China Steel Corporation & Chung Hung Steel Corporation

Case:

Key Words:

steel plate, hot-rolled steel, cold-rolled steel

Reference:

Fair Trade Commission Decision of January 21, 2009 (the 898th Commissioners' Meeting)

Industry:

Basic Iron and Steel Manufacturing (2411-2414)

Relevant Laws:

Article 6, 11 and 12 of the Fair Trade Law

Summary:

1. China Steel Corporation (hereinafter referred to as CSC) originally holds 39.08% shares of Chung Hung Steel Corporation (hereinafter referred to as CHSC). Affected by global financial crisis, CHSC intends to issue seasonal equity offerings, in which CSC will purchase most of the shares. As a result, CSC will hold more than 50% of CHSC's shares after the purchase, constituting a merger under Article 6(1)(ii) and Article 6(1)(v) of the Fair Trade Law. In addition, CSC's market shares in domestic steel, wire and rod, hot-rolled steel coil, cold-rolled steel coil, electrical steel sheet, and zinc-coated steel coil have reached the threshold for pre-merger notification specified in Article 11(1)(ii) of the Fair Trade Law. Also, CHSC's sales in the preceding fiscal year (2007) exceeds the amount for non-financial enterprises and reaches the threshold for pre-merger notification under Article 11(1)(iii) of the same law. Since exemptions under Article 11-1 do not apply, CSC and CHSC are required by law to file a pre-merger notification to the Commission.

2. The cold-rolled and hot-rolled steel products circulate internationally and face global competitions (e.g. large companies in China, Japan, Korea, USA, EU…). Under WTO, member countries import and export steel products with no tariffs imposed. If the merged enterprise increases product price at will (higher than market price in international market), companies in the lower-stream may import steel from foreign companies. Therefore, it is unlikely for the merged company to unitarily raise product or service price. CSC and CHSC had once applied for merger in 1999. It was approved by the FTC 430th Commissioners' Meeting because the merger will not impede competitions in the cold-rolled and hot-rolled steel market; also, the merger is a strategic move in response to competitions in global steel market. At that time, CSC had a 50% market share in domestic cold-rolled and hot-rolled steel, while CHSC had a 15% in market share. The market structure then is similar to the market shares now. This application only involves changes in CSC's holding of CHSC shares. It will not affect current market structure for cold-rolled and hot-rolled steel and will not restrict competitions.

3. According to market share change and imports of hot-rolled and cold-rolled steels from 2003 to 2007, capacities of other enterprises and importers are relative flexible. Thus, this merger will not create entry barrier in relevant markets; besides, there are no evidence showing the merged enterprises and other competitions will engage in mutually-restrictive activities or concerted actions. As a result, the benefit in this case is likely to outweigh any disadvantages that might result from competition restraint. Therefore, the Commission approves the merger pursuant to Article 12(1) of the Fair Trade Law.

Appendix:
China Steel Corporation's Uniform Invoice Number: 30414175
Chung Hung Steel Corporation's Uniform Invoice Number: 07838854
Summarized by Chen, Shu-Hua; supervised by Wu, Lieh-ling