given that
fines in
customers usually blend several varieties of
(ferrous
feedstock parameters
order
to obtain the
content, LOI content,
the
level of
burden also determines the proportion of each quality
(and therefore origin) of fines.

impurities, etc.),

(78)

The data provided by the parties, and the results of the
Commission's investigation, indicate that customers are

(79)

(80)

investigation

Commission's

This phenomenon operates at two levels. First, it limits
lump
the customers' ability to switch between sinter,
and pellets. Secondly,
it has also effects within each
form of iron ore (namely lump, pellet and sinter fines),
by restricting the customers' ability to switch between
products of different origin and quality. The results of
this
the
phenomenon. In particular, it appears that blast furnaces
steel mills usually do not change the proportions of
sinter, lump and pellets significantly (on average, by not
some
more
Furthermore, while
customers have
clearly switched between different
qualities of sinter fines (e.g. between Australian fines
and Brazilian fines),
it appears that most competition
takes place within ores with the same quality (and
therefore often with a similar geographic origin).

than 3 to 5 %).

confirm

The parties emphasise that, with respect to fines, the
buyer's flexibility improves if all sinter fines are blended
just prior to producing the
on-site at the steel mill,
agglomerate. In that situation, one component of the
blend may be exchanged, removed or added, provided
that the overall chemical composition and metallurgical
behaviour of the agglomerate remains stable. However,
they also admit that there is a trend amongst iron ore
reducing the number of blend
customers
components
in transport,
costs
handling and stocks. A consequence of this trend is a
further
reduction in the buyer's ability to switch
suppliers in the short term.

in order

to save

towards

in an electric arc
(81) As regards the production of steel
furnace, direct reduction iron (DRI),
like pig iron and
scrap iron, can be used as an input; DRI is produced,
using DR iron ore, in a DR furnace. The ore comes in
two main forms: DR pellets and DR lump. Depending
on the type of DR furnace concerned,
there are
limitations to the intersubstitutability of DR
technical
lump and DR pellets, in that lump can be substituted by

30.3.2004

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Official Journal of the European Union

L 92/61

pellets, but pellets cannot be fully substituted by lump
(because lump cannot exceed 20 % to 40 % of the total
burden).

13 Mt of iron ore or roughly 3 % of global seaborne
imports each.

C. Concentration and joint ventures

Concentration in the iron ore and steel industries

(85)

In their response, the parties submit that consolidation
in the steel industry is more significant than is described
by the Commission. In particular, they consider that, if
one regards the Japanese steel mills as a buying bloc
then, with the merger of Usinor/Arbed/Aceralia, 67 % of
seaborne iron ore would be purchased by the six largest
customers. The Commission does not share this view.
[…]*

Production joint ventures (both horizontal and vertical)

(82)

string of

The ownership structure of the iron ore market has
been rapidly transformed over the past few years, and is
now concentrated among relatively few companies.
Capacity has become even more concentrated during
2000 and 2001, notably following Rio Tinto's purchase
of the Australian mining company North Ltd (2000)
recent acquisitions of other
and CVRD's
Brazilian mining
over
production costs has been one of the most important
factors driving the current wave of consolidation. The
bulk of the world's internationally traded iron ore is
now concentrated in the hands of
three companies:
CVRD, Rio Tinto and BHP.
Industry analyst Roskill
Information Services Ltd notes that this consolidation
tends to make it harder for iron ore consumers to
negotiate price discounts (25).

companies (24).

Concern

(83) Ownership in the steel

industry is considerably less
consolidated than in the iron ore industry. Nevertheless,
European steel producers have been pursuing rapid
consolidation in recent times. Among others, in 1997,
Thyssen and Krupp merged to form Thyssen Krupp
in 1999,
Stahl (16,1 Mt of steel production in 1999);
British Steel and Hoogovens of the Netherlands merged
to form Corus (21,3 Mt); in 1997, Arbed acquired 35 %
of Aceralia; in 1998, Usinor acquired 53 % of Cockerill
Sambre; and this year Arbed/Aceralia and Usinor (the
world's third- and fourth-largest steelmakers) announced
a merger to produce the world's largest steel company
with 46 Mt of production capacity.

(84)

The notifying parties estimate that
in 1999, Usinor,
Arbed, Aceralia, Cockerill Sambre and their European
subsidiaries together consumed 35 to 40 Mt of iron ore
or
roughly 9 % of global seaborne imports. Corus
(including Hoogovens) consumed 25 to 27 Mt of iron
ore or roughly 6 % of global seaborne imports, and
each of Thyssen Krupp and Riva of Italy consumed over

(24) In addition to the notified operation, CVRD has

added
substantially to its production capacity over the past year or so: it
has acquired the Brazilian operators Ferteco, Socoimex, and
Samitri, as well as a 50 % stake in Samarco.
(25) The Economics of Iron Ore, fourth edition (2000).

(86)

are

a number of

There
‘horizontal' mining joint
ventures, notably between CVRD and BHP, who each
hold a 50 % stake in Samarco, a Brazilian pellet
producer. Mitsui has a significant minority stake (33 %
in equity terms) in the important Australian mine Robe
River, in which Rio Tinto is also a shareholder. Mitsui
interests in the Yandi, Goldworthy and
has further
Mount Newman mines
(7 % each), along with the
controlling shareholder BHP.

(87)

There also exist a number of ‘vertical' production joint
ventures between iron ore producers and steelmakers,
such as the Robe River, Mount Newman, Goldsworthy
and Yandi ventures.

concern about

times, however,

(88) Moreover, some steelmakers own ‘captive' iron mines or
make minority equity investments in iron mines with
long-term sales agreements for all or a portion of the
production.
this trend has
In recent
for example, by
seen some reversal, as witnessed,
Thyssen Krupp's sale of Ferteco. In their response, the
parties indicate that this phenomenon indicates their
lack of
‘exploitation' by iron ore
producers. The Commission considers this argument to
be highly speculative. There may be plenty of reasons
for steel mills to sell their iron ore interests, such as the
need to levy capital
in their core
business, and/or the fact that the iron ore producers
concerned no longer represent a significant part of their
the steel mills concerned may
supplies. Furthermore,
counterbalance any risk of
from the
purchaser of the iron ore interest to be divested, either
by obtaining a higher purchase price reflecting future
price expectations, or by reaching long-term contractual
arrangements with the acquirer.

‘exploitation'

investment

for

(89)

Increasingly, steelmakers have also invested, both as
majority and minority shareholders, in pelletising plants.
For example, Nippon Steel, Posco Pohang Iron & Steel
Co. Ltd, Riva of
Italy, and Aceralia of Spain hold
substantial minority interests in four CVRD pelletising
plants.

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D. Iron ore prices: contracts and price negotiations

(90)

Supply contracts between iron ore producers and consumers have become shorter over the past 30
years. In most cases, contracts are now between three and five years in length, compared to 10
years in the 1970s. Contracts between producers and Japanese steelmakers tend to be longer-term
than those between producers and European steelmakers.

Benchmark prices

(91) Although contracts may last for several years, prices are revised on an annual basis following the
results of price negotiations taking place in Western Europe and in East Asia (more specifically, in
Japan) at the beginning of each year. The objective of those price negotiations is to set a reference
price (the ‘benchmark prices') for lump, sinter fines and pellets, respectively, in each of the two
customer areas.

(92)

The negotiations take place through a series of meetings between the large iron ore and steel
producers, normally starting at the end of the previous year and continuing for several months.
The negotiations are based principally on the perceived state of demand and supply for iron ore,
the financial situation of ore producers and steel mills, as well as the long-term needs of both
industries.

(93) At some point along the line in the pricing negotiation season, one of the steel mills will reach an
agreement with one of the iron ore producers on a percentage change above or below the previous
year's free-on-board (FOB) price for the fines of that particular producer. This percentage change is
then made public to the other iron ore suppliers and customers, and thus defines the new
benchmark price for fines. As can be seen in the following table, the agreed price change is then
normally used in both East Asia and western Europe.

Changes of the first price setters in Japan and Europe

(in %)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Japan

change

15,96 7,95 – 4,90 – 13,47 – 9,50 5,80

6,00 – 1,94 2,82 – 9,20 4,35

4,31

Price setter

HSY
(26)

HSY HSY HSY HSY

BHP

BHP

BHP

BHP HSY

RR

HSY

Europe change

15,96 7,93 – 4,90 – 11,00 – 9,50 5,80

6,00

1,10

2,82 – 11,00 4,35

4,31

Price setter

CVRD CVRD CVRD SNIM CVRD SNIM CVRD HSY CVRD CVRD SNIM CVRD

Source: The Tex report and the parties' data.

(94) As noted above, the new benchmark price is normally agreed first for fines, principally because of
the lower prices and higher volumes concerned. Once the annual price adjustments for fines have
been agreed, the annual price changes for lump ore and pellets are then negotiated. According to
the parties, the benchmark price for lump is traditionally agreed between Japanese steel mills and
Australian suppliers, while that
is always negotiated in western Europe. This
phenomenon reflects the different rate of utilisation of pellets and lump in those regions. In recent
years, the first contracts have generally been between Australian iron ore companies and Japanese
steel producers, and these have tended to be used as a benchmark for prices in Europe (27).

for pellets

(26) HSY = Hammersley, a subsidiary of Rio Tinto; RR = Robe River, also a subsidiary of Rio Tinto.
(27) In 2000, this trend was upset: the first price agreed was between the Mauritanian producer SNIM and the

European steel company Usinor.

(95)

(96)

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Suppliers'

transparent one.

It should also be noted that the negotiation process is a
rather
and customers'
expectations about the state of demand and supply, and
therefore ‘fair' price movements, are widely advertised in
the press;
regularly on
progress in the talks, describing who has met whom,
and speculating on the content of discussions.

industry journals (28)

report

(100) On the basis of the outcome of the, almost unanimous,
views expressed by iron ore customers during the
course of the Commission's market investigation, it can
be concluded that each of these three types of iron ore
constitutes a distinct product market, with only limited
substitutability between the three products.

Final prices

A. Demand-side substitution

the

determination

(or
Following
‘reference') prices,
individual negotiations between
producers and customers commence, before final prices
are agreed. […]*

benchmark

of

V. PRODUCT MARKET DEFINITIONS

(97) As indicated above,

iron ore is a raw material sold
almost exclusively to the integrated steel industry. It is
offered to basic oxygen furnace (BOF) steel producers by
iron ore mining companies in three forms: sinter fines,
lump, and pellets.

(98)

(99)

lump and pellets into their blast

Steel producers feed an individually composed burden of
furnaces to
sinter,
produce pig iron, which can further be converted into
steel. According to the parties,
in western Europe the
burden consists of approximately 60 % fines, 20 % lump
and 20 % pellets, but varies from steel mill to steel mill.
As indicated above, while lump ore can be directly used
as a feedstock to the blast furnace, sinter fines are too
small to be used directly in the blast furnace and have
to be further processed into sinter; this processing takes
place in sintering plants almost always operated by the
steel mills. Pellets are the product of further processing
smaller
in pelletising plants, operated
usually by the mines, and can be then directly used as a
feedstock.

‘super-fines'

that

The notifying parties submit
there is a single
relevant product market which includes all supplies of
iron ore, without distinction between the three different
types of ore (fines, pellets or lump). They argue that the
various
iron ore have a high degree of
substitutability since iron ore users can, to a significant
extent, switch among the three forms of ore. Prices
generally move together, although their absolute levels
differ significantly as a result of
the differences in
processing.

forms of

(28) Principally Tex Report and Metal Bulletin.

Technical barriers to switching between iron ore types

(101) The three different types of ore are not significantly
substitutable
from a demand-side perspective. As
indicated above, blast furnaces can only run at high
productivity levels if all feedstock parameters are kept as
stable operating
stable as possible. This need for
conditions limits the raw material buyer in his ability to
switch between input materials on a short-term basis,
and also explains why iron ore is usually contracted for
multi-year periods.

(102) According to the parties, major changes usually occur
when dictated by operational requirements (the re-lining
of a blast furnace or the closure of a sinter plant), or
when the iron ore supplier is providing a new product
in substitution for an existing one which is no longer
available. When such changes are contemplated, an
extensive test period is planned. This starts with lab and
pilot tests and is followed by full scale trials which last
at least a number of weeks. These practical constraints
inevitably limit the scope for any significant short-term
changes in iron ore supplies.

(103) The results of the Commission's investigation confirm
the very limited substitutability of the different forms of
iron ore. In particular, a vast majority of steel producers
have indicated that they are highly reluctant to change
to any significant extent the composition of the burden
fed into the blast
furnace. Several customers also
indicated that any significant change in the proportions
of sinter, lump and pellets could take several years, and
that it could in certain cases cost several million euro of
investment.

Economic barriers to switching between iron ore types

(104) The results of

investigation also
the Commission's
indicate that there are significant economic barriers to
switching between sinter fines, lump and pellets. Prices

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30.3.2004

differ significantly for the three product types: sinter
fines are typically priced at around 37 US-cent/fe-dmt
lump at around 45 US-cent/fe-dmt and pellets at
cif;
around 65 US-cent/fe-dmt (29). That
in a
differential of 22 % between sinter fines and lump, and
of 76 % between fines and pellets. Fines remain the
cheapest option, even if steel mills operate their own
pellet plants (which is usually not the case).

results

N o c o n s t r a i n i n g e f f e c t s o f f i n e s o n o t h e r
i r o n o r e t y p e s

(105) First, a vast majority of customers have indicated that
the ability of a steel mill to alter its use of sinter at the
expense or to the profit of other forms of iron ore is
limited, as steel mills tend to maximise their use of
sinter fines. Since fines are by far the cheapest iron ore
product and sinter plants, operated by the steel mills,
have high fixed costs and low marginal costs, the steel
mills usually run their sintering plants at capacity. Given
to expansion of
that
sintering capacity,
lump nor
pellets have significantly constraining effects on sinter
feed prices and demand.

there are significant barriers
it

follows that neither

(106) Sinter feed prices, in turn, have little constraining effect
on the prices of
lump and pellets. Contrary to the
parties' view, a vast majority of customers stated that
steel mills cannot increase their sintering capacity in the
short or medium term, both because of the substantial
investment required and as a result of environmental
constraints.

(107) More specifically, expansion of the capacity of the sinter
plants is not a viable option. New sinter plants have not
been built in Europe for at least 20 years, which implies
that the maximum proportion in the blend has probably
the start-up of an
already been reached, and that

(29) Average price for seaborne sales into western Europe, according to
parties' answer to questionnaire of 15 June, question 4; cif price is
the most meaningful in this context (demand-side substitutability),
as it reflects the horizon of the customers.

(which probably could not be
entirely new plant
operated at full capacity) would be uneconomical. An
expansion of the capacity of already existing plants is
theoretically possible to a limited extent, but
the
additional output would be insufficient to influence the
prices of the other iron ore types. Furthermore, costs of
expanding capacity may be too great to be worthwhile,
given the extremely high costs brought about by the
necessary shut-down of
furnace and the
consequent disruption in steel production. In Europe,
steel mills would also face regulatory difficulties, given
the release of toxic gases generated by sinter production.
A capacity expansion by loading further processed,
more productive feed into the sinter plant would,
in
incur additional costs which would dilute the
turn,
economic
the
fines.
additional proportion (about 5 %) obtained would also
be not sufficient to exercise price constraining effects.

In any event,

advantage of

the blast

(108)

lump and pellets are also used for

It should also be noted that, unlike sinter fines, certain
grades of
the
production of DRI. According to presentations made by
JP Morgan and CVRD in November 2000 (30), demand
for pellets is likely to derive to a significant extent from
the expected growth in DRI production. This will
further dissociate the competitive conditions for pellets
from those for sinter fines (only used in blast furnace
processes).

N o c o n s t r a i n i n g e f f e c t s b e t w e e n l u m p a n d
p e l l e t s

(109) The results of the Commission's investigation also show
that the scope for the interchangeability between lump
is also limited. According to the vast
and pellets
majority of customers, steel mills procure lump and
pellets to satisfy the rest of
their needs, seeking to
maximise the use of lump, which is about 40 % cheaper
than pellets. They are, however, constrained in their
capacity to use lump, because lump, being a ‘natural'
product with a variable quality, cannot represent a high
proportion of
the primary
requirement for good steel production being consistency
the
of
lump decomposes into fines, which blocks the necessary
airflow, thereby posing further risks to blast furnace
productivity.

in the blast furnace part of

input. Moreover,

iron ore mix,

the total

(30) Latin American Equity Conference.

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(110) There is also little flexibility in increasing the proportion
of pellets relative to lump. Owing to the high price of
pellets, which are the most expensive but also the most
productive option,
the main incentive to use more
pellets would be to increase the output of the blast
furnace in times of high demand (when higher steel
production costs
can be passed through to the
customers). Generally speaking, pellets are therefore
normally considered a swing product, except obviously
in those areas (such as North America) where it is the
only product available, on account of the geology of
domestic iron ore mines.

Conclusion

(111)

In the light of the above, it is concluded that, from a
demand-side perspective, each of sinter fines, lump and
pellets constitutes a separate product market. A vast
majority of customers have indicated that they would
not change their proportions of sinter feed, lump and
pellets should the price of one of these iron ore forms
increase by 5 to 10 % relative to the other forms (31).
This is so because (i) customers are reluctant to change
their burden; (ii) customers cannot significantly increase
fines because they already
their demand for
operate their sintering plants at close to full capacity,
and they cannot increase that capacity in the short to
medium term;
significantly
customers
increase the proportion of lump, because they already
try to maximise this use and because lump is in short
supply;
substantially more
expensive than other iron ore forms, customers use it as
a swing product and would not increase their demand
for pellets if they could produce the desired quantities of
steel through the use of sinter and lump only.

and (iv) pellets being

cannot

sinter

(iii)

(112) This does not mean that customers never change their
burden.
customers
it
sometimes reduce or increase the quantities of pellets

In particular,

appears

that

(31) The parties dispute that conclusion, on the basis

that

‘in general,

the
Commission did not sufficiently specify the ‘permanent' character
of the price rise concerned. However, prices are established on an
annual basis. It is therefore obvious that any price rise mentioned
by the Commission would be for at least one year. As NERA
indicated,
the competitive assessment of mergers
considers time periods of at least one year and in some instance
up to two years. Considering the scope for switching over this
time period is particularly appropriate in assessing competition in
the iron ore industry, given that most competition in this industry
takes place on an annual basis'. Finally, the parties claim that
switching can occur within a limited time period. It is therefore
not easy to explain why customers would only react to a price
increase in the long term, if, as the parties claim, they can switch
between iron ore types within a few months.

of

the

they

results

the distinct

use. However,

the
which
Commission's investigation show that these changes are
limited, as the proportion of
iron ore
products used in the individual burden can only vary to
a limited extent (usually 3 to 5 %), at least in the short
it appears that these
and medium term. Furthermore,
changes are seldom the result of competition between
the various
from
exogenous considerations like the evolution of demand
for steel. For instance,
in periods of high demand for
steel, a steel mill's sintering capacity may be insufficient
to cover production requirements.
In such cases, the
steel mill concerned may need to procure higher cost
pellets in order to meet demand.

iron suppliers, but

instead result

(113) As the parties indicate, the skill of an iron ore buyer is
therefore not determined by his ability to shift orders
between
price
considerations. Instead, the skilful buyer is the one who
extracts the maximum value from his existing suppliers,
in terms of
timing of supply, product quality and
consistency, and price.

accordance

suppliers

with

in

(114)

(115)

B. Supply-side substitution

Fines, pellets and lump are generally not substitutable
from a supply-side perspective. Iron ore mines produce
both lump and fines (some of which is sold to steel
mills as sinter feed, and some of which is converted by
the mine into pellets). However, the ratio of fines and
lump ore production of each mine is determined by the
the iron ore deposits. Mines located in
geology of
Australia, India and South Africa, for example, produce
relatively more lump than mines located in Brazil and
Venezuela. Mines producing ore with a low ferrous
content, such as those located in the United States,
Canada and China, produce little or no saleable lump.

lump ore. As

Fine ore cannot be converted into lump. While it is
theoretically possible to convert lump into fines, this
does not make economic sense owing to the higher
the possibility of
value of
converting lump into feedstock for pelletising plants
(pellet feed), it would be theoretically possible to crush
the lump in order to yield such feed. However,
the
investigation has indicated that
Commission's market
this would not be economically viable.

regards

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construction of

(116) As regards the possibility of converting fines to pellets,
this possibility is constrained by the fact that it requires
the
a major
investment which can only be justified for mines which
produce a significant proportion of fine ore suitable for
the nature of most
use as pellet
Australian ore,
currently not
it
for
economical to make pellets from that ore.

feed. Because of
example,

a pelletising plant,

is

C. Price differences

(117) As indicated above, prices differ significantly for the
three product types: sinter fines are typically priced at
lump at around 45
around 37 US-cent/fe-dmt cif;
65
around
pellets
US-cent/fe-dmt
US-cent/fe-dmt (32). That results in a differential of 22 %
between sinter fines and lump and of 76 % between
fines and pellets.

and

at

(119) The fact

that

there is a high degree of correlation
between the evolution of these various prices does not
affect this conclusion. First, it is quite normal to find a
correlation between these prices,
since the various
products are often produced in the same mining areas
with the same equipment. They therefore share a high
proportion of their costs. Second, […]*and thirdly,
it
should be noted that the distribution of quantities sold
does not follow what one might expect should the three
forms of iron ore be entirely substitutable. For instance,
in 1999, each of sinter fines, pellets and lump basically
followed the same price movement
(with a minor
additional decrease for pellets). However, during that
year, the seaborne quantities did not follow the same
pattern: demand for fines was 6 % less than in 1998,
while that for lump increased by 11 % and that for
pellets decreased by 2 %. If the three forms of iron ore
were part of the same product market, one would have
expected demand for each of sinter fines,
lump and
pellets to follow the same evolution (with possibly a
slighter higher demand for pellets than for the other
two forms of iron ore), which was clearly not the case.

(120) Secondly, the vast majority of customers responding to
questionnaires during the course of the Commission's
market investigation have indicated that — should the
price of one ore type increase by 5 to 10 % — this
would not result in substitution of one ore type for
another.

D. The parties' response

(118) The parties argue that these differences do not indicate
the presence of different product markets, but instead
reflect the different value in use of each form of iron
ore. However, this is not confirmed by the trends in
prices and quantities. First, benchmark prices for fines,
lump and pellets follow somewhat different movements,
as indicated on the following table. This suggests that
the conditions of demand and supply are specific to
each form of iron ore, and therefore that fines,
lump
and pellets constitute distinct product markets.

(121)

response,

they contest

findings. However,

the parties do not dispute the
In their
Commission's
the
product market definition described above, on the
ground that customers could switch to a significant
extent between the various
In
particular, the parties rely on the study produced by
their economic consultant, which considers that steel
mills can switch between the various forms of iron ore.

iron ore.

forms of

Changes in the benchmark prices for lump, sinter and
fines in Europe

(in %)

1995

1996

1997

1998

1999

2000

2001

Fines

Lump

5,8

6,0 + 1,1

2,8

– 11,0

7,9

5,0

0

2,9

– 11,0

Pellets

12,6

7,5 – 1,0

2,8 – 12,5

4,3

5,8

6,0

4,3

3,2

1,7

(122) First, the economic consultant considers that iron ore is
a homogeneous product, and that it is possible for steel
mills to achieve equivalent productivity levels using
burdens of quite different composition. According to the
economic consultant, this is demonstrated by the fact
that different
steel mills use substantially different
burden.

(32) Average price for seaborne sales into western Europe, according to
parties' answer to questionnaire of 15 June, question 4; cif price is
the most meaningful in this context (demand-side substitutability),
as it reflects the horizon of the customers.

(123) The Commission does not share this opinion. The fact
iron ore is not a normal commodity is clearly
Commission's
the physical and
the iron ore produced in

that
reflected
investigation. As
chemical characteristics of

indicated above,

results

the

the

of

in

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different mining areas may significantly differ from one
another, both in terms of ferrous content and in terms
of impurity levels. Although products of different origin
belong to the same product market, there are limits to
substitutability between products mined in different
from the
areas,
Commission's investigation that Australian and Brazilian
suppliers could not easily gain market share from each
other, in particular due to the different characteristics of
their products.

particular

appears

and

in

it

(124)

the

reflect

economic

consultant

this possibility)

(sometimes widely)

In addition, the Commission does not agree with the
parties'
that differing burden
conditions in the various steel mills demonstrate those
steel mills' ability to switch between the various
products. As indicated above, the burden and process
conditions for each steel mill are optimised for the
specific characteristics and productivity requirements of
that particular steel mill, so that the different process
conditions observed by the economic consultant may
varying
simply
configurations of different blast furnaces. Although each
individual steel mill could theoretically operate with a
burden other than the one which they currently use,
this does not prove (and the Commission's investigation
steel mills could in
dismisses
practice substantially alter their burden. First, drastic
changes are not an option for blast furnace managers,
because of the risks involved and because of the high
investment and time period required for the necessary
testing. As
indicated, clients are
conservative in their purchasing behaviour and some
steel companies have difficulties fully understanding
blast furnace technology. Secondly, although risks might
simply
be
concerned switches between sinter fines and pellets,
there nonetheless remain strong economic barriers (such
as the much higher price of pellets, the presence of the
sinter plant, etc.). All this is further confirmed by the
that, even among the plants operated by an
fact
individual steel manufacturer, different blast
furnaces
frequently use different burdens.

the parties have

contemplated

reduced

change

that

the

if

(125) Second,

the parties' economic consultant has also
observed ‘significant fluctuations in the proportion mix
between fines, lump and pellet ore from one year to the
next' as well as ‘fluctuations in the source of supplies
within the various categories of iron ore from one year
to the next', at the level of individual steel mills. In the
these data, combined
economic consultant's opinion,
with the customers' tendency to reduce the duration of
their supply contracts, confirm the customers' ability to
switch between the various forms of iron ore.

(126) The Commission does not dispute that even individual
furnaces may somewhat modify their burden

blast

under certain conditions. As described in detail above,
furnace managers run their sintering plants at
blast
capacity, then maximise the use of
lump (subject to
technical
limitations), and then fulfil the rest of their
needs with pellets. Obviously, different productivity
requirements will lead to different burdens. For instance,
in times of high demand, steel mills need to increase the
proportion of pellets (despite the higher price of that
product), because they cannot
increase the absolute
volume of sinter (because of capacity constraints), and
they cannot increase the level of lump above technical
limits. As a steel mill indicated,
‘demand for pellets is
directly depending on the capacity level of the blast
furnaces. Sinter plant works on maximum capacity.
the pellets
When the iron ore production decreases,
demand will
first decrease (higher price)'. Customers
may also change their burden when a new quality of
introduced and/or an existing mine is
iron ore is
depleting.
customers progressively
examine to what extent they may introduce the new
quality, by substituting that quality to others within the
same type of ore. Although the substitution is essentially
confined to a single form of ore, it may have effects on
the burden, for instance by affecting the productivity of
the sinter plant.

In those

cases,

latter

the various forms of

(127) However, the Commission maintains that these changes
do not affect its conclusion that customers would not
effectively alter their burden if only the relative prices
iron ore change. As the
for
investigation indicates,
changes, which
these
would mean altering the burden and process conditions
while maintaining similar productivity requirements, are
subject
to substantial barriers, due both to technical
risks and economic reasons (maximum use of sintering
plant, sinter fines being much cheaper than lump, itself
much cheaper than pellets). In that context, it appears
that relative price movements in the order of 5 to 10 %
are not sufficient to affect the economics of the plant
and to make blast furnace managers take significant
risks.

(128) The parties also dispute the fact that the Commission's
investigation proves the existence of significant barriers
to switching from one form of iron ore to another. In
particular, the parties have provided quotations from
customers demonstrating, in their opinion, the ability of
customers to switch between iron ore types.

(129) However,

parties'

the Commission does not agree with the
the

these quotations. First,

interpretation of

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Commission considers that some of these quotations are
inconclusive (such as statements by several customers
on switches between qualities within one form of iron
ore, or the statement of a customer making switches
subject to operational feasibility) and that many actually
support the conclusions drawn by the Commission. For
instance, the parties cite a reply by a customer, saying
‘we will not change our blending ratio of sinter, pellets
and lump; however, we may change the blending ratio
when repairing the sintering machine is required. Even
in that case, we will reduce sinter ration slightly and
increase pellets ration for a balance, though, this repair
may occur once in several years'. Similarly, the parties
cite
‘the
proportion of lump is limited to 20 % due to operation
reasons. So, the proportion of sinter and pellet is more
than 80 %. Since sinter is regarded as more economical
than pellet, sinter is used as much as possible. Pellet is a
buffer ore.' More generally,
it clearly appears that the
technical opportunity to switch is between
only real
pellets and sinter fines. But there are very substantial
economic and operational barriers to switching (such as
very high price differences, and the utilisation of
sintering plants at capacity).

steel mill, which indicated that

another

it

(blast

logistical

technical

theoretical

constraints

operational

should be noted that most of

In addition,
the
quotations made by the parties concern statements
about
limits to switching. These
statements may not take into account sintering capacity
furnace
constraints,
operations need to be stable, which hampers frequent
changes),
contractual
arrangements or economic barriers to switching, which
are addressed in other parts of their reply. For instance,
the parties quote a European customer, who stated that
it could theoretically change 5 to 10 % of its blend.
However, later in its reply, that customer indicated that
it is operating its sintering plant at capacity, and that in
the event of a relative price movement between sinter
fines,
it would not change the
lump and pellets,
proportions in its burden.

considerations,

In that context,
the Commission therefore maintains
that, if one takes a broader view combining all relevant
factors,
it clearly results from the enquiry that each
form of iron ore constitutes a relevant product market.
In
a
quasi-unanimity of customers confirmed that, once all
relevant elements are integrated, they would not change

particular,

recalled

should

that

be

it

(130)

(131)

their proportions of sinter feed, lump and pellets should
the price of one of these iron ore forms increase by 5 to
10 % relative to the other forms.

to some extent,

(132) The Commission also notes that the parties implicitly
admit that each form of iron ore constitutes a distinct
market, since they acknowledge in their response that
the pellet premium (and,
the lump
premium) for a particular year may expand somewhat
relative to the prior year when there is a markedly
in that
higher level of demand for pellets (or lump)
particular year, and therefore lead to a price rise for that
form. If all forms of iron ore were part of the same
market, a higher price in one form should lead to lower
demand for that form (and higher demand for the other
forms). In addition, the parties' statement indicates that
switching is not an economical option. If a hypothetical
dominant supplier for one form of iron ore (say, sinter
fines) attempts to increase the price for that form by 5
to 10 %, and assuming that customers could switch to
to an extent
another form of
sufficient to make the attempted price rise unprofitable,
this would markedly increase demand for that other
form. According to the statement made by the parties,
this increased demand would result in higher prices for
the latter form (in the example just provided, pellets).
This seems all the more likely because seaborne iron ore
excess capacity is limited.
follows that customers
would have little incentive to switch, since this would
give rise to significant economic, technical and logistical
difficulties for customers and still lead to higher prices.

iron ore (say, pellets)

It

E. Direct reduction iron ores

(133)

Iron ore is also sold in forms suitable for conversion
into direct reduction iron (DRI), which can in turn be
fed into an electric arc furnace for the production of
steel. DR iron ore comes in three forms: DRI lump, DRI
pellets, and DRI
feed).
However, given that
there is no demand in western
Europe for DRI fines/pellet feed, these products will not
be discussed further, and this Decision will focus on DR
lump and pellets instead.

(including DRI pellet

fines

(134) As regards substitutability between DR lump and pellets,
on the one hand, and BOF lump and pellets, on the
other, this is a one-way substitution process: the latter
are replaceable by the former but not vice versa,

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principally on account of the higher iron content and
lower level of impurities of DR ore. However, in view of
the higher price of DR iron ore, this substitutability of
DR ore for BOF ore is of a theoretical nature.

(135) The parties also suggest that DR lump does not form a
separate product market, because it can be entirely
replaced by pellets (for the sake of clarity, it should be
noted that the parties admit that, by contrast, DR lump
is not a substitute for DR pellets). According to the
parties, the use of DR lump traditionally had in the past
been mandatory, because pellets tend to stick at high
temperatures
to increase
(when DR operators want
productivity), and because lump prevents that sticking.
However, new coating technologies for pellets would
prevent sticking and therefore would no longer make
lump ore an indispensable input. Altogether, the parties
therefore suggest
to be
separated from BF iron ore, then two markets should be
considered: a market for DR pellets on the one hand,
and a market combining DR lump and DR pellets on
the other.

if DR iron ore has

that,

the

that

results of

investigation suggest

(136) The Commission agrees that, from a technical point of
view, DR pellets can fully replace lump ore. In addition,
the
the
economic barriers to switching within the DR sector
may be lower than in the BF sector. In particular, the
only western European customer for DR lump and DR
pellets indicated that if lump prices were to increase by
remained
between 5 and 10 % while pellet prices
significant
constant,
substitution of pellet
therefore
appears that there is a one-way substitutability between
in that DR lump cannot
DR lump and DR pellets,
replace DR pellets over a certain proportion of
the
burden (for technical reasons) but DR pellets can fully
replace DR lump. The competitive impact of
the
transaction in DR iron ore should therefore be measured
on the basis of two product markets: (i) DR pellets, and
(ii) DR iron ore (combining lump and pellets).

be
for lump. Overall,

probably would

there

it

products. In other words, the parties' claim is that DR
ores do not form a separate product market because, on
the downstream market, DRI
(resulting from the
processing of DR iron ore and fed into electric arc
furnaces) may be replaced by other products. The
Commission considers that the presence of competitive
alternatives on a downstream market does not prevent
the existence of market power on an upstream market.
The fact that DRI producers may compete with suppliers
of scrap or pig iron does not necessarily prevent a
hypothetical monopolist supplier of DR iron ore from
imposing monopoly prices for its iron ore supplies to
DRI producers (who in turn will sell DRI to EAF steel
mills). The only consequence of
the presence of
alternatives to DRI is that DRI producers will have both
to incur high supply costs (through high iron ore prices)
and low sale prices (owing to the presence of substitutes
for its DRI production).

(138)

In any event, the results of the investigation do not
confirm substitutability between scrap, DRI and pig
iron. In particular, as the parties acknowledge, scrap is
not a high quality material. It follows that low value
added products such as rebar can be made using 100 %
scrap, but
that high value added long products, or
flat-rolled products produced through the EAF route,
require a significant proportion of much cleaner raw
materials such as pig iron or DRI. It should also be
noted that, although scrap is usually cheaper than DRI
(so that EAF steel mills try to maximise the proportion
of scrap), this is not always true, especially in times of
peak demand for
theoretically
competes with solid pig iron, there are indications that
this substitutability is also limited, because pig iron
contains 4 % or more carbon and therefore requires
additional oxygen for processing. It follows that it can
only be used at the beginning of the melting process,
and that subsequent charges have to be made with
either scrap or DRI.

scrap. While DRI

(139) However, whether iron ore suitable for DRI production
belongs to distinct product markets can be left open,
since the competitive assessment of
the transaction
remains unchanged in all alternatives considered.

(137)

In their response, the parties suggest that DR ores do
not form a relevant market, on the ground that DRI
(resulting from the direct reduction of DR ore) could be
replaced by scrap or pig iron. This does not stand up to
scrutiny. The parties do not contest that only DR ore is
suitable for the production of DRI. Their argument is
that DRI, the product offered by DR iron ore customers
is replaceable by other
(and not DR iron producers)

(140)

In view of the above, it is concluded that sinter fines,
lump and pellets constitute three separate product
markets. Moreover, there are strong indications that iron
ore suitable for DRI production belongs to distinct

F. Conclusion

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product markets, and that the competitive impact of the
operation on a hypothetical product market
for DR
pellets and on a hypothetical product market combining
DR pellets and DR lump should accordingly also be
examined.

VI. RELEVANT GEOGRAPHIC MARKETS

(141) The parties submit that the relevant geographic markets
for iron ore should be viewed as total world production.
First, the parties emphasise that most of the largest steel
mills in the world procure their iron ore supplies both
from mines in their own countries and from mines in
other countries. Secondly, the parties take the view that
the iron ore markets derives
the global character of
the downstream steel
from the global dimension of
markets. Because of
the steel
markets,
iron ore producers would have to sell their
products at a price which will allow their customers (the
steel mills) to manufacture steel competitively. For a
mine operator to seek to obtain a higher price for its
ore from a nearby steel mill is a practice which would
price the production of that steel mill out of the market,
which in turn would severely harm the interests of that
mine operator (due to the outright loss of a nearby
customer).

the global nature of

2 to 3 km, and tracks have to be specifically designed to
carry these very long and heavy trains. This is why iron
ore is normally transported via dedicated railways.
Similarly, seaborne transportation of iron ore cannot be
economically achieved by container ships (i.e. similar to
the larger oil tankers), but instead requires dedicated
ships with a capacity up to200 000 t (equivalent to that
of
the
shipping of iron ore can only be handled in certain
deep-water ports with specific infrastructure, equipped
to handle iron ore vessels.

It also follows that

the larger oil

tankers).

(145) These considerations

indicate that not all

iron ore
producers can supply all customers worldwide.
In
practice, the capacity of a given iron ore supplier to
to a given customer will be
deliver
its products
absence) of
the
(or
existence
determined by the
sufficient
them.
between
infrastructure
transport
Existing transport links will therefore condition which
suppliers can approach which customers and vice versa.

B. Distinction between ‘domestic' and ‘seaborne'
customer areas

(146)

(142) The Commission does not share this analysis. Based on
the results of its detailed investigation, it considers that
a distinction should be made between those customers
based in countries with domestic iron ore production
(who may in some cases have a choice between
indigenous and seaborne supplies) on the one hand, and
those customers with almost no indigenous iron ore
production (such as western European and Japanese
steel producers), on the other. The following analysis
applies to all types of iron ore.

A. Transport of iron ore

(143)

In order to be delivered to its customer,
iron ore is
transported either by rail (in the case of regions with
large domestic production such as China, Russia or the
Iron ore
United States) and/or by dedicated ships.
delivered by ship is designated ‘seaborne sales'.

by

primarily

In much of the world, customers usually purchase most
of their iron ore requirements from ‘domestic' suppliers
connected to them either by rail or by inland
waterways. This is for instance the case in the United
States, where 88 % of demand is met by North
American mines (the rest being essentially procured
from Brazilian suppliers), or in eastern Europe, where
80 % of supplies are from domestic iron ore producers.
The conditions of competition in those areas are
local market
determined
therefore
characteristics (such as the relative competitiveness of
domestic suppliers and the structure of demand in those
areas).
areas has
frequently been adjusted to the types and the qualities
of
the products offered by ‘domestic' mines, and
therefore may concern a specific product mix. For
example, customers in Brazil or in Australia almost
exclusively use the iron ore quality produced locally.
Similarly, North American steel mills almost exclusively
use pellets, because this corresponds
to the local
characteristics of iron ore deposits in that region. This
markedly differs from traditional purchase patterns in
western Europe or East Asia, where most of the demand
is for sinter fines and lump.

Furthermore, demand in those

(144)

iron ore
to be economically transported,
In order
usually requires dedicated, high-capacity infrastructure.
With regards to land transportation,
it appears that
conventional railways are not suited to the specific
Iron ore is
requirements of
transported in large quantities on trains with a length of

iron ore transportation.

(147) By contrast, a specific situation exists in western Europe,
in East Asia (Japan, Taiwan and South Korea) and, to a
lesser extent, in China (where domestic supply is widely
insufficient or non-competitive). Customers in those
areas are therefore obliged to purchase their products
to relevant
suppliers with an access
from distant

30.3.2004

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L 92/71

because

transport

infrastructure.
undertaken

is
In practice,
transport
primarily
land
ship,
by
transportation cannot compete with seaborne deliveries
for those customers. Japan and Taiwan can physically
only be reached by ship, and there are no suitable land
links in place that could connect western European
customers with continental supply areas (such as China,
the former USSR or India). In addition, the Chinese and
Russian iron ore reserves are characterised by low iron
content
(approximately 30 % compared to 60 % in
Brazilian and Australian mines), which further increases
transport costs (because more ‘gangue' and non-ferrous
content have to be shipped for every unit of iron).

between western Europe, on the one hand, and East
Asia, on the other. It should be noted that there are
arguments for including western Europe in a wider
‘Atlantic' seaborne market, on account of the similarities
in the conditions of supply and demand in this wider
region (and notably transport costs). However, it is not
necessary to decide upon the existence of
such a
geographic market, as the competitive assessment would
be almost identical in that hypothesis as for a western
European market:
‘Atlantic'
consumers of seaborne iron ore outside western Europe
are in the Gulf of Mexico region of the United States
and in eastern Canada. However, only relatively small
quantities of seaborne iron ore are consumed there.

significant

only

the

it

is

clear

India and Africa.

supplies
It

totally on seaborne

than that which exists in other regions.

(148) Domestic supplies being either non-existent or marginal,
customers in western Europe or East Asia depend
from Brazil,
almost
Australia, Canada,
follows that
customers have to purchase only the product types and
qualities available from those suppliers, and that they
procure their iron ore needs from a different supplier
set
In that
context,
should a hypothetical
that,
monopolist seaborne supplier raise prices by 5-10 % in
those regions, customers would not be able to defeat
that price rise by finding alternative sources of supply.
This is clearly confirmed by the fact that, although the
western European benchmark price
lump has
increased by 11,8 % in 2000, no new supplier has
started selling lump in western Europe during that year.
This is also further indicated by the fact that prices in
seaborne areas do not follow the same pattern as in
other regions. For instance, the data provided by the
parties indicate that, between 1997 and 1998, prices
rose by 6 % in the United States but decreased by 1 % in
western Europe.

for

(151) There is no need to further delineate the scope of the
seaborne markets for DR iron ore products, since (i)
there is only one western European customer for DR
iron ore, (ii) this customer is part of a larger group with
DRI production plants in several continents, and (iii) the
operation would create a dominant position whatever
the geographic market definition retained. DR iron ore
will therefore not be further discussed in this section.

(152)

there might be

In the statement of objections, the Commission took the
a western
preliminary view that
European market for iron ore, on the grounds that (i)
customers in western Europe have a different demand
(in particular,
from customers
the
lump and pellets are
proportions of
(ii) transport costs
different from those in East Asia);
affect
competitive
and
incentives
in western Europe,
thereby making the conditions of supply in western
Europe different from what they may be in the other
seaborne areas; and (iii) […]*.

in other areas
fines,
sinter

competitiveness

suppliers

to sell

the

the

for

(149)

it

the above,

is concluded that

In the light of
the
conditions of competition in seaborne areas (regions
dependent, or partly dependent, on seaborne supplies)
the
are specific to those regions, and therefore that
supply of the different types of iron ore to those regions
constitute geographic markets distinct from the supply
of ores to non-seaborne areas. This is broadly confirmed
by the results of the Commission's investigation.

(153)

In their response, the parties no longer maintain their
original position, namely that the relevant geographic
market should be viewed as total production, and they
now admit that it is at least as wide as the worldwide
market for seaborne sales. However, they do contest the
existence of a western European/Atlantic market, mostly
on the basis of the economic study performed by their
economic consultant.

C. Single seaborne market

(150)

It is necessary to determine whether a distinction should
and especially
be made between seaborne

areas,

(154) First, the parties (and their economic consultant) submit
that the Commission has failed to apply properly the
standard principles applicable when defining a relevant
in the Commission's
geographic market as set out
the
notice. According to the economic consultant,
is based on the
the geographic market
definition of

L 92/72

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Official Journal of the European Union

30.3.2004

as

of

supply.

sources

effective

identification of regions of production that customers
consider
This
methodology they point to is set out in paragraph 13 of
the Commission Notice on the definition of relevant
for the purposes of Community competition
market
law (33), where it
the exercise of
market definition consists in identifying the effective
alternative sources of supply for the consumers of the
of
undertakings
products/services
of
suppliers'.

in
terms
geographic

involved,
and

is said ‘basically,

both
location

of

(155) Second, the parties provide indications that Brazilian,
Canadian, Australian, South African, Mauritanian and
other iron ore producers are effective competitors in
seeking to win sales to western European steel mills. In
particular, the parties refer to the fact that all of these
producers
to western
European steel mills, that they are able to sell profitably
in western Europe, and that there is some switching
between suppliers.

significant

volumes

supply

(159) After a careful examination of the parties' response, the
Commission notes
that, despite somewhat different
demand and supply conditions in western Europe, these
differences are not sufficient to justify the existence of
narrow geographic markets. As the parties submit, most
seaborne suppliers sell in most seaborne areas, and most
seaborne customers buy from the larger
iron ore
producers (mostly Australian, Brazilian and Canadian
companies). Narrower geographic markets can therefore
only exist
iron ore suppliers have the ability and
incentives to discriminate between customer areas. The
results of the Commission's detailed investigation show
that, despite somewhat different supply and demand
conditions
insufficient
evidence of discrimination to justify the existence of
narrow geographic markets within areas dependent on
seaborne supplies.

in western Europe,

there is

if

competitive

(156) And third, the parties state that the basis on which the
a narrow market
statement of objections defines
definition has little or no relevance to the assessment of
the
that operate between
Brazilian and non-Brazilian iron ore producers when
In
competing for
particular, the differences presented in the statement of
objections (such as the basis on which prices are agreed,
the differences in demand, etc.) affect all
iron ore
producers equally, regardless of where they are located.

to particular

steel mills.

constraints

sales

(160) A decisive element is that price levels and contractual
conditions are effectively based on and result from the
overall market conditions in the seaborne market, and
are not significantly determined by local factors. First, as
indicated above, benchmark prices are established on
the basis of
the negotiations held in both major
seaborne areas (western Europe and East Asia). These
negotiations take into account the competitive situation
at the global seaborne level, and the benchmark prices
the overall balance of supply and
therefore reflect
demand in the seaborne sector.

(157) Altogether, the parties' argument is that all seaborne
suppliers (as well as certain domestic producers in
western Europe) can effectively compete for sales in
western Europe. This, the parties submit, shows that
western Europe is part of a global market.

(161)

[…]*

the prices

(158) The approach followed by the Commission consisted in
contractual
verifying whether
conditions
are
determined by demand and supply features which are
specific to that region, or whether they are fixed on the
basis of
the conditions of competition at a wider
level (34).

to western

and the

supplies

Europe

for

(33) OJ C 372, 9.12.1997, p. 5.
(34) This method corresponds to the definition of ‘relevant geographic
‘The relevant
market' as described in paragraph 8 of the Notice:
geographic market comprises the area in which the undertakings
concerned are involved in the supply and demand of products or
services,
in which the conditions of competition are sufficiently
homogeneous and which can be distinguished from neighbouring
areas because the conditions of competition are appreciably
different in those areas'.

(162)

In addition, one of the main sources of competition in
the iron ore sector (finding sufficient outlets for capacity
expansion projects) strongly militates against narrower
geographic markets. The Commission's
investigation
shows that one of the main challenges faced by iron ore
customer
in obtaining sufficient
suppliers
support
for the considerable investment required for
capacity expansion schemes. This is all the more so as
new projects do not necessarily concern the same
quality iron ore as that currently offered (35), so that
iron ore companies need to convince customers to

consists

(35) For

instance, most new mines opened by Australian mining
iron ore, which has different

for pisolitic
companies
characteristics from traditional Australian ores.

are

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L 92/73

overcome their reluctance and change their blend. In
that context, iron ore suppliers have strong incentives to
compete for all possible customers. Given the high
capital costs of capacity expansion schemes,
it would
not be profitable for them to accept losing volumes in a
major customer area in exchange for a moderate price
increase in that region.

(163) Altogether,

the Commission therefore concludes that,
while there are indications that supply and demand
conditions are somewhat different
in western Europe
than in East Asia, these indications do not amount to
differences which are sufficient to enable the western
European market to be characterised as distinct for the
the
purposes of defining the geographic scope of
relevant markets. There is therefore no need to further
categorise between seaborne customer areas.

D. Conclusion

dominant position as a result of which effective
competition would be significantly impeded in the
common market or in a substantial part of it is to be
declared incompatible with the common market.

(166) The Court of

Justice (36) has defined the concept of
dominance as a position of economic strength enjoyed
by an undertaking which enables it to prevent effective
competition from being maintained on the relevant
to behave to an
market by affording it
appreciable extent independently of its competitors, its
customers and, ultimately, of consumers.

the power

factors which,

taken separately,
these

(167) The existence of a dominant position may derive from
are not
several
necessarily determinative;
factors, a
highly important one is the existence of large market
shares. In addition, the relationship between the market
shares of the undertakings involved in the concentration
and their competitors, especially those of
the next
largest,
the existence of a
relevant evidence of
dominant position (37).

amongst

is

(164)

It is therefore concluded that the relevant geographic
markets for the purposes of the present case are the
various markets for sale of the different types of iron
ore to all seaborne customer areas. For the purpose of
market share calculation, the Commission will
look at
total seaborne sales, which, despite including (limited)
seaborne sales to domestic customer areas, provide an
acceptable proxy for sales to all seaborne customer
areas.

(168) The factors which are taken into account for concluding,
on a preliminary basis, that the notified concentration
will create or strengthen dominant position in the
markets for the sale of iron ore pellets and fines in the
EEA are set out below. Given that the Commission has
no objections about the effect of the operation in lump,
this product will not be discussed further
in this
Decision.

VII. COMPETITIVE ASSESSMENT

Market Shares

(165)

In accordance with Article 2(3) of Regulation (EEC) No
4064/89, a concentration which creates or strengthens a

(169) Based on total seaborne iron ore sales in 2000, the
their main

the parties and of

market
competitors may be calculated as follows:

shares of

(36) Case 85/76 — Hoffmann-La Roche, (1979) ECR 461, at paragraphs
38 and 39; see also CFI, case T-102/96 — Gencor, (1999) ECR
II-753, at paragraph 200.

(37) See ECJ, Case 85/76 — Hoffmann-La Roche, (1979) ECR 461, at
paragraph 39; see also CFI, case T-102/96 — Gencor, (1999) ECR
II-753, at paragraphs 201 and 202.

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Official Journal of the European Union

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Total seaborne

(in %)

Fines

Lump

Pellets

All iron ore

[25-35]*

[< 10]*

[35-45]*

[10-20]*

[25-35]*

[< 10]*

[< 10]*

[< 10]*

[10-20]*

[< 10]*

[10-20]*

[10-20*

[25-35]*

[< 10]*

[< 10]*

[10-20]*

[35-45]*

[< 10]*

[40-55]*

[10-20]*

[10-20]*

[10-20]*

[< 10]*

[< 10]*

[25-35]*

[< 10]*

[35-45]*

[10-20]*

[25-35]*

[< 10]*

[< 10]*

[< 10]*

CVRD (38)

Caemi (39)

Merged entity

BHP (40)

Rio Tinto

LKAB

SNIM

ISCOR

Source: […]*.

Share of worldwide seaborne capacity

(170) The following table describes the share of total seaborne iron ore mining capacity of each of the

main suppliers:

2000

2005

Fines

Lump

Pellets

All iron ore

Fines

Lump

Pellets

All iron ore

[30-40]*

[20-30]*

[45-55]*

[30-40]*

[30-40]*

[10-20]*

[45-55]*

[30-40]*

[5-15]*

[< 10]*

[5-15]*

[< 10]*

[5-15]*

[< 10]*

[< 10]*

[< 10]*

CVRD

Caemi

(in %)

Merged entity

[45-60]*

[40-50]*

[45-60]*

[40-50]*

[45-60]*

[20-30]*

[45-60]*

[40-50]*

BHP

[10-20]*

[20-30]*

[5-15]*

[10-20]*

[10-20]*

[10-20]*

[10-20]*

[10-20]*

Rio Tinto

[20-30]*

[20-30]*

[5-15]*

[20-30]*

[20-30]*

[20-30]*

[10-20]*

[20-30]*

LKAB

SNIM

[< 10]*

[< 10]*

[10-20]*

[< 10]*

[< 10]*

[< 10]*

[10-20]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

ISCOR

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

Source: […]*.

(38) The CVRD market share includes the output of any company over which it has joint control or sole control. This
includes the wholly owned subsidiaries Samitri, Socoimex and Ferteco, as well as the joint ventures GIIC (a joint
venture with financial investors) and Samarco (a joint venture with BHP). The calculation of market volume (and
market shares) excludes sales to CVRD's joint venture partners in the following pelletising plants: Hispanobras,
Itabrasco, Nibrasco, and Kobrasco. Quantities from those joint venture pelletising plants sold by CVRD to third
parties are included in the CVRD market shares.

(39) The Caemi market share includes the output of the Brazilian mining company MBR and of the Canadian mining
company QCM, which Caemi controls jointly with a Canadian steel producer. The calculation of market volume
(and market shares) excludes internal sales to the joint venture partner.

(40) Includes 100 % of Samarco output.

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A. Dominance in pellets

(171) The operation will create overlaps in pellets, since each of CVRD (directly and through controlling
stakes in other companies such as Ferteco, Samarco and GIIC) and CAEMI
(through its joint
controlling interest in QCM, a pellet producer in Canada) are active in that market and sell to
seaborne customers worldwide.

Market shares

Market shares for pellets (BF and DR qualities)

(in %)

Seaborne sales

Country

Sales 1997

Sales 2000

Capacity

Capacity 2005

CVRD (41)

Samarco (CVRD/BHP) (42)

Brazil

Brazil

[25-35]*

[25-35]*

[25-35]*

[30-40]*

[5-15]*

[10-20]*

[10-20]*

[10-20]*

Caemi (QCM) (43)

Canada

[5-15]*

[5-15]*

[10-20]*

[5-15]*

Merged entity

[30-40]*

[45-55]*

[50-60]*

[50-60]*

Rio Tinto (IOC)

Canada

[10-20]*

[10-20]*

[10-20]*

[10-20]*

LKAB

SNIM

ISCOR

Source: […]*.

Sweden

[10-20]*

[10-20]*

[10-20]*

[10-20]*

Mauritania

South Africa

[< 5]*

[< 5]*

[< 5]*

[< 5]*

[< 5]*

[< 5]*

[< 5]*

[< 5]*

(172)

In their response, the parties have contested the market share calculations used by the Commission
in the statement of objections. An examination of the parties' submission shows that the difference
between the parties' and the Commission's calculations are due to the fact that the parties have
failed to remove from the total market those internal sales made by the Brazilian joint ventures
(jointly controlled by CVRD) to their parent companies. Given that these internal sales have not
been subject to market conditions or to any competition, the Commission considers that these sales
should be excluded from the market volume. Furthermore, it would not be consistent to exclude
those sales from CVRD's sales volume and to include them in the total market volume. The
resulting figures appear in the above table.

(41) The CVRD market share includes 100 % of the output of any company over which it has joint control or sole
control. This includes the wholly owned subsidiaries Samitri, Socoimex and Ferteco, as well as the joint ventures
GIIC (a joint venture with financial investors) and Samarco (a joint venture with BHP). The calculation of market
shares excludes sales to CVRD's joint venture partners in the following pelletising plants: Hispanobras, Itabrasco,
Nibrasco, and Kobrasco. Quantities from those joint venture pelletising plants sold by CVRD to third parties are
included in the CVRD market shares.

(42) Samarco is a 50/50 joint venture between BHP and CVRD. It is jointly controlled by CVRD and BHP.
(43) The Caemi market share includes the output of the Brazilian mining company MBR and of the Canadian mining
company QCM, which Caemi controls jointly with a Canadian steel producer. The calculation of market shares
excludes sales to the joint venture partner.

L 92/76

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30.3.2004

(173) On the basis of

the above market shares,

there are
strong indications that the operation would give rise to
competition concerns in relation to the seaborne supply
of iron ore pellets. CVRD's [40 to 50]* % market share
[5 to 15 %]* % share
would be added to Caemi's
its Canadian
sales of
(accounted for by the pellet
subsidiary, Quebec Cartier Mining), to yield a market
share of
[45 to 60]* %. CVRD/Mitsui/Caemi would
moreover control all Brazilian pellet production, and
consequently pellets
to all
exported from Brazil
closest
seaborne destinations. The merged entity's
competitors would have considerably smaller shares of
the pellet market: Rio Tinto (44) ([10 to 20 %]*); LKAB
(13 %).

(174) This apparent dominance is also reflected at the capacity
level, since the newly-merged entity would furthermore
control [50 to 60]* % of current worldwide seaborne
pellet production capacity (2000) and would control [50
to 60]* % of the worldwide seaborne pellet production
capacity forecast for 2005. The new entity's capacity
share is far in excess of those of its closest competitors
and will
the
current worldwide pellet production capacity of Rio
Tinto is estimated at some [10 to 20]* %, and is forecast
to rise to some [10 to 20]* % in 2005; the current
worldwide pellet production capacity of LKAB is
estimated at some 18 %, and is forecast to fall to some
17 % in 2005. BHP's current and future capacity ([10 to
20]* % today and [10 to 20]* % in 2005) are largely
accounted for by its 50 % stake in Samarco,
its joint
venture with CVRD.

the foreseeable future:

remain so for

(175) On this basis alone, the operation would seem at least
to create a dominant position in the market for the sale
of iron ore pellets to all seaborne customer areas, if not
to the strengthening of an already existing dominance
for CVRD in that market.

Limited competitive constraints from existing seaborne
suppliers

(176) The results of

the Commission investigation clearly
demonstrate that existing competitors will not be in a
position to sufficiently
competitive
behaviour of the merged entity.

constrain the

C o m p e t i t i v e a d v a n t a g e s o f t h e m e r g e d
e n t i t y

(177) First, the merged entity will benefit from a number of
competitive
its
competitors. In particular, it will have the largest reserve
base and the lowest production costs in the industry.

advantages

to tame

enabling

it

(178) According to the AME report (45),

the

the main pellet producers

cash cost
structure of
can be
summarised as is done in the following table. The costs
given in the table exclude the depreciation of assets, and
therefore provide an appropriate proxy for marginal
costs:

Average pellet costs 1997-2000

(in USD/t)

Production fob cost

CVRD (46)

QCM (Caemi)

IOC (Rio Tinto)

LKAB

Source: AME report.

16,8

[…]*

22,7

23,3

ability

this provides CVRD with the

(179) As indicated in this table, CVRD already has the lowest
cost base in the industry, both on an fob and on a cif
basis. Given that it also has the largest reserve base in
Brazil,
to
significantly jeopardise the viability of other pellet
suppliers, should they threaten CVRD's interests. The
further add to its range of
acquisition of QCM will
possible retaliation tools, by enabling CVRD to acquire a
significant share of Canadian quality pellet capacity —
that is to say, more or less the same quality pellet as
supplied by IOC, CVRD's main competitor (together
with LKAB). This could enable CVRD to engage in
selective competitive actions against IOC. The merged
entity could also exploit
that
IOC/Rio Tinto and LKAB do not deliver pellets to
customers located outside the Atlantic region.

to its benefit

the fact

(44) Rio Tinto's sales of pellets in Europe are accounted for almost

exclusively by the sales of its Canadian subsidiary, IOC.

1997 to 2000 (May 2001).

(46) Including Samarco.

(45) AME Consulting: Mining costs of the world iron ore industry,

30.3.2004

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Official Journal of the European Union

L 92/77

(180)

(i)

response,

the parties

indicate that

(and their economic
In their
the above analysis has two
consultant)
flaws:
it relies on the assumption that CVRD can
tame its competitors by increasing capacity, a notion
which is not economically sustainable (as the new
capacity would have depressing effects on prices for a
long period, and not only for the short period that any
‘taming' action would require); and (ii) retaliatory actions
designed to jeopardise the viability of other suppliers
requires that
the
market, which cannot happen given the sunk cost
nature of iron ore production.

these firms can be driven out of

(181) The Commission does not share those views. There is
no indication that ‘retaliatory actions'
(or disciplinary
actions) are effective only in those situations where
competitors may be driven out of
the market. For
instance, should certain competitors exert significant
price competition on the merged entity, an effective
retaliatory measure by CVRD could consist in exercising
a downward pressure on the annual benchmark prices
in such a way as to force competitors to suffer losses
while CVRD would remain profitable (thanks to its
low-cost structure). It follows that CVRD does not need
to expand capacity or to drive competitors out of the
market in order to keep competitors disciplined. In any
event, it should be noted that, according to the parties'
estimates, total seaborne pellet demand is expected to
increase substantially (47)
In that
context, a capacity expansion by CVRD would not be
economically irrational, as increasing demand would
quickly reduce the excess capacity (and therefore the
generated from that
downward effect on prices)
expansion.

in the near future.

(182) Prior to the operation, CVRD's competitive leadership
was already reflected in the fact that it was usually the
price-setter of
for pellets.
According to data provided by the parties (48), CVRD
the benchmark price on four
and Samarco have set
occasions during the last seven years (the other three
having been set by IOC).

benchmark price

the

H i g h c a p a c i t y u t i l i s a t i o n

(183) Should CVRD attempt

larger quantities

to raise pellet prices, either
through higher benchmark prices or
through lower
discounts, customers could only defeat that price rise by
from other producers.
obtaining
However, the results of the Commission's investigation
indicate that
this is to a large extent not possible,
principally because no new pellet plants were opened
during 1999 or 2000, and the worldwide average pellet
production capacity utilisation rate was at 92 % during

(47) For instance, in a common presentation made in November 2000,
CVRD and JP Morgan indicated that seaborne demand for pellets
was expected to increase from 75 Mt in 2000 to 95 Mt in 2005.

(48) Iron Ore Manual 2000-2001, the Tex Report.

2000 (an increase from 85 % in 1985) (49). Indeed, two
major European steel companies contacted by the
Commission
its market
investigation reported having experienced occasional
difficulties in obtaining supplies of pellets, at least in
order to meet short-term or emergency requirements.

during

course

the

of

(184)

(185)

(186)

(187)

In their response, the parties indicate that the year 2000
was a year of unexpected and exceptionally high
demand, and that the demand for pellets in 2001 and
2002 is expected to be significantly lower. This, in the
parties' view,
indicates that the demand for pellets is
unlikely to be supply constrained in the coming years.
These assertions are not confirmed by the results of the
investigation.
In particular, a presentation made by
CVRD and JP Morgan in November 2000 indicated that
seaborne demand for pellets was expected to increase
continually between 2000 and 2005, due to structural
factors such as (i) the increasing share of EAF in global
steel capacity,
the
closure of sintering plant and the construction of blast
furnaces without sintering capacity, (iv) and the increase
in the use of pulverised coal injection. Similarly, CVRD's
first- and second-quarter
results for 2001 show an
increase in pellet sales when compared to 2000. Finally,
a presentation by Merrill Lynch and CVRD in May 2001
explains that ‘new trends in iron and steelmaking are
boosting the demand for pellets'.

(ii) growing DRI production,

(iii)

future,

It is also expected that this situation of tight supply will
continue and even further deteriorate in the foreseeable
future. Although capacity is expected to increase in the
near
the
expected growth in demand. For instance, data provided
by the parties indicate that, because of an expected
increase in demand for pellets, total seaborne demand
could exceed total seaborne capacity by 2005.

this will do no more than meet

In that context, it seems highly unlikely that customers
could switch suppliers should CVRD attempt to raise
prices or reduce discounts. It is, moreover, questionable
whether
to
suppliers
challenge CVRD, since these other suppliers already
operate at close to full capacity and since they might be
subject to retaliatory actions on the part of CVRD.

competing

incentives

have

the

Furthermore,
Commission's
investigation indicate that, while CVRD can increase
low-cost
capacity and has

to high-quality,

results

access

the

of

(49) Source: The Iron Ore Market (2000-2002), May 2001 (UNCTAD).

L 92/78

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Official Journal of the European Union

30.3.2004

its

for

true

those other

advantage over

this may not be

existing
reserves,
competitors. CVRD enjoys lower operating and capacity
expansion costs than any of
its competitors in the
supply of pellets to western Europe, giving it a distinct
competitive
suppliers.
Following the acquisition, CVRD/Mitsui/Caemi would
moreover control most of
the best quality reserves
suitable for the production of pellet feed in the Atlantic
region (all Brazilian reserves and much of Canada's
relevant reserves). CVRD intends to expand its pellet
production capacity by the construction of a pelletising
plant near the deep-water port of São Luis in Brazil
(serving CVRD's Carajas mines in the ‘northern system').
The plant is scheduled to come into operation during
2002 and would increase the new entity's pellet capacity
by some 6 Mt per year. Ferteco (now part of CVRD) is
moreover planning to build a second pelletising plant.
The plant would effectively double Ferteco's pellet
production capacity, to some 8,5 Mt per year. The new
plant is due for completion in 2004 (50).

the sustainability of any such hypothetical price increase
(a further delay).

(190) According to one of

the Commission during

the main iron ore suppliers
contacted by
its market
investigation, LKAB ‘would struggle to justify' expanding
capacity due to its own high costs. In particular, LKAB's
location in Sweden places it at a disadvantage in terms
of
labour costs, and the cost of compliance with
environmental protection requirements. LKAB itself has
indicated that it would be prepared to invest in new
capacity in the medium and long term,
if it were to
‘recognise an increased long-term demand with an
acceptable return on investment'. LKAB has confirmed,
however, that it does not currently have sufficient spare
capacity to challenge a hypothetical price increase by
CVRD/Mitsui/Caemi.

(188) This planned additional capacity will enable the newly
merged entity to meet the expected increase in demand
for pellets in seaborne areas, and at a lower cost than
will be possible for any of the company's competitors.
In particular, CVRD benefits from economies of scale
and scope, synergies and lower mining costs, which
cannot be matched by its competitors in pellet supply to
seaborne areas.

(191) The Commission's market investigation has also revealed
that, while IOC (Rio Tinto) is scheduled to have 4,5 Mt
of additional capacity (resulting from the renovation of
one of its existing pelletising plants) coming on stream
by 2004 (1,3 Mt by 2002), this will do little more than
meet the expected increase in demand from its existing
it would therefore be very unlikely to be
customers;
sufficient to defeat a hypothetical price increase by the
newly-merged entity.

(189) By contrast,

of

rates

capacity

utilisation

the only independent

seaborne pellet
suppliers of any size are IOC (Rio Tinto) and LKAB,
whose mines are
located in Canada and Sweden
respectively, and who only deliver to customers in the
Atlantic region. The current pelletising capacity levels of
both these companies would limit
their ability to
respond to greater demand for pellets. First, IOC and
LKAB's
have
approached 90 % in 2000. Taking into account possible
disruptions
to thunderstorms or
instance,
bottlenecks in the supply chain), this suggests that they
effectively operate at capacity. Secondly, even if they did
seek to expand capacity, for example in response to a
hypothetical price increase by the newly merged entity,
the Commission's market test has indicated that
this
would take at least three years (two years' construction
time, plus one year for a feasibility study). Furthermore,
a decision to invest in new capacity would most likely
only be made once these competitors were convinced of

(due,

rates

for

(50) Source: The Iron Ore Market (2000-2002), May 2001 (UNCTAD).

(192)

In their response, the parties indicate that most excess
capacity is not held by CVRD, but by QCM, LKAB and
IOC. In that context, the parties submit, and despite the
fact that individual pellet producers (such as LKAB) do
not have sufficient spare capacity to replace CVRD
entirely, that those individual competitors do have the
capacity to take significant volumes from CVRD and
therefore to constrain the competitive behaviour of the
merged entity. The Commission does not share this
view. First, only two of
the three main independent
sources of capacity cited by the parties (QCM, LKAB
and IOC) will remain after the operation, since QCM is
jointly controlled by Caemi. Second, and as indicated
above, any excess capacity currently held by IOC and
LKAB is expected to decrease in the near future when
demand increases. And third, the parties' argument does
not
competitive advantages
the
enjoyed by the merged entity and its ability to discipline
the market. The fact that CVRD benefits from a higher
capacity
competitors
demonstrates the competitive advantages already held by
CVRD.
further
strengthened by the proposed acquisition of QCM, the
situation of existing competitors (and their ability to
to further
challenge CVRD's behaviour)
deteriorate.

take into account

Since CVRD's

position will

utilisation

likely

than

rate

be

its

is

30.3.2004

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Official Journal of the European Union

L 92/79

(193) On the basis of the above, it is concluded that existing
seaborne pellet suppliers will not be able to exert a
sufficient
the market
behaviour of the merged entity.

competitive

constraint

on

High barriers to entry

(194)

of

the

results

addition,

the
that new entry

Commission's
In
investigation demonstrate
to the
seaborne pellet market would be unlikely to occur to a
sufficiently significant extent, or in a sufficiently timely
manner, to deter the possible exercise by the new entity
of market power in the market. As an independent iron
(with currently no pellet production)
ore producer
indicated to the Commission,
it would only consider
investment in pellet production capacity in the long
term (51); in the meantime, this company is of the view
that the merged entity would be free to raise prices, and
that no current supplier has the capacity to constrain
such a move. For the same reasons, market entry (to the
supply of pellets in seaborne areas) by other iron ore
producers seems highly improbable.

(195) As

the barriers

infrastructure,

indicated above,

constructing new mines,

to entering the
seaborne iron ore markets are exceptionally high. The
together with
costs of
accompanying transport
render new
entry other than by acquisition more or less impossible.
While the expansion of existing iron ore production
capacity, notably — in this
context — by the
construction of pelletising plants, is more feasible, the
costs associated with constructing such plants are
nevertheless very considerable,
running to several
hundred million USD per plant. For operators other
than CVRD contemplating the
a
pelletising plant suitable for supplying the seaborne
customer areas, those costs would be even higher, and it
can therefore be concluded that any such potential
competitors would be very reluctant to undertake the
investment, at least in the short or medium term.

construction of

(196) Moreover,

all of

it unsuitable

the nature of Australian iron ore renders
almost
for pelletising. The
Commission's market investigation has revealed that a
10 % increase in pellet prices relative to fines would not
be sufficient to justify investment in pellet plant capacity
in Australia; such investment costs would be expensive
due to the geographical remoteness of Australian mines,
and because Australian ore tends to require a high level
of energy to crush on account of its hardness. There is

(51) Another iron ore producer (with no current pelletising capacity)
said it would not be prepared to invest in pellet capacity in the
by
of
event
CVRD/Mitsui/Caemi.

10 % pellet

5 % to

increase

price

a

therefore no actual, nor any likely potential, competition
from Australian mines in the supply of pellets to
seaborne customer areas. This fact notably excludes BHP
as a potential competitor to the newly merged entity, at
least for the foreseeable future (52). BHP does not have
pellet production capacity in Australia, and so could not
substitute Brazilian ores, at least not in the short and
medium term:
to make
substantial adjustments to their furnaces in order to take
the altered burden.

customers would have

(197)

the reasons indicated above in the context of
For
defining the relevant geographic market, market entry
(to the sale of pellets in seaborne customer areas) by
pellet suppliers in the United States, Russia, Ukraine or
China is also highly improbable, and certainly will not
occur in the short or medium term.

L i m i t e d c o u n t e r v a i l i n g b u y i n g p o w e r , a n d
s t r o n g c u s t o m e r c o n c e r n s

(198) As noted above,

the steel

industry is markedly less
concentrated than the iron ore industry.
In Europe
alone, there are seven consumers of iron ore.[…]*. An
examination of the relative performances of the steel
producers (losses or low margins) and the seaborne iron
ore producers (high profits and increasing prices in each
of the last two rounds of negotiations) shows clearly
that, even before the reduction in the number of first
tier iron ore producers, the steel producers have been
unable to exert much influence.

(199) The responses

a hypothetical pellet price

received from customers during the
course of
investigation
the Commission's market
confirm the limited buyer power of steel mills located in
seaborne customer areas in relation to the purchase of
pellets. Almost all of the steel companies contacted by
the Commission indicated that they would be unable to
resist
increase by the
newly-merged entity, at least in the short or medium
term. Most respondents confirmed that there is a tight
market for pellets, with little or no spare capacity on
thereby rendering any hypothetical
the supply side,
exertion of buyer power
impossible (‘not without
buying alternatives', as one customer put it); customers
also confirmed that any new capacity would be slow to
come on stream.

(52) The same applies to Rio Tinto's Australian operations: these mines
are not potential competitors in the supply of pellets to seaborne
customer areas.

L 92/80

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Official Journal of the European Union

30.3.2004

(200)

In their response, the parties contest the Commission's
conclusion regarding limited buyer power of
steel
manufacturers.
In particular, the economic consultant
retained by the parties has identified two threats which,
in its opinion, would confer on customers with
significant power over their pellet suppliers. Those are
(i) the ability of steel mills to switch between pellet
suppliers, and (ii) the ability of steel mills to sponsor the
development of new production capacity with rival
pellet producers.

importance of each of

(201) The Commission does not consider those elements as
to customers.
any material buyer power
giving
just like in
Customers can obviously change suppliers,
the buyer power which they
any industry. However,
from this behaviour depends on the
may derive
those customers
individual
vis-à-vis the merged entity.
is only if customers
represent a substantial proportion of the merged entity's
the merged entity cannot easily find
sales, and if
alternative outlets, that the threat of switching may be
regarded as significant. The results of the investigation
demonstrate that this is not the case, both because the
steel industry is much less concentrated than the iron
low excess
ore industry and because the existence of
capacity means that pellet producers could relatively
easily find new outlets for their production.

It

(202)

It is also true that customers can decide to sponsor the
development of pellet capacity with rival suppliers.
However, as indicated above,
it appears that this will
not occur to a significant extent, because (i) it would
take a significant number of customers
to finance
sufficient new capacity to constrain the competitive
(ii) CVRD is already
behaviour of the merged entity;
planning to add new capacity, which reduces
the
incentives for customers to finance additional pellet
plants; (iii) as the creation of the Brazilian joint ventures
between CVRD and seaborne customers indicates, those
customers willing to add new capacity would prefer to
do so in areas of lowest production costs (Brazil) so as
to maximise their return on investment; and (iv) pellet
capacity may not be expanded as easily as the parties
the need for sufficient
submit, especially because of
volumes of pellet feed.

(203) Finally, the Commission reiterates that customers have
expressed significant concerns about the effects of the
transaction. The high profit margins enjoyed by iron ore
producers (53), when compared with the low profit

(53) CVRD's net margin approaches 50 %, and its return on capital

employed exceeds 20 %.

margins achieved by customers, also clearly indicate
where the balance of power between suppliers and
customers lies. As a customer
indicated during the
hearing, what customers see is that steel prices tend to
decrease,
been
production
significantly reduced over the last few years, but iron
ore prices do not fall.

costs have

iron

ore

Effects of the transaction

E l i m i n a t i o n o f Q C M a s a n i n d e p e n d e n t
s u p p l i e r

(204) By acquiring Caemi, CVRD is removing Quebec Cartier
Mining as a competitive force in the supply of pellets to
the EEA. QCM has a market share of [10 to 20]* % in
the relevant market, and its removal reduces the number
of actual competitors from four to three. This comes on
top of the recent (2001) removal by CVRD of Ferteco,
[…]*, as a competitive force CVRD's acquisition of
Ferteco had reduced the number of
independent
seaborne pellet suppliers from five to four.

(205)

[…]*

C a p a c i t y t o e n g a g e i n s e l e c t i v e c o m p e t i t i v e
a c t i o n s a g a i n s t I O C

(206) CVRD currently has no production of Canadian quality
pellets. Following the notified transaction, CVRD will
control QCM (together with IOC/Rio Tinto, the main
supplier of Canadian quality pellets). The new entity
would hence be in position to engage in selective
competitive actions against IOC, aimed at restraining the
latter's incentive to expand pellet capacity. Such actions
could take the form of […]* or of cross subsidisation
between CVRD's and QCM's pellet activities. This would
significantly affect IOC's competitiveness in pellet supply
to the EEA. The Commission's market investigation did
switching by customers
reveal
between IOC and QCM for pellet supply, on account of
having received a more competitive offer from one or
the other supplier.

evidence of

some

C V R D l i k e l y t o a c t a s a p r i c e l e a d e r

recent

customer

in most

(207) CVRD is already the price leader in the sale of pellets to
seaborne
years,
areas;
benchmark prices have been fixed on the basis of prices
agreed with CVRD. The leadership role is likely to be
strengthened following the acquisition by CVRD of
QCM (which follows closely upon its recent acquisition
of Ferteco) in view of the larger share of pellet sales to
seaborne customer areas which the new entity will
reduction in the number of
account
independent pellet suppliers from five to three in a

for, of

the

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Official Journal of the European Union

L 92/81

matter of months, and of the competitive advantages
and new sources of market power to be held by the
merged entity. The Commission's enquiry has confirmed
the likelihood of such an evolution. Both competitors
and customers have indicated that other pellet suppliers
to seaborne customer areas would be likely to follow
CVRD/Mitsui/Caemi's lead in increasing prices. These
suppliers, on account of their higher cost levels and
their inability to expand capacity in the short term,
would have a greater incentive to raise prices to the
‘new market level' than to seek to compete at price
levels lower than those offered by CVRD/Mitsui/Caemi.

H i g h e r p r i c e s [ … ] *

(208) As a result of

increased market
its new position of
power, the new entity is likely to be able to increase real
prices. […]*

Conclusion

According to the data provided by a third party, the
parties' combined market shares would exceed 62 % on
the basis of seaborne capacity in 2001.

Market shares for DR pellets

Country

Merchant
sales 1997

Merchant
sales 2000

Capacity

Merchant
(%)

Merchant
(%)

2000 (Mt)

CVRD

Samarco (CVRD/
BHP)

Brazil

Brazil

39

16

38

19

QCM (Caemi)

Canada

[< 10] *

[< 10] *

Merged entity

[60-70]*

[60-70]*

IOC (Rio Tinto)

Canada

LKAB

Sweden

0

13

4

14

9,2

6,0

4,0

19,2

2,5

8,3

Source: Midrex report 2000.

(209) The Commission has therefore reached the conclusion,
for the reasons outlined above,
the transaction
would give rise at least to the creation of a dominant
to the strengthening of an existing
position,
dominance,
iron ore pellets to all
seaborne customer areas.

in the supply of

if not

that

the transaction would give rise at

(212) The Commission has reached the conclusion, for most
of the same reasons outlined above in relation to pellets,
to the
that
creation of
to the
strengthening of an existing dominance, in the supply of
direct reduction pellets to all seaborne customer areas.
The market shares are moreover comparable to (if not
higher than) those for total pellet sales.

a dominant position,

if not

least

B. Dominance in hypothetical markets for
direct-reduction ore

(213)

(210) As indicated above, there are strong indications that DR
iron ore may belong to distinct product markets; and
that, within DR iron ore, the impact of the transaction
should be measured in two markets, namely (i) a market
for DR pellets, and (ii) a market combining DR pellets
and DR lump (because of the existence of a one-way
substitutability between DR lump and DR pellets).

response,

the parties indicate that

In their
there is
currently no demand for DR iron ore in the EEA, since
the only direct reduction plant in that region (owned by
Ispat and located in Hamburg)
is closed. However,
although it is true that Ispat's plant has been closed for
several months in 2001 (owing to exceptionally high
natural gas prices affecting its profitability (54)),
this
plant has been operating for the last 30 years without
interruption, and is expected to resume operations soon.

Dominance in DR pellets

(211) The market

shares

for DR pellets appear

in the
following table. Owing to the limited amount of public
share
those
information about
calculations have been made on the basis of
total
merchant sales worldwide. These figures include the
production of companies not having access to the
seaborne market, and they may therefore underestimate
the merged entity.
the actual market position of

the market

sales,

(214)

Finally, the parties state in their response that DR pellets
do not need to be produced from the highest quality
fines, so that all pellet plants could easily enter the DR
market. Even if that were so, this would not affect the
competitive assessment of
the transaction, since, as
shown above, the merged entity would be dominant on
the overall seaborne pellet market.

(54) There are, moreover, strong indications that natural gas prices will
not remain at these exceptionally high levels over the next few
years.

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Official Journal of the European Union

30.3.2004

Dominance in DR lump and pellets

(215) The above section has shown that the operation will create or strengthen a dominant position by
the merged entity in DR pellets. This already points towards similar conclusions on the overall
market for DR lump and pellets, since DR pellets account for 78 % of merchant DR iron ore sales.
However, there are also strong indications that the situation in DR lump is very similar to that in
DR pellets.

(216)

In the DR sector, a distinction is traditionally made between ‘captive' sales (meaning internal sales
of vertically integrated companies) and ‘merchant' sales to third party DRI producers. This
distinction is also relevant for the calculation of market shares: only ‘merchant' sales appropriately
reflect the actual market power of those suppliers active on the merchant market, because ‘captive'
sales correspond to quantities which are not really put on the market, which are not available for
non-integrated DRI producers and for which no real competition takes place.

(in Mt)

Sales of
DR lump

CVRD

MBR (Caemi)

Merged entity

Country

Sales 1997

Sales 2000

Capacity

Brazil

Brazil

Captive

Merchant

Captive

Merchant

2000

0

0,7

0

1,0

3,7

[< 5] *

[< 10] *

[< 5] *

[< 5] *

[< 5] *

[< 5] *

[< 5] *

[< 5] *

[< 5] *

[< 10] *

MCR (Rio Tinto)

Brazil

NMDC

CVG

ISCOR

India

Venezuela

0,6

South Africa

Las Encinas

Mexico

0

0

0

0

0

4,2

0

1,8

0

0

0

0,9

0

0,2

0

2,0

0

4,0

0

1,5

6,2

2,5

4,0

0,3

World Total

[…] *

[< 15] *

[< 5] *

[< 15] *

20,7

Source: Midrex report 2000.

(217) As can be seen from the above table, there are currently only four suppliers active on the merchant
market worldwide: those are CVRD, MBR, NMDC and ISCOR. By combining CVRD and MBR, the
operation reduces that number to three suppliers. Furthermore, not all of these three suppliers
should be considered to have a similar position: while CVRD and MBR export a significant
proportion of their DR lump, it appears that NMDC does not sell outside India, ISCOR already sells
100 % of its capacity. NMDC's inability to sell on the export market is further indicated by the fact
that, although having a significant capacity (in excess of 6 Mt), it has only been able to sell 2 Mt in
2000.

(218) The Commission's investigation shows that demand for DRI (and thus DR iron ore) is expected to
increase dramatically in the near future (from 43,2 Mt in 2000 to 60 Mt in 2005), in line with the
average 8 % annual growth rate observed between 1995 and 2000. In that context, competition
will be largely determined by the lump suppliers' capacity to meet that extra demand.

30.3.2004

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Official Journal of the European Union

L 92/83

India. Furthermore,

(219) While the merged entity already has significant excess
capacity enabling it to meet that higher demand, there
are strong indications that NMDC cannot competitively
sell outside
already
constrained in its capacity, and its planned capacity
expansion (by 10 %) will not match the 38 % expected
increase in demand for DR iron ore. Moreover,
the
Commission's market investigation has revealed that the
capacity figure for ISCOR quoted by Midrex above may
be somewhat exaggerated. It follows that these suppliers
will not be able to sufficiently constrain the competitive
behaviour of the merged entity.

ISCOR is

countries

(220) The parties submit that the industry as a whole still has
significant excess capacity, and therefore that other
suppliers could enter the merchant market should the
merged entity raise prices or reduce discounts. However,
the Commission's investigation suggest
the results of
otherwise. First,
it appears that MCR does not have
access to such infrastructure as to allow for seaborne
shipments: MCR is not connected to any port, and its
products are mostly transported by barge down the
Paraguay and Paraná rivers to be sold to neighbouring
Mercosur
(primarily Argentina). Secondly,
although CVG has access to seaborne infrastructure, it
only has limited DR capacity (2,5 Mt) and it has a
significant local demand in that all Venezuelan pig iron
production is carried out by direct reduction methods
(covering a total capacity of 8,8 Mt). In that context,
and in view of CVG's interests in most Venezuelan DRI
producers, it seems highly unlikely that CVG could add
sufficient
to
the
significantly constrain the competitive behaviour of the
merged entity. In addition, there is no indication that
any new producer of
lump could enter the market,
owing to the very specific quality of lump ore suitable
for direct reduction applications.

seaborne market

volumes

on

(221)

It follows that, in practice, the conditions of competition
on the merchant market for DR lump essentially depend

on the rivalry between those suppliers with sufficient
excess capacity and access to seaborne infrastructure,
namely MBR and Ferteco. This is further confirmed by
the leading DR iron ore customer
(and the only
customer in western Europe), who indicated that it was
two
from these
essentially dependent on supplies
companies. By combining these two companies,
the
proposed transaction will eliminate that rivalry, and
therefore lead to the creation of a dominant position in
that market. The parties' submission that MBR currently
does not sell DR lump in western Europe cannot be
accepted, because MBR could easily sell DR lump in
western Europe (as past deliveries clearly demonstrate)
and because MBR is the only credible alternative to
CVRD for western European customers.

(222)

In light of the above, the Commission has therefore
reached the conclusion that the transaction would give
rise at least to the creation of a dominant position, if
not to the strengthening of an existing dominance, in
the hypothetical market
supply of direct
reduction lump and pellets in all seaborne customer
areas.

the

for

C. No dominance in sinter fines

(223) Each of CVRD (directly and through its controlling
stakes in Ferteco, Samitri, Samarco, etc.) and Caemi
(through its controlling interests in MBR and QCM) are
active in that sector and sell products in seaborne
customer areas. In its Decision adopted on 3 July 2001
to Article 6(1)(c) of Regulation (EEC) No
pursuant
4064/89, the Commission raised serious doubts as to
the compatibility of the operation with the common
market on the grounds
create or
strengthen a collective dominant position on this
market. For the reasons described below, those serious
doubts have been alleviated during the course of the
detailed investigation.

it might

that

L 92/84

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Official Journal of the European Union

30.3.2004

Market shares

Seaborne sales

Country

Sales 1997

Sales 2000

Capacity 2000

Capacity 2005

CVRD

Brazil

[20-35]*

[20-35]*

[30-40]*

[30-40]*

Caemi (MBR and
QCM)

Brazil and
Canada

[10-20]*

[5-15]*

[10-20]*

[10-20]*

Merged entity (55)

[30-40]*

[30-40]*

[40-50]*

[40-50]*

(in %)

BHP

Rio Tinto

LKAB

SNIM

ISCOR

Australia and
Canada

Sweden

Mauritania

Australia

[10-20]*

[10-20]*

[10-20]*

[10-20]*

[20-30]*

[20-30]*

[20-30]*

[20-30]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

[1-10]*

South Africa

[1-10]*

Source: Midrex report 2000.

No single dominance

(224) There is no indication that, despite the relatively high market shares of the merged entity, the
operation could create or strengthen a single dominant position by the merged entity on the
market for sinter fines sold in seaborne customer areas. The merged entity will remain subject to
the competitive pressure of other large suppliers, especially Rio Tinto ([20 to 30]* % of sales) and
BHP ([10 to 20]* % of sales). The competitiveness of those two suppliers also appears from their
cost structures, which are not substantially different from those of CVRD (and are lower than those
of MBR). This is further confirmed by the high capacity utilisation rates enjoyed by BHP ([…]* %)
and Rio Tinto ([…]* %), which exceed those of CVRD ([…]*) and Caemi ([…]* %); and by the
occurrence of significant switches from customers between products of different origin, as
emphasised by the parties in their response.

No collective dominance

(225)

In its decision of 3 July 2001, the Commission raised serious doubts as to the compatibility of the
operation with the Common market on the grounds that it might result in collective dominance by
the three main seaborne suppliers, namely CVRD, BHP and Rio Tinto.

(226)

In that decision, the Commission in particular referred to (i) the high and increasing combined
market shares of these three market players ([…]* % of total seaborne demand after the proposed
transaction); (ii) their low and comparable cost structures, especially when compared with other
seaborne suppliers; (iii) high market transparency in terms of benchmark prices and volumes; and
(iv) stability of demand.

(55) The merged entity's market share figures also include the output of the Indian mine Sesa Goa, which is controlled

by Mitsui.

30.3.2004

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Official Journal of the European Union

L 92/85

(227)

and that

this might

In that context, the Commission identified risks that the
iron ore suppliers could have similar
three major
incentives,
lead to parallel
anti-competitive behaviour. In practice, the Commission
investigated three different mechanisms possibly leading
(i) parallel
to a situation of collective dominance:
negotiating behaviour during the benchmark price
negotiations (CVRD, Rio Tinto and BHP are usually the
price
(ii)
concentration of
‘natural'
those companies on their
(the region where they enjoy transport cost
market
advantages, namely East Asia
the Australian
suppliers and western Europe for the merged entity);
and/or (iii) restrictions in capacity expansion.

in western Europe

and Japan);

setters

for

customers and competitors have

(228) The investigation has revealed a number of structural
reasons making collective dominance difficult to sustain.
First,
consistently
indicated that there is substantial competition between
the two Australian suppliers, who sell the same types of
products and who effectively compete with each other
for larger volumes and for new capacity expansion
projects.

(229) Second,

as

are

fines

sinter

indicated

a
above,
differentiated product. In particular, Brazilian ores have
characteristics
substantially different product
from
Australian ores. This difference
creates asymmetric
competitive
for Brazilian and Australian
incentives
suppliers. They also reduce the risks of deviating from a
coordinated outcome, by making retaliatory actions less
effective.

(230) Thirdly,

the

structures.

asymmetric

competitive

In particular,

incentives of
Brazilian suppliers and Australian producers are further
intensified by significant differences in their respective
cost
from the
following table that Brazilian suppliers have a significant
advantage in western Europe while Australian suppliers
are more competitive in East Asia. These differences
mean that Brazilian suppliers and Australian producers
pursue distinct profit-maximising strategies, which in
turn make it very difficult for the three major producers
to arrive at similar pricing or capacity objectives.

it appears

Average fines costs 1997-2000

fob cost

Transport to Asia

Total cost to Asia

Transport to Europe

Total cost to Europe

(in USD/mtu)

10,7

13,1

23,8

8,3

[10-20]*

[10-20]*

[20-30]*

[5-15]*

[10-20]*

[10-20]*

20,5

22,6

20,9

[5-15]*

[5-15]*

10,4

N/A

N/A

[10-20]*

[20-30]*

30,9

N/A

N/A

[10-15]*

[10-15]*

8,6

5,7

4,3

19,0

[20-30]*

[20-30]*

[20-30]*

29,1

28,3

25,2

CVRD

Caemi

Rio Tinto

BHP

ISCOR

SNIM

LKAB

Source: AME report.

(231) Altogether,

the

and

producers

two Australian

the presence of

substantial competition
between
of
asymmetric competitive incentives between Australian
mining companies and Brazilian producers, collectively
contribute to effectively preventing the creation of
collective dominance in general. This is all the more so
as CVRD, BHP and Rio Tinto have also materially
different market shares, ranging from 38 % (CVRD) to
the present
In that
[10 to 20]* % (BHP).
transaction will
further add to that asymmetry (by
strengthening the current market leader), and therefore
tends to further hinder parallel behaviour. The existence
of significant differences in capacity utilisation ratios is a
further indication against collective dominance, since it

respect,

reinforces the conclusion that different incentives exist
among firms in the industry.

(232)

In addition, there are also specific reasons why each of
the three mechanisms discussed above cannot effectively
operate. The following paragraphs present these reasons
in detail.

P a r a l l e l p r i c i n g

(233) The results of the detailed investigation have negated the
three major

risk of parallel pricing behaviour,

for

L 92/86

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Official Journal of the European Union

30.3.2004

reasons. First, they have shown that there is significant
competition between the two Australian suppliers, who
produce the same quality of
iron ore and therefore
compete for the same volumes.

they need to vigorously
one seaborne region only,
compete for all possible steel mills. This makes a
‘geographic split' even more unlikely.

(234) Secondly,

the

during

parallel

behaviour

annual
benchmark price negotiations may be difficult to realise,
because (i) customers could defeat that behaviour by
settling with ‘fringe' suppliers (as western European
customers did in 2000 when they reached an agreement
with SNIM); and (ii) suppliers have incentives to be the
first settlers, and therefore not to be too demanding
during the negotiations, because this ‘customer friendly'
attitude is usually rewarded by steel mills in the form of
higher volumes […]*.

(235)

[…]*.

G e o g r a p h i c s p l i t ( ‘ c h a c u n c h e z s o i ' )

(236) The results of

the detailed investigation have also
negated the risk of a ‘geographic split' of the market
between western Europe (to be essentially supplied by
Brazilian suppliers) and East Asia (to be essentially
supplied by Australian suppliers). Firstly, as indicated
above, seaborne demand growth is not expected to be
equally shared between the various seaborne areas. In
particular, it appears that western European demand will
stagnate during the next 10 years, while East Asian sales
will
same period
grow during
the
(essentially due
to soaring seaborne purchases by
customers in China). This asymmetry eliminates the
incentives for suppliers to concentrate on a given region
(especially western Europe) and, by contrast, provides
incentives for all suppliers to vigorously compete for
East Asian sales. This is confirmed by CVRD's presence
in East Asia (where it already achieves one third of its
seaborne sales), and by the sale of significant quantities
of Australian ore in western Europe.

significantly

(237)

support

customer

In addition, it appears that one of the main challenges
in obtaining
faced by iron ore suppliers consists
sufficient
considerable
the
investment required for capacity expansion schemes. For
instance, according to the figures provided by the
parties, […]*. Comparable issues are raised for BHP and
Rio Tinto's new projects. In that context, projects can
only be financed if sufficient outlets are guaranteed. Iron
ore suppliers can therefore not approach customers in

for

R e s t r i c t i o n o f c a p a c i t y

(238) Finally,

the

results of

the Commission's detailed
investigation have not highlighted much risk of
the
three big suppliers engaging in parallel restriction of
capacity. It is true that the market shows certain features
(i) Rio
which might facilitate that sort of behaviour:
Tinto, BHP and the merged entity might effectively
control capacity expansions, because only they have
access
there is
relevant
currently very little excess capacity, and demand will
increase in the near future, which calls for capacity
expansion; and (iii) it would be in the collective interests
of the major suppliers to keep supply tight, so as to
achieve higher prices.

to significant

reserves;

(ii)

to

can

deviate

suppliers'

incentives

(239) However, in order to be effective, such a scheme would
need to overcome major obstacles. Even if some sort of
common objective could be discerned by each of the
it could not be achieved
producers
independently,
because it would be in the individual
interest of each
supplier to renege on that objective and to add extra
from both large
seaborne capacity (so as to benefit
volumes and high prices). It follows that the mechanism
described above can only effectively operate if the iron
ore
be
counterbalanced by other factors. The most likely way
in which this could be done would be through the
threat of retaliation. This threat can be summarised as
follows: (i) in view of the high transparency of capacity
expansion schemes (and of the individual capacity of
the major suppliers could easily and
each supplier),
quickly detect any addition of extra capacity; and (ii)
once this is done, the major suppliers could harm the
supplier of that extra capacity by adding capacity on
their own (since this would create a situation of excess
capacity and therefore lower prices and profits). If the
reduced, discounted profits achieved during the period
of excess capacity would be sufficient
the
higher discounted profits made by the ‘maverick' during
the period when it benefits from both larger volumes
and higher prices,
then iron ore suppliers would
effectively have little incentive to deviate.

to offset

(240)

It has been suggested that capacity-restrictive parallel
behaviour is not possible. The main reason for this, the
the ‘punishment' period (of
argument goes,
excess capacity) is not credible, because (i) it harms all

is that

30.3.2004

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Official Journal of the European Union

L 92/87

since

suppliers (so that it needs to be relatively short for the
threat to be credible) and (ii) capacity is there to stay in
the long term. More specifically, it has been indicated
that, in that context, any retaliatory action would have
no effect on the maverick's behaviour,
the
maverick would be ‘committed' to using the capacity
which it has installed. Retaliation would therefore be
both useless and painful to all suppliers. In addition, the
excess capacity which would result from any retaliation
would also last for a long time, which would in turn do
considerable harm to all suppliers. In other words, the
retaliation mechanism would
futile,
disproportionate and harmful to all suppliers, as not to
be credible. The Commission considers that,
in the
present case, this is not necessarily true because of the
expected market growth. Although capacity would
indeed remain in the long term, the expected growth in
demand (8 % between 2000 and 2005) could quickly
absorb the added capacity, so that the period of excess
capacity would not last long.

be

so

(241) However,

the

the results of

the investigation show that
parallel strategies involving capacity restriction would
not be likely to work effectively in the market under
In particular,
consideration.
investigation has
revealed that
independently identifying and pursuing
collective objectives on capacity restrictions would be
extremely difficult. In particular, it appears that capacity
cannot be finely tuned. Capacity expansion schemes
consist of large projects leading to the development of
in a given deposit, and they
entire mining areas
therefore concern lumpy quantities. In that context,
it
would not be easy for suppliers to independently concur
on capacity expansion strategies.

(242)

It should also be noted that iron ore is a differentiated
that
factor, combined with the fact
product. This
Brazilian sinter fines are substantially different
from
those extracted in Australia,
further complicates the
stability of any coordinated outcome between Rio Tinto,
CVRD and BHP.

(244)

larger volumes

In addition, there remains the fact that, as indicated
above, the seaborne market growth is not expected to
be homogeneously shared in all regions, but instead will
essentially come from East Asia (and principally China).
In that context, all suppliers have strong incentives to
in China, and future
compete for
seaborne market positions cannot be easily derived from
what
they are in mature markets (such as western
Europe or Japan). In such a climate it would therefore
be extremely difficult
for producers to form similar
views on optimal capacity sharing, and suppliers would
probably have incentives not to pursue any independent
capacity-restriction strategies which might
their
sales in China.

limit

(245) Finally, it has been consistently stated that new projects
are only undertaken when a sufficient number of
customers have indicated their willingness to purchase
the product concerned. It follows that the possibility for
producers to pursue capacity restriction strategies would
strongly depend on the customers' acceptance of the
iron ores
something which cannot be
that customers could
assumed. This also indicates
seriously endanger the stability of any parallel strategies.

concerned,

(246) For all of these reasons, a vast majority of third parties
has stated that the three major iron ore suppliers could
not reasonably engage independently in such a common
capacity-restriction strategy.
is therefore concluded
It
the operation will not create or strengthen a
that
dominant position on sinter
fines sold to seaborne
customer
result of which effective
areas,
competition in the common market and the functioning
of the EEA Agreement would be significantly impeded.

as

a

D. No dominance in lump

(243) Furthermore, customers have repeatedly indicated that
BHP and Rio Tinto significantly compete with each
far as new capacity expansion
other, especially as
projects are concerned. In that context, it seems difficult
to imagine that those two suppliers could engage in
parallel behaviour regarding capacity expansion.

(247) The operation will create overlaps in lump, where each
of CVRD and Caemi (through MBR) are active and sell
in all seaborne customer areas. The parties' and their
competitors' shares of sales and capacity appear in the
following table:

L 92/88

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Official Journal of the European Union

30.3.2004

Seaborne sales

Country

Sales 1997

Sales 2000

Capacity 2000

Capacity 2005

(in %)

CVRD

Caemi (MBR)

Merged entity (56)

BHP

Rio Tinto

Source: […]*.

Brazil

Brazil

[5-15]*

[5-15]*

[20-30]*

[20-30]*

[5-15]*

[5-15]*

[5-15]*

[5-15]*

[5-15]*

[10-20]*

[20-30]*

[20-30]*

Australia

[20-30]*

[10-20]*

[20-30]*

[10-20]*

Australia

[30-40]*

[30-40]*

[20-30]*

[20-30]*

(248) There is no indication that the operation could create a
single dominant position by the merged entity, since it
will only be the third-largest seaborne supplier. The
transaction nonetheless
same
in lump as it does in
collective dominance issues
relation to sinter fines. However,
the
the results of
Commission's detailed investigation also show that these
risks can be dismissed, on the basis of the same analysis
as that described above in detail for sinter fines.

raises many of

the

(249)

It is therefore concluded that the operation will not
create or strengthen a dominant position in lump sold
to all seaborne customer areas, as a result of which
effective competition in the common market and the
functioning
be
the
significantly impeded.

EEA Agreement would

of

VIII. REMEDIES

(251) On 5 October 2001,

the parties offered certain
commitments
to remove the competition concerns
which the Commission had identified in its statement of
objections. The relevant part of the final commitments
is set out in the Annex to this Decision.

A. Summary of the undertakings

(252) These commitments consist, in brief, of:

— an undertaking to dispose of Caemi's 50 % interest
in QCM, a Canadian producer of sinter fines and
pellets,

— the establishment of

‘New CAEMI',

incorporating
MBR, Caemi's Brazilian iron ore mining operation,
and Ferteco, an iron ore mining company that
CVRD recently acquired from Thyssen Krupp.

E. Conclusion

B. Assessment of the undertakings

(250) On the basis of

the above analysis,

the proposed
concentration would risk bringing about the creation or
strengthening of a dominant position in the market for
the supply of iron ore pellets to all seaborne customer
areas, in the hypothetical market for the supply of direct
reduction pellets to all seaborne customer areas, and in
reduction
the hypothetical market combining direct
pellets and direct
seaborne
reduction lump to all
customer
result of which effective
competition in the common market and the functioning
of the EEA Agreement would be significantly impeded.

areas,

as

a

the

results of

(253) The first of these undertakings completely eliminates the
overlap between CVRD and Caemi in iron ore pellets. In
the Commission's market
addition,
investigation clearly indicate that QCM is a stand-alone
business which operates independently from the rest of
Caemi and which, if divested to a suitable purchaser, has
the ability to act as a competitive and independent force
on the market. It follows that this undertaking resolves
the competitive concerns identified by the Commission
in pellets and DR pellets.

(56) The merged entity's market share figures also include the output

of the Indian mine Sesa Goa, which is controlled by Mitsui.

(254) Given that DR pellets account for approximately 80 %
of the total hypothetical market for DR iron ore, it also
appears that this undertaking is sufficient to resolve the
competitive
to that hypothetical
relative
market as well. Although QCM does not produce any
DR lump, MBR's sales of […]* Mt in 2000 represent

concerns

30.3.2004

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Official Journal of the European Union

L 92/89

HAVE ADOPTED THIS DECISION:

Article 1

The notified operation whereby Mitsui and CVRD acquire joint
control over Caemi
is hereby declared compatible with the
common market and the functioning of the EEA Agreement,
on condition that the commitment relative to the divestiture of
Caemi's 50 % interest in QCM as set out in the Annex is fully
complied with.

Article 2

This Decision is addressed to:

MITSUI & Co. Ltd
2-1 Ohtemachi 2-chome
Chiyoda-ku
Tokyo–100-0004 (Japan)

Companhia Vale do Rio Doce (CVRD)
Graça Aranha, 26 — 15th Floor
2005-900 Rio de Janeiro
Brazil

Done at Brussels, 30 October 2001.

For the Commission

Mario MONTI

Member of the Commission

sales

these

only a very small proportion of a combined market for
both DR lump and DR pellets.
In view of a trend
towards the use of DR pellets in preference to DR lump,
and in view of the fact that CVRD expects its current
reserves of DR-grade lump ore to be exhausted in four
to five years (57),
the more
insignificant. It should moreover be noted that the only
European customer for DR iron ore is a single DR plant
which is currently not operational and which accounted
for only 0,3 % of EEA steel production. In the light of
these factors, and in the absence of any proportionate
remedy for this very small
increment in DR iron ore
share of sales, it is concluded that this minor overlap
does not materially alter the conditions of competition
on the market concerned.

seem all

(255)

(256)

the

context,

second undertaking

In that
is not
considered necessary for the purpose of the clearance of
the notified transaction. The Commission therefore will
not take it into consideration for the purpose of the
present decision.

IX. CONCLUSION

In the light of the above, and subject to compliance
with the undertaking relative to the divestiture of
Caemi's 50 % stake in QCM as set out in the Annex, the
proposed operation does not create or strengthen a
dominant position as a result of which effective
competition would be significantly impeded in the EEA
or in a substantial part of
it. The operation should
therefore be declared compatible with the common
market and the functioning of
the EEA agreement,
to Article 8(2) of Regulation (EEC) No
pursuant
4064/89,

(57) CVRD's only source of DR lump is the Feijas mine (formerly
owned by Ferteco), which produced 1 Mt of DR lump ore in 2000
(Source: Midrex Report 2000).

L 92/90

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Official Journal of the European Union

30.3.2004

ANNEX

The full original text of the conditions and obligations referred to in Article 1 may be consulted on the following
Commission website:

http://europa.eu.int/comm/competition/index_en.html