Antitrust Law Daily Zinc purchasers adequately alleged monopoly claims against Glencore affiliates
Monday, June 6, 2016

Zinc purchasers adequately alleged monopoly claims against Glencore affiliates

By Jeffrey May, J.D.

The federal district court in New York City has refused to dismiss monopolization and attempted monopolization claims against two affiliates of global commodities conglomerate Glencore plc. Zinc purchasers adequately alleged that Glencore Ltd. and Pacorini Metals USA, LLC acquired and maintained, or came dangerously close to acquiring, a monopoly in the market for selling special high grade (SHG) zinc in the United States. A Clayton Act, Sec. 7 claim, challenging Glencore Ltd.’s acquisition of Pacorini, was, however, dismissed (In re Zinc Antitrust Litigation, June 6, 2016, Forrest, K.).

In January, the court dismissed an earlier complaint alleging both Sherman Act, Section 1 and 2 claims but granted the plaintiffs leave to re-plead their Section 2 claims. Although the court considered some of the defendants’ arguments in their latest motion to dismiss to have “curb appeal,” it concluded that the plaintiffs' second amended complaint “tells a plausible story of market control leading to increased price.”

Monopoly power. The complaining zinc purchasers adequately alleged direct evidence of monopoly power for purposes of their Section 2 claims, the court ruled. The plaintiffs contended that the defendants had the ability to control the price-setting mechanism for SHG zinc sold in the United States. The defendants purportedly took action to inflate the Platts Midwest Zinc SHG Premium or the “MW SHG Premium,” which is a component of the ultimate price set in nearly all industrial contracts for the purchase of SHG zinc in the United States. The court noted, however, that “the plaintiffs’ intricate theory of monopoly power may face many hurdles at later stages of this action.”

Zinc is a common metal traded primarily on the London Metal Exchange Limited (LME). Glencore allegedly had a controlling position in the LME, prior to its acquisition by Hong Kong Exchanges and Clearing in December 2012. Moreover, according to the plaintiffs, the price paid by consumers of SHG zinc is impacted by market conditions for LME zinc warehouse services, and Pacorini owns and operates LME-approved warehouses throughout the United States. By allegedly increasing the length of metal load-out queues at their LME-approved warehouses, the defendants controlled the MW SHG Premium. Although the plaintiffs could not contend that the defendants controlled all aspects of the market for the sale of SHG zinc in the United States, the gaps did not foreclose the plaintiffs from proceeding on the Section 2 claims, the court decided.

Relevant market. The court did not conduct a strict inquiry into whether the alleged relevant markets were as narrow as alleged by the plaintiffs because the plaintiffs focused on direct evidence of market power by means of the defendants’ ability to control price. It was noted, however, that that plaintiffs’ product market allegations would have mandated dismissal if they had relied solely on indirect evidence of monopoly power through market share. It was unclear whether, as defendants contended, reasonably interchangeable substitute products—such as lesser grades of zinc—existed for SHG zinc at this stage of the litigation.

Anticompetitive conduct. In addition to adequately alleging monopoly power, the plaintiffs also sufficiently pleaded that the defendants willfully acquired or maintained such power through anticompetitive conduct. In their purported effort to control load-outs and increase the MW SHG Premium, the defendants allegedly engaged in the following six categories of anticompetitive conduct: (1) “[a]cquiring effective control over the supply of LME U.S. Zinc,” (2) “[m]anipulating zinc warehouse supplies,” (3) “[m]anipulating LME rules,” (4) “[r]esisting LME reforms,” (5) [m]aking illicit incentive arrangements,” and (6) “[e]ngaging in shadow warehousing.”

The court was not convinced that all of this alleged conduct supported a plausible inference of anticompetitive behavior. For example, it rejected the assertion that the defendants acquired effective control over the supply of SHG zinc. Moreover, some of the other purported conduct was neither inherently problematic nor suspect when considered in the abstract. However, when taken together, the plaintiffs’ allegations were sufficient to create a plausible inference that Glencore Ltd. and Pacorini engaged in anticompetitive monopoly maintenance conduct, the court decided.

Merger challenge. The court rejected the plaintiffs’ claim that Glencore Ltd. and Pacorini entered into an illegal merger in violation of Section 7 of the Clayton Act. The plaintiffs’ assertion that Glencore Ltd.’s acquisition of Pacorini tended to create a monopoly in the LME U.S. Zinc Market was conclusory and unsupported. Moreover, the plaintiffs failed to plausibly allege that the effect of the vertical merger was to substantially lessen competition. “This is simply not the sort of vertical merger that Section 7 was intended to prohibit,” in the court's view.

This is Case No. 1:14-cv-05066-KBF.

Attorneys: Charles Andrew Dirksen (Gold Bennett Cera & Sidener, LLP) and Manuel Juan Dominguez (Cohen Milstein Sellers & Toll PLLC) for Galvanizers Co. Chelsea Rebekah McLean (Curtis, Mallet-Prevost, Colt & Mosle LLP) for Glencore Ltd. Jay B. Kasner (Skadden, Arps, Slate, Meagher & Flom LLP) for Pacorini Metals USA LLC.

Companies: Galvanizers Co.; Glencore Xstrata PLC; Glencore Ltd.; Pacorini Metals USA LLC

MainStory: TopStory Antitrust NewYorkNews

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