FAS APPROVED MERGER OF SATKA AND KOSAYA GORA IRON WORKS

The merger will not result in the dominance on the market of manganese ferro-alloys

FAS approved a petition of “Satka Iron Works” JSC (SIW) an acquiring up to 100% voting shares of “Kosya Gora Iron Works” PJSC (KGIW). “SIW” JSC produces such manganese ferro-alloys as FMn78 and FMn75; while “KGIW” PJSC - only FMn 78.

Nelli Galimkhanova, Head of FAS Department for Industry Control, commented the decision: “FAS analysis of the state of competition showed that the cumulative share of the companies on the market of ferro-manganese after the merger will not exceed 35% [1], which is in line with the norms of the Federal Law “On Protection of Competition”. At the same time, there is already a market player whose share exceeds 40% [2]”.

According to the FAS survey, in 2017 the cumulative share of goods sale by “SIW” JSC and “KGIW” PJSC was 25.3%, in 2018 – 20.9% [3].

“Expanding the product boundaries of the market of FMn78 and FMn75 manganese ferro-alloys was an important factor underlying the decision”, explains Nelli Galimkhanova, “It includes silicon-manganese which is a substitute to these grades”.   

Goods substitutability was confirmed by a FAS representative survey of ferro-manganese consumers, covering 19 companies.

According to the survey, 74% (14 out of 19) companies substituted or can substitute ferro-manganese with ferro-silicon-manganese, manganese metal or other grades of ferro-manganese. 12 companies confirmed cases of actual substitution:

• 37% (7 out of 19) fully replace ferro-manganese with silicon-manganese, grades МС17, МС18, FeMnSi18LP;

• 16% (3 out of 19) partly replace ferro-manganese with silicon-manganese;

• 16% (3 out of 19) fully replace ferro-manganese with manganese metal.

Replacing ferro-manganese with manganese metal, consumers mention that such substitution is inexpedient since the latter increased the costs of the end products significantly. Therefore, manganese metal cannot be classified as substitutions [4].

Thus, product market boundaries are ferro-manganese, grades FMn70, FMn75, FMn78, FMn88, FMn90 and ferro-silicon-manganese, grades МнС17 and FeMnSi18LP. The main suppliers in Russia are “SIW” JSC, “KGIW” PJSC and “Chelyabinsk Electro Metal Works” JSC.

According to FAS study, the ferro-alloy market is partly export-oriented. In 2017 and 2018 the annual import of ferro-manganese and ferro-silicon-manganese was on average 24.7% of the goods market [5]. Also 17 out of the 19 respondent companies confirmed that apart from Russian producers they purchase goods from foreign suppliers from the CIS, Europe and Asia. I.e., geographic market boundaries include not only the territory of Russia but also countries on the Eurasian continent. The market within the boundaries of the Russian Federation is moderately concentrated with moderately developed competitive environment.

FAS emphasizes significant economic, financial and technological entry barriers for the market of manganese ferro-alloys. It is related, in particular, with unprofitable manganese deposits in Russia. As a result, Russia imports nearly all manganese ore and 25.5% manganese ferro-alloys from the entire volume of goods on the analyzed market. In view of these factors, FAS does not expect new players on the market in the near future.

Approving the merger, FAS took into account the development plans on improving production at “SIW” JSC and “KGIW” PJSC: manganese yield from blast furnace slag and expanding the assortment of products due to production of low carbon ferro-manganese.

Reference:

[1,2,3] Udder the Procedure for analyzing the state of competition on goods markets, shares of economic entities are defined as percentage ratio of the volume of products sold by the economic entity to the total volume of products sold by economic entities in the Russian Federation.

The estimate is carried out in view of the geographic market boundaries comprising territories of foreign states, further study is conducted based on the information available.

[4] Goods are not substitutes of more than a year is required to replace some goods with others during consumption or the goods acquirer  incurs considerable costs due to the replacement (typically exceeding 10 of the goods price), and if at the same time the antimonopoly body does not have information that such replacement had or has had place, and also if such information is not provided by an economic entity.

[5] Data from the Federal State Statistical Service.