Appendix — RSR Corp. v. Federal Trade Commission

Iy THE "MICHARE RODAK, JR CLERR

|

Supreme Court of the United States:

OctosEer Term, 1979

RSR Corporation,

Petitioner,

v.

FeperaL TraDE CoMMISSION,

Respondent.

APPENDIX TO PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JosHuA F’. GREENBERG

425 Park Avenue

New York, New York 10022

(212) 759-8400

Counsel for Petitioner

Of Counsel:

EuizaABETH Heap

DanieL D. CHazin

Kaye, Scholer, Fierman, Hays

& Handler

425 Park Avenue

New York, New York 10022

(212) 759-8400

December 13, 1979

spat

TABLE OF CONTENTS

PAGE

Initial Decision of Montgomery K. Hyun, Admin-

istrative Law Judge, April 20, 1976 ...00...22 la

Opinion and Final Order of the Federal Trade Com-

mission, December 2, 1976 ..0.0..........-..ssccsccscccsececencoeee 118a

Opinion of the United States Court of Appeals for

the Ninth Circuit, July 30, 1979 00 17la

Order Extending Time to File Petition for Writ of

Certiorari, October 18, 1979 20... cecceceee 190a

la

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

UNITED STATES OF AMERICA

Berore Freperat Trape Commission

Docket No. 8959

In the Matter of

RSR Corporation, a corporation.

Init1aAL Decision

Montgomery K. Hyun, Administrative Law Judge

K. Keith Thurman, Esq., James C. Egan, Esq.,

Thalia Lingos Esq,,

Counsel Supporting the Complaint.

Robert L. Wald Esq., Carleton A. Harkrader, Esq.,

Robert A. Skitol, Esq., Mark Schattner, Esq.,

Robert M. Cohan, Esq.,

Wald, Harkrader & Ross,

Washington, D.C.

Merrill L. Hartman, Esq.,

Hewett Johnson Swanson & Barbee,

Dallas, Texas,

Counsel for RSR Corporation.

PRELIMINARY STATEMENT

On April 1, 1974, the Federal Trade Commission (“Com-

mission”) issued the complaint herein, charging RSR Cor-

poration (“RSR”) with violation of Section 7 of the

Clayton Act, as amended (15 U.S.C. §18), by its October

2a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

1972 acquisition of substantially all of the stock of

Quemetco, Inc. (“Quemetco”), a wholly owned subsidiary

of St. Joe Minerals Corporation (“St. Joe”), for about

$22 million. The complaint alleges that the effect of RSR’s

acquisition of Quemetco may be to lessen competition sub-

stantially or tend to create a monopoly in the “U.S. lead

market” and the “U.S. secondary lead market” by (1)

eliminating substantial actual competition between Quem-

etco and RSR and between Quemetco and other firms in

the relevant markets, (2) strengthening the position of

RSR in the relevant markets, (3) raising entry barriers

into the relevant markets, and (4) significantly increasing

concentration levels in the relevant markets.

On May 13, 1974, RSR duly filed its answer to the com-

plaint, admitting certain allegations and denying others.

By order of July 3, 1974, RSR’s answer was amended. RSR

denied that the “U.S. lead market” and “U.S. secondary

lead market” are relevant markets in which to assess the

effects of the challenged acquisition. It also denied that the

acquisition had any of the effects alleged in the complaint.

On July 2, 1974, RSR filed a Motion for Severance of

Geographic Market Issue and Separate Trial Thereon Be-

fore Disposition of Other Issues. The motion was denied

by order of July 3, 1974. On March 10, 1975, RSR filed a

Motion for Summary Decision on the Geographic Market

Issue and for Order Dismissing Complaint, with supporting

affidavits. The motion was denied by order of March 24,

1975. On June 23, 1975, RSR filed a Motion for Adjudica-

tion of the Issue of Liability Prior to Hearings on Relief.

The motion was denied by order of July 8, 1975.

Prehearing conferences were held in Washington, D.C.

on July 2, 1974 and April 28, 1975 and several informal

3a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

conferences were held with counsel for the purpose of

resolving outstanding procedural problems. Both parties

were permitted substantial prehearing discovery and pre-

hearing documents, including document lists, witness lists,

copies of proposed exhibits and trial briefs, were ex-

changed, Presentation of complaint counsel’s case-in-chief

began in Washington, D.C. on July 21, 1975 and ended on

July 31, 1975. Defense hearings began on September 3, 1975

and ended on September 19, 1975. Rebuttal hearings were

held on October 6, 7 and 17, 1975. The evidentiary record

was closed on January 20, 1976 after reception of “certain

stipulations of anticipated testimony in lieu of hearing and

reception of further documentary evidence on December 18,

1975 and January 19, 1976.1 Counsel for the parties filed

proposed findings of fact, conclusions of law and order,

together with supporting briefs, on March 1, 1976 and an-

swers on March 12, 1976. The record contains some 2,400

pages of transcript, numerous documentary exhibits and

several physical exhibits.

This case is before me upon the complaint, answer,

testimony and other evidence, proposed findings of fact

and conclusions of law and order and briefs filed by the

parties. These submissions have been given careful con-

sideration and, to the extent not adopted herein in the

form proposed or in substance, are rejected as not sup-

ported by the record or as immaterial. Any motions not

heretofore or herein specifically ruled upon, either directly

The intervals were necessary in order to accord the parties rea-

sonable opportunity to prepare and negotiate the terms of stipula-

tions, coincident with complaint counsel’s engagement in the trial

of another Section 7 proceeding before the Commission (Docket No.

8972) and the year-end holidays.

4a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

or by the necessary effect of the conclusions in this initial

decision, are denied.

Having heard and observed the witnesses and having

carefully reviewed the entire record in this proceeding,

together with the proposed findings and conclusions sub-

mitted by the parties, the administrative law judge makes

the findings set forth below.?

Finpines or Facr

I. Definitions

1. For the purpose of these findings, the following

definitions shall apply:

a. “Secondary lead” is lead recovered from scrap

Sources, such as scrap lead-acid type batteries.

(Complaint and Answer, Par. 1(b))

b. “Primary lead” is lead produced by smelting and

refining of ores and base bullion. (Complaint and

Answer, Par. 1(c); Blair 33)

* References to the record are made in parentheses, and the fol-

iowing abbreviations ar2 used:

F — Findings in this initial decision.

CPF — Proposed findings of fact, conclusions of law and order

of complaint counsel.

CRB — Complaint counsel’s reply brief,

RPF — Respondent’s proposed findings of fact, conclusions of

law and proposed order.

RB — Respondent’s brief in support of its proposed findings

of fact, conclusions of law and order.

RRB — Respondent’s reply brief.

CX — Complaint counsel exhibits.

RX — Respondent’s exhibits.

Transcript is teferred to with the last name of the witness and

page number.

5a

Imtial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

ec. “Alloyed lead” is lead containing one or more al-

loying minerals. (Lospinoso 750)

d. “Soft lead” or “pure lead” is lead other than al-

loyed lead, containing at least 99.97 percent lead

by weight. (Blair 31, 35; Ray 168; Mardick 278-

79)

e. “Hard lead” is alloyed lead containing antimony

or calcium as at least one of the alloying minerals.

Such lead has the characteristic of hardness or

strength, and is non-malleable. (Blair 31; Ray

167-68, 171; Kenny 241; Lospinoso 750-51)

f. “Antimonial lead” is alloyed lead containing anti-

mony as the primary alloying mineral, but often

containing lesser percentages of tin, arsenic and

various other minerals in the form of impurities.

(Kenny 241; Mardick 277; Lospinoso 738, 752)

g. “Battery groups” are the inside components of a

battery that has been decased and drained of acid.

(Blair 46)

h. “TEL” (tetraethyl lead) is a gasoline antiknock

additive. (Prengaman 1014)

II. Identity and Business of

Respondent RSR Corporation

2. Respondent RSR Corporation (RSR) is now, and

was at the time of its acquisition of Quemetco, Inc.

(Quemetco), a Delaware corporation. Its principal office

and place of business at the time of the acquisition was

at 2727 North Westmoreland, Dallas, Texas 75222. (Com-

6a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

plaint and Answer, Par. 2) Its principal office and place

of business today is at 1111 West Mockingbird Lane,

Dallas, Texas 75247. (Lospinoso 713-14)

3. RSR was founded in 1970 for the purpose of acquir-

ing and operating a lead smelting and refining plant in

Newark, New Jersey, originally under the name “Revere

Smelting & Refining Corporation” (Revere). (CX 25B)

On October 1, 1971, RSR reorganized and simultaneously

acquired Murph Metals Incorporated (Murph), which

operated a lead smelting and refining plant in Dallas,

Texas. (Complaint and Answer, Par. 3; CX 25E) The

Newark and Dallas plants were recycling operations, that

is, they produced secondary pure lead and lead alloys by

smelting and refining lead-bearing scrap. (CX 25B)

4. Murph and Revere had combined sales in 1970 of

about $26,198,000. In 1971, RSR had total sales of about

$27,727,000 and assets of $11,620,583 as of December 31,

1971. RSR had sales of $24,000,000 for the first nine

months of 1972, and assets of $12,665,507 as of June 30,

1972. (Complaint and Answer, Par. 4)

5. Murph and Revere had combined shipments of 56,000

short tons of secondary lead in 1970. Total shipments by

RSR totalled 61,000 short tons in 1971 and 75,000 short

tons in 1972. (Complaint and Answer, Par. 5)

6. In both 1971 and 1972, RSR was the second largest

domestic producer of secondary lead in the United States.

(Complaint and Answer, Par. 5; CX 64A-C in camera)

7a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

7. Prior to October 26, 1972, RSR produced antimonial

lead and other lead alloys, lead products and pure lead.

(Initial Request For Admissions and Answer, Par. 30)

8. In 1970 and 1971, approximately 65 percent of RSR’s

dollar net sales were derived from sales of bulk lead.

(Third Request For Admissions and Answer, Pars. 38,

39) For the first six months of 1972, approximately 73

percent of RSR’s dollar net sales were derived from sales

of bulk lead. (Third Request For Admissions and Answer,

Par. 40)

9. In 1972, a preponderance of RSR’s sales of bulk lead

were of antimonial lead alloys. (Answer to Third Request

For Admissions, Par. 36)

10. In 1971, three battery manufacturers accounted for

approximately 10 percent each of RSR’s total sales and

a fourth battery manufacturer accounted for about 7 per-

cent. (Third Request For Admissions and Answer, Par.

41) During the first six months of 1972 (ended June 30),

three major battery manufacturers accounted for approx-

imately 20 percent, 14 percent and 12 percent, respectively,

of RSR’s total sales. (Third Request For Admissions and

Answer, Par. 42)

11. Since 1972, RSR has been shifting its secondary lead

production to a greater proportion of soft lead. By 1975,

RSR plants were producing approximately 65 percent soft

lead and 35 percent antimonial lead. This change in pro-

duction was made in response to increased customer de-

mand for soft lead. (Lospinoso 834-35)

8a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

12. In 1974, RSR’s soft lead met the standards of the

London Metal Exchange for lead and has been traded on

that market since 1975. (Kenny 258-59; Kenkel 386;

Threlkeld 1453)

13. In 1971 and 1972, RSR considered antimonial lead

to be a product with a limited future, and desired to be-

come more active in other product areas. (Lospinoso 854-

59, 979-80; Hatten 1218-20) It hoped to become a “low-

cost, high volume producer of lead” by acquiring a net-

work of lead recycling plants extending across the country.

(Lospinoso 852-53)

14. During that period, RSR was also faced with the

need to replace its existing lead recycling plant in Newark,

New Jersey. This plant was located on premises leased

on a month-to-month basis from the Newark Housing Au-

thority, and RSR was on notice that the lease would be

terminated and the plant thus closed in 1973. (Complaint

and Answer, Par. 31; CX 25B)

15. On August 24, 1972, RSR made a public offering

of 320,000 shares of common stock. It planned to apply

the net proceeds of the offering, expected to amount to

$3,003,400, to construction of a new smelting and refining

facility to replace the Newark plant. (CX 250-D)

16. In 1971, RSR sold either lead alloys or soft lead

in at least twenty states. (Initial Request For Admissions

and Answer, Par. 31)

17. Since it was founded in 1970, RSR has been en-

gaged in commerce as “commerce” is defined in the Clay-

ton Act. (Answer, Par. 7)

9a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

III. Identity and Business of

Quemetco, Inc., the Acquired Firm

18. Prior to its acquisition by RSR on October 26, 1972,

Quemetco, Inc. (Quemetco) was a Delaware Corporation

organized under the laws of Delaware with its principal

office and place of business located at 720 South Seventh

Avenue, City of Industry, California 91744. (Initial Re-

quest For Admissions and Answer, Pars. 1 and 2; Second

Request For Admissions and Answer, Par. 1)

19. Quemetco was founded in 1946 and incorporated the

following year under the name “Western Lead Products

Co.” (Quenell 496) In 1969, it acquired from Bunker Hill

Company a secondary lead smelter located in Seattle,

Washington. (Initial Request For Admissions and Answer,

Par. 4) Western Lead Products changed its name to

“Quemetco, Inc.” in 1970. (RSR’s Answer to Initial Re-

quests For Admissions 5). At that time it operated lead

recycling plants at three locations: City of Industry, Cal-

ifornia; Seattle, Washington; and Indianapolis, Indiana.

(CX 18B-C; Quenell 497-98)

20. In the fiscal year ending March 31, 1968, Quemetco

had sales of about $12,936,000 and assets of $5,288,035 as

of March 31, 1968. (Initial Request for Admissions and

Answer, Pars. 19 and 20) In 1971 Quemetco had sales of

about $32,127,000 and assets of $20,132,422 as of December

31, 1971. (Initial Request For Admissions and Answer,

Pars. 21 and 22) For the first nine months of 1972, Que-

metco had sales of about $30.4 million and assets of $26,-

243,890 as of September 30, 1972. (Initial Request For

Admissions and Answer, Pars. 23 and 24)

10a

Imitial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

21. Quemetco produced 39,558 short tons of secondary

lead in 1971 and 43,281 short tons in 1972. (Initial Request

For Admissions and Answer, Pars, 26 and 27) In 1971,

the value of Quemetco’s secondary lead shipments was

approximately $11 million; in 1972, it was approximately

$13 million. (Initial Request For Admissions and Answer,

Pars. 28 and 29)#

22. At the time of its acquisition by RSR, Quemetco

produced lead oxides, antimonial lead alloys, zine alloys,

miscellaneous lead products, special lubricants, and soft

lead. (Initial Request For Admissions and Answer, Par. 8)

23. In 1969, the management of Quemetco attempted to

raise money for the purpose of expanding the company’s

recycling operations. They considered a public offering of

stock but found the market not receptive; they sought a

private placement but found the cost too high. They were,

therefore, receptive when officials of St. Joe Minerals Cor-

poration (St. Joe), a leading producer of primary lead,

approached them in 1970 with an interest in the purchase

of the company. The purchase was consummated on De-

cember 29, 1970, and Quemetco became a wholly owned

subsidiary of St. Joe. (Quenell 499)

24. In the year following its purchase of Quemetco, St.

Joe authorized a Quemetco expansion program involving

the construction of a replacement plant for the Indian-

* See also “Answer to Complaint Counsel’s Motion to Have Cer-

tain Requests for Admissions Deemed Admitted” at 5-6, filed Nov.

27, 1974, and “Order Ruling on Complaint Counsel’s Motion to

Have Certain Requests for Admissions Deemed Admitted” at 2,

filed Feb. 4, 1975.

RO Fi iE Ag NA th a cea AEN

lla

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

apolis plant and a new recycling plant in Wallkill, New

York.* (RSR’s Answers to Initial Request For Admissions

10, 12-14; RSR’s Answer to Second Request For Admis-

sions 2)

25. In July 1971, Quemetco began construction of a new

secondary lead smelter and refinery at Indianapolis, Indi-

ana to replace its existing plant there. (Initial Request

For Admissions and Answer, Pars. 12 and 13; Blair 60-61,

70) That plant had just commenced production of oxide

and smelting of secondary lead at the time of the acquisi-

tion by RSR (CX 14; Blair 61-62, 64) but the battery

breaking system was not complete at that time. (Blair

61-64; Quenell 507-08) This plant had a designed capacity

of approximately 30,000-36,000 short tons of secondary lead

per year, operating on a three-shift, 5-day per week basis.

(Blair 70; Quenell 508-09)

26. In September 1971, Quemetco began construction of

a new secondary lead smelter and refinery and oxide plant

in Wallkill, New York. (Initial Request For Admissions

and Answer, Par. 10; Blair 59-60) That plant had a de-

signed capacity of approximately 30,000-36,000 short tons

of secondary lead per year, operating on a three-shift, 5-

day per week basis. (Blair 70; Quenell 508-09) At the time

of the acquisition by RSR, the Wallkill plant had its equip-

ment installed and had commenced the production of oxides

and was in the final testing stage prior to the commence-

ment of smelting and refining operations within one month.

* The Wallkill plant is referred to as the “Middletown” plant at

several places in the record of this proceeding. Wallkill and

Middletown are interchangeable names for the same plant.

12a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

(Initial Request For Admissions and Answer, Par. 11;

Blair 60-61, 63-64; Quenell 507-08)

27. On April 21, 1972, the Federzi Trade Commission

announced its intent to issue a complaint challenging St.

Joe’s acquisition of Quemetco under Section 7 of the Clay-

ton Act and seeking total divestiture of the Quemetco facil-

ities. [1970-1973 Transfer Binder] Trade Reg. Rep. 19,-

966; Quenell 500) The complaint (FTC Docket 8892) was

formally issued on June 29, 1972; it alleged that St. Joe’s

acquisition of Quemetco eliminated actual and potential

competition between St. Joe and Quemetco, foreclosed St.

Joe’s competitors from selling lead to Quemetco, and

strengthened St. Joe’s dominant market pdsition. ([1970-

1973 Transfer Binder] Trade Reg. Rep. 19,966 and 20,-

047)

28. In view of the possibility that St. Joe would, as a

result of the FTC challenge, ultimately be required to

divest itself of Quemetco, RSR’s management sought to

determine St. Joe’s interest in selling Quemetco to RSR.

(Quenell 501-02) RSR’s management believed that the

combination of Quemetco’s plants with their remaining

plant in Dallas would provide a good network of lead

recycling plants dispersed throughout the country. (Los-

pinoso 852-53; see also Craig 437)

29. On October 26, 1972, St. Joe sold all of the out-

standing stock of Quemetco to RSR. (Complaint and An-

swer, Par. 8) The purchase price was $22 million, paid

in the form of $20 million in cash and a $2 million note.

The $20 million in cash was derived from a $12 million

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13a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

bank loan, a $5 million note placed with private investors,

and the use of approximately $3 million of the net proceeds

from the August 24, 1972 public offering. (CX 14)

30. Quemetco was at the time of the acquisition and has

since been engaged in commerce as “commerce” is defined

in the Clayton Act. (Answer, Par. 14)

IV. The Relevant Product Markets

A. The U.S. Lead Market

31. Lead is a heavy metallic element. (Third Request

For Admissions and Answer, Par. 2) It is high in density

(making it an excellent shield for protection against X-ray

and nuclear radiation), heavy, with poor electricity and

heat conducting qualities, resistant to certain chemical sub-

stances and soft or malleable (unless alloyed with a hard-

ening agent). Lead is adaptable to a wide range of uses.

(Third Request For Admissions and Answer, Par. 3; Pren-

gaman 1003) Because of its unique properties, lead is

peculiarly suited to the manufacture of a wide range of

products, including batteries; gasoline antiknock com-

pounds; bearing metals; cable covering; caulking lead;

lead pipe, traps and bends; casting metals; collapsable

tubes ; lead foil (for bottle tops) ; terne metal; solder; type

metal; paint pigments, and for annealing and galvanizing.

(Prengaman 1007-08, 1014-15, 1017, 1019-20, 1022-29, 1033-

35, 1037-38, 1041-44)

32. There are substitutes for lead in some uses. (Trozzo

1733, 1736) For example, plastic may be substituted for

lead in pipe and cable covering; iron, brass, copper or steel

l4a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

may be substituted for lead in ammunition; other process-

ing techniques may be used in place of tetraethyl lead in

raising the antiknock qualities of gasoline. (Trozzo 1736,

1741-42, 1832) Respondent does not, however, contend that

these products should be included in the relevant market,

for they are not interchangeable with lead for most end

uses,

33. The record does not contain evidence of effective

competition with lead by substitute products for the prin-

cipal uses of lead. United States consumption of lead in-

creased steadily from 1968 to 1972 despite substantial fluc-

tuations in its price. (CX 190, Table 1)

34. “Primary lead” is lead produced by the smelting

and refining of lead ores and concentrates. (Blair 33; Ray

168; Kenny 242; Mardick 274; Craig 406-07 ; Quenell 499;

Prengaman 1003; Cassara 1349; Bers 1256; Threlkeld 1446;

see also Complaint and Answer, Par. 1(c)) “Secondary

lead” is lead produced by the smelting and refining of

lead-bearing scrap; it is also referred to as “recycled lead”.

(Blair 20; Ray 168-69; Kenny 241-42; Mardick 271; Craig

410-11; Quenell 499-500; Prengaman 1004; Bers 1256; Cas-

sara 1349; Threlkeld 1446; see also Complaint and Answer,

Par. 1(b))

35. Lead is used in two different forms, as pure or soft

lead and as alloyed lead. Pure lead is a product that is

virtually all lead, with only minor traces of impurities ;

it is also called “soft lead” because of its malleability

(Blair 31; Lospinoso 715, 751; Prengaman 1005) and ac-

counts for about two-thirds of total lead consumption in

lda

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

the United States. (RX 61V, Table 14; RX 80; RX 81; see

also Barber 2036-38, 2044-50, 2238-39) Primary soft lead

and recycled soft lead, when made to conform to the same

specifications, are interchangeable for the principal end

uses of soft lead. (Blair 83; Lospinoso 716, 815-17; Pren-

gaman 1004, 1007-45; Bers 1256-57) “Hard lead” is an

alloy of lead and other elements such as antimony, calcium,

tin or arsenic; the elements are added to increase the

strength of the product. (Blair 31; Lospinoso 750-52 ;

Prengaman 1006) Hard lead made from primary lead and

hard lead made from recycled lead, when made to conform

to the same specifications, are interchangeable for the

principal end uses of hard lead. (Lospinoso 815, 817-19;

Prengaman 1004, 1009-37; Bers 1257-58)

36. The Lead Industries Association is an industry-wide

trade association to which processors of lead and manu-

facturers of lead products belong. The organization seeks

to promote the use of lead. (Mardick 309; Craig 404)

37. The parties agree that the U.S. lead market com-

prising primary and secondary lead is an appropriate

product market for the purposes of this proceeding.

B. The U.S. Secondary Lead Market

38. Within the overall U.S, lead market, there are two

distinct submarkets, the production and sale of primary

lead and the production and sale of secondary lead. The

two submarkets are distinguished by significant differences

in production, marketing, end uses, vendors and prices.

39. Industry witnesses and lead purchasers recognized

the term “secondary lead” as referring to the smelting and

l6a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

refining of lead from scrap (or recycled) sources. (Blair

20; Warrender 124; Ray 168-69; Kenny 241; Mardick 271;

Kenkel 361, 370; Craig 410-11; Quenell 499; Prengaman

1004 ; Bers 1241, 1256; Cassara 1349; Threlkeld 1446) Like-

wise, industry witnesses and lead purchasers recognized

the term “primary lead” as referring to the smelting and

refining of lead from ores and base bullion. (Blair 33;

Warrender 124; Ray 168; Kenny 242; Mardick 274; Kenkel

361, 364; Craig 406; Quenell 499; Prengaman 1003; Bers

1241, 1256; Cassara 1349; Threlkeld 1446)

40. These terms are commonly used in the lead industry.

(Blair 20, 33; Ray 168-69; Kenny 241-42; Mardick 271;

Craig 406, 410-11; Quenell 499; Lospinoso 87 5)

41. RSR recognizes that it competes primarily with

other secondary smelters and refiners. It stated in filings

with the Securities and Exchange Commission on June 7

and August 24, 1972:

The Company competes not only with other indepen-

dent secondary producers, but also with smelting and

refining divisions of integrated manufacturers of lead

products, as well as, to a limited extent, with producers

of primary lead. (CX 25G; CX 26B)

42. The industry trade association, the Lead Industries

Association, publishes statistics which distinguish between

primary and secondary lead. (Mardick 309; Craig 431)

43. The U.S. Bureau of Mines also publishes several

statistical reports which separately state production in-

formation for primary and secondary lead. (CX 19) How-

<A Re NU a oo

17a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

ever, it provides no similar breakdown in reporting lead

consumption or imports. (Ryan 654, 685-86)

44, The firms engaged in the production and marketing

of primary and secondary lead are generally distinct. (An-

swer to Third Request For Admissions, Par. 21; Craig

428-29; Quenell 536-37, 620)

45. ASARCO is engaged in the production and market-

ing of both primary and secondary lead. ASARCO, how-

ever, conducts its primary and secondary lead produc-

tion and marketing operations in two distinct divisions,

ASARCO itself and Federated Metals Division. Federated

embraces all of the company’s secondary lead operations,

including both production and marketing. (Kenkel 360-62,

390) Federated represents a small percentage of ASARCO’s

overall production and marketing of lead in the U.S. lead

market. (CX 64B, in camera)

46. Several producers formerly smelted both primary

and secondary lead but have since ceased their secondary

lead smelting activity. (See Craig 429)

47. In 1969, Bunker Hill Company sold its secondary

lead smelter to Quemetco. (Blair 19-20; Craig 429-30;

Quenell 498; see also Kenkel 363, 395, 398)

48. AMAX, in the late 1940’s or early 1950’s, discon-

tinued secondary lead smelting and sold its equipment.

(Lospinoso 956-57)

49. Eagle Pitcher and Bunker Hill once were in the

secondary lead business together but that operation has

been sold. (Craig 429-30)

18a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

50. On the other hand, UV Industries, formerly U.S.

Smelting, Mining and Refining, produced both primary and

secondary lead in 1971 and 1972. (CX 64B, in camera) It

has now left the primary smelting business. (Kenkel 393-

94)

91. NL Industries, Inc. (NL) and RSR have re-sold

primary lead bought from other sources, but they produce

only secondary lead. (Ray 221; Mardick 275, 323) Phillips

Brothers, Co. and other brokers also sell both primary and

secondary lead, (Ray 222)

52. Firms engaged in the recycled lead business are

generally not engaged in the smelting and refining of any

other metal. In contrast, firms engaged in primary lead

smelting generally smelt and refine and sell many nonfer-

rous metals, (CX 2B; Mardick 270-71, 294-95; Craig 405;

Cassara 1323-24)

53. The executive vice president of St. Joe Minerals

Corporation, a leading producer of primary lead, stated

that his company would not consider de novo entry into

the secondary lead business.

We considered it was a very different type of busi-

ness from a commercial sense than the business that

we were in. The feed end of the business is a matter

of being able to purchase in one way or another scrap,

which is really a business all its own and very different

from the traditional business that we have been in in

finding, developing and producing from [ore] bodies.

The talents of people in that business would be ex-

pected to be different from those who had gone into

19a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

our kind of business so that it would be a difficult thing.

I think we were aware of the difficulties that companies

had had who had tried being basically primary pro-

ducers to go into the secondary business and to the best

of my knowledge, had uniformly failed to make a suc-

cessful business out of the secondary, (Cre ))

04. The production of secondary and primary lead is

distinct in numerous respects. (Warrender 125-26)

09. These two processes start with different raw ma-

terials.

56. The production of primary lead utilizes ore from a

mine as the basic raw material. (Third Request For Ad-

missions and Answer, Par. 7; Mardick 289; Craig 408-09)

57. The production of secondary lead utilizes scrap bat-

teries as the principal raw material, with the remaining

raw materials consisting of TEL slag, fumes, dust, drosses,

residues and miscellaneous lead bearing scrap. (Complaint

and Answer, Par. 23; CX 19U, Table 9; Blair 19, 26; Mar-

dick 289-90; Kenkel 362; Quenell 926; Lospinoso 774, 989;

Bers 1235, 1242) Battery scrap constitutes the bulk of the

raw material used in the production of secondary lead.

(CX 19U, Table 9; Mardick 290; Quenell 526; Lospinoso

989)

58. Arising from differences in raw materials of primary

and secondary lead production are differences in costs and

profit margins, the scale of the processing, location of the

plants, relative costs of the processing, methods of pro-

cessing, equipment used in the processing and finally, the

output of the two processes.

20a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

59. There are different cost structures and profit mar-

gins for primary and secondary lead producers. (Mardick

274-75; Prengaman 1098; Cassara 1394)

60. In the instance of a primary lead smelter, the source

of raw materials is generally a wholly owned mine which

has a relatively fixed cost of operating, a cost that is inde-

pendent of the marketing price of lead. (Answer to Third

Request For Admissions, Par, 20; CX 22C; Craig 426,

468 ; Quenell 600) Thus, if demand for primary lead lessens

significently, the fixed costs of raw material and processing

makes it difficult for the producers to make a profit.

(Mardick 274-75) In the instance of a secondary lead

smelter, the source of raw material is scrap which varies

in price with the demand for secondary lead. (CX 22C;

Kenkel 370-71; Craig 426; Bers 1289-90) Thus, if demand

for secondary lead falls significantly, the secondary pro-

ducer’s profit does not experience a decline comparable to

that of the primary producer, as costs of raw materials

fall at the same time as does his demand. (Mardick 274-75)

61. A primary lead smelter and refinery possesses

economies of scale associated with a constant supply of

lead ore with the same or similar lead content. (Answer

to Third Request For Admissions, Par. 31; Fourth Request

For Admissions and Answer, Pars. 9,11, 12; Craig 414-15)

Generally, primary lead smelters and refineries require

fewer adjustments of machinery, to account for different

levels of purity in raw materials, than do secondary lead

smelters and refineries. (Answer to Third Request For

Admissions, Par. 32)

62. In contrast to the primary smelter, the secondary

smelter does not have a constant supply of raw materials

har te A oe

Se ea

21a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

of the same or similar lead content. The secondary lead

facility’s feed contains “a tremendously wide range of

impurities.” (Prengaman 1048, 1052, 1098)

63. Secondary lead smelting is done on a much smaller

scale than is primary lead smelting. The overall capacity

of a secondary smelter is far smaller than that of a pri-

mary smelter. (Answer to Third Request For Admissions,

Par. 33; Blair 40; Mardick 293-95; Craig 411, 419;

Lospinoso 986)

64. Primary lead facilities must be much larger in

scope in order to handle economically the ore generated

by the mine and the by-products of the ore. (Blair 40;

Mardick 293-96; Kenkel 364)

65. The largest secondary lead smelters have a yearly

capacity of 40,000 short tons of lead, with the typical sec-

ondary smelter having a capacity of 20,000-35,000. tons.

(Mardick 273; Craig 419; Bers 1243) The capacity of pri-

mary lead smelters is much greater, ranging from 100,000

to 225,000 short tons of lead. (Mardick 295; Craig 413, 419)

66. Because of these differences in scale between a pri-

mary and a secondary smelting operation and the resultant

greater complexity of the former, it is not possible to take

the supervisory employees of a secondary smelter and put

them in charge of a primary smelter. (Craig 418; Cassara

1388)

67. Differences in scale reflect in part the difference in

the locational source of raw materials.

22a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

68. Secondary lead smelters are located throughout the

United States, generally near or in major industrial cities,

the source of the raw materials for a secondary lead

smelter. (Blair 40)

69. In contrast, primary operations are located near

the few lead mines or points of importation of foreign ores,

concentrates or base bullion, away from cities, (Answer

to Third Request For Admissions, Par. 30; Fourth Re-

quest For Admissions and Answer, Pars. 4, 5, 6, 7, 8, 15,

16; Blair 40)

70. In both primary and secondary lead processing, the

production of lead can be divided into four stages, viz.,

material preparation, smelting, refining, and by-product

and waste disposal. (Lospinoso 788) The basic smelting

and refining process is “conceptually similar” for both pri-

mary and secondary lead. (Craig 411-12)

71. The material preparation stages of primary and

secondary lead processing are distinct.

72. Ore for a primary lead smelter is crushed at a mill

located adjacent to the mine and then sent through a sep-

aration process to remove the excess rock and certain

other minerals. (Third Request For Admissions and

Answer, Par. 7; Blair 44-45; Craig 409; Lospinoso 804)

73. In the process of Separating the lead concentrate

from the unprocessed ore, certain other mineral concen-

trates, e.g., zine and copper, are also separated. (Third

BS EE Pe ORR 65 a

23a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

These other mineral concentrates are then sold or pro-

cessed by the primary smelter in facilities separate from

those used in lead smelting and refining. (Craig 409-10)

74, Lead ore typically is a sulfide ore, containing a

high sulfur content. (Blair 34; Mardick 289; Craig 412) f

To remove this sulfur it is necessary to send the crushed —

ore through a sintering plant to remove the sulfur con-

tent. (Third Request For Admissions and Answer, Par.

8; Blair 34, 44-45; Mardick 293; Craig 409, 412; Quenell

039; Lospinoso 804-05)

75. To erect a sintering plant for a primary lead smelter

requires a “reasonably substantial” expenditure. (Craig

412; Bers 1317) Such an expenditure is justified only by

a large quantity of uniform material, a condition present

only at a primary facility. (Bers 1317)

76. Secondary smelters have to prepare two inputs,

scrap batteries and TEL slag. Other materials are simply

fed “as is” into the reverberatory or blast furnace.

(Lospinoso 790) |

77. Scrap batteries must be drained of their sulfuric

acid and decased to obtain the “battery group” as the

first step in preparing them to be smelted. (Blair 46; Mar-

dick 280, 282; Lospinoso 784, 788) This may be done

either by cutting off the top and simply dumping out the

battery groups or grinding up the battery and separating

the metal bearing materials through a chemical separating

system that works on the principle of gravitational dif-

So ta Bhi ELS ws

Request For Admissions and Answer, Par. 5; Oraig 409) ferences among the components. (Blair 46-47; Mardick

280, 282; Lospinoso 784, 788)

Saar

Pw

24a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

78. TEL slag is prepared by washing out the sodium

chloride which contaminates it. (Bers 1231-32)

79. Secondary lead smelters do not possess facilities

for processing and upgrading the ore as received from

the mines. (Craig 411; Quenell 535)

80. Secondary lead facilities also do not have sintering

plants as do primary facilities. (Mardick 294; Craig 411-

13; Quenell 535-36)

81. The smelting processes of primary and secondary

lead are distinct.

82. The smelting process used in secondary lead gen-

erally is a two step process, utilizing both reverberatory

and blast furnaces. (Craig 410-411; Lospinoso 790-92;

Bers 1247-49)

83. The feed material, i.e., battery scrap, is first heated

in a reverberatory furnace which is basically an oxidizing

system. (Blair 28-29; Lospinoso 790-91; Bers 1247-49)

84. From the reverberatory furnace two valuable prod-

ucts are obtained, viz., relatively pure soft lead and a lead

bearing slag high (or rich) in antimony and other alloy

content. (Blair 28; Mardick 282-83; Lospinoso 791; Bers

1247-49)

85. The slag from the reverberatory furnace is then

processed in a blast furnace, which is basically a reduc-

tion process. (Blair 28-29; Mardick 282-84; Lospinoso 792,

794; Bers 1247-49)

¢

;

25a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

86. In addition to the slag from the reverberatory fur-

nace, the feed for the secondary blast furnace may con-

sist of some battery groups or other scrap, including TEL

slag. (Blair 29-30; Lospinoso 792; Bers 1247-49)

87. The purpose of adding additional feed materials to

the reverberatory slag is to produce an antimonial lead

containing a percentage of antimony and other elements

close to the specifications of the battery manufacturers.

(Blair 30; Bers 1247-49) If processing the reverberatory

slag in a blast furnace results in an antimonial lead out-

put containing 10 percent or more antimony, the addition

of other feed materials results in antimonial lead contain-

ing from 4 percent to 6 percent antimony which comes

close to meeting the battery manufacturers’ specifications.

(Blair 29-30)

88. The smelting process used in primary lead is a

one step process. (Blair 34)

89. The feed material, concentrates made from ore, is

heated in a large blast furnace, basically a reduction

process. (Blair 34; Craig 411; Lospinoso 810)

90. Only blast furnaces are used to smelt primary lead.

(Blair 34; Craig 411) Primary smelters often possess

reverberatory furnaces, but utilize these solely to recover

minerals other than lead found in their ore. (Lospinoso

810-11, 984-85)

91. “ue by-product and waste disposal operations of

primary and secondary lead smelters ‘are unique in many

ways.

26a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

92. A primary lead smelter produces sulfur as a by-

product of the sintering process used to prepare the raw

material for smelting. (Mardick 293; Craig 411-13; Quenell

535; Lospinoso 804) The recovered sulfur is present in

large quantities; therefore, primary smelters have erected

large plants to process this by-product into sulfuric acid

and avoid air pollution problems. (Blair 34; Mardick 293;

Craig 411, 413; Quenell 535-36; Lospinoso 804-05, 812)

However, in order economically to recover sulfur and con-

vert it to sulfuric acid, one must have a smelter of not less

than 100,000 short tons of lead capacity per year. (Mardick

295-96)

93. The sulfuric acid produced by the primary smelters

is marketed as an industrial chemical. (Blair 34-35; Mar- -

dick 294; Craig 413; Quenell 535-36; Lospinoso 805, 989)

94. Other than the sulfur generated as a by-product of

sintering, primary lead producers do not have a sulfur

pollution problem. (Lospinoso 812) Thus, a primary lead

smelter does not require scrubbers to process its furnace or

other smelter fumes. (Lospinoso 812)

95. Sulfuric acid is involved in the recovery of secondary

lead, but as an undesired waste rather than a valuable by-

product which can be sold. (Blair 35)

96. Scrap batteries as delivered to the secondary smelter

contain sulfuric acid, usually in a highly contaminated state.

(Blair 35; Lospinoso 804) ;

97. The liquid sulfuric acid contained in the scrap bat-

tery is disposed of by the secondary smelter in a variety

es. Na ee ts Bem

AS eRe Bhai lates See

:

4

27a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

of manners, ¢.g., treatment by some type of neutralizing

agent. (Mardick 280; Quenell 536; Lospinoso 788-89)

98. Secondary lead smelters also recover sulfur through

the operation of their air pollution controls. (Blair 35;

Lospinoso 798-99) Formerly this sulfur, produced as sulfur

dioxide in the furnaces, was simply emitted into the atmos-

phere. (Blair 35; Quenell 536)

99. Sulfur is recovered in quantities insufficient to make

it economical to convert it into a marketable product.

(Blair 35) Therefore, the sulfur recovered by a secondary

lead smelter is disposed of as a waste material. (Lospinoso

799)

100. Secondary lead facilities do not have sulfuric acid

plants as do primary facilities. (Mardick 294; Craig 413;

Quenell 536)

101. The method of operating blast furnaces differs be-

tween primary and secondary smelters. Primary blast fur-

naces, due to their much larger size and the costliness of

any shutdown, are operated almost continuously, with shut-

downs for necessary maintenance being made only every

three or four months, (Blair 41; Craig 413-14) In contrast,

the smaller secondary blast furnaces are generally operated

five days a week with maintenance being done weekly.

(Blair 42)

102. The production facilities for primary and secondary

lead are not interchangeable. Facilities for the production

of one do not possess the necessary equipment to satisfac-

torily produce the other. Each lacks the material prepara-

28a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

tion equipment necessary to process the other’s product;

primaries do not have the equipment necessary to decase

batteries and secondaries do not have the equipment neces-

sary to remove sulfur from ore. Likewise each lacks fur-

naces of a size and type effectively to process the other’s

raw material.

103. The equipment used to smelt and refine primary

and secondary lead differs substantially in scale as well

as the smelting process itself. (Warrender 125-26; Kenkel

364; Lospinoso 986)

104. Although both smelting processes utilize blast fur-

naces, those used by primaries are far larger than those

used by secondaries. (Blair 34, 41; Mardick 293; Kenkel

364; Craig 417-18; Lospinoso 986)

105. Because of the differences in equipment between

primary and secondary lead smelters, it is difficult or im-

possible for a primary smelter to process a significant

amount of lead scrap or other raw materials utilized by a

secondary smelter. (Blair 41-42; Kenkel 365, 368; Craig

415-17)

106. Primary smelters rarely process scrap. (OX 19T,

Table 7) Only ASARCO used battery scrap at one of its

primary smelters. This consisted of very small tonnages of

a particular grade of scrap. (Kenkel 366-68) No other

ASARCO primary lead smelter processed any scrap. (Ken-

ke] 368)

107. Primary smelters generally can not process anti-

monial alloy scrap, such as batteries, because antimony

29a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

would foul up the circuit and primary smelters generally

have no means for its removal. (Kenkel 365; Quenell 529)

108. The raw materials used in a secondary smelter,

battery scrap in particular, consist of a substantial amount

of finely divided material. (Blair 41) The processing of

finely divided material in the large blast furnaces used by

primary smelters would reduce the efficiency and capacity

of that furnace and could plug it up and cause it to be shut

down, cleaned out and restarted. (Blair 42-43; Craig 415-16,

418, 419-21) Shutdowns and start-ups of a large blast

furnace are extremely difficult and costly. (Blair 42; Craig

413-14)

109. In contrast to the large blast furnace, a reverbera-

tory furnace such as that used by secondary smelters is

very good for using fine material. (Bers 1243)

110. Primary smelters cannot process TEL slag because

“it has chlorine in it and the chlorine ruins their collection

equipment. It eats it out.” (Bers 1269)

111. Similarly it is difficult if not impossible for a secon-

dary smelter to use lead ore as its raw material source.

(Blair 42; Mardick 296-97 ; Kenkel 366; Craig 416)

112. Secondary smelters do not use lead ore as raw

material. (Warrender 125-26; Mardick 396; Kenkel 366 ;

Craig 415; Quenell 534-35; Lospinoso 989-90; Prengaman

1091; Bers 1242, 1316) This is due in part to the high

sulfur content of lead ore. In order to handle such a

high sulfur content raw material, the secondary lead smel-

30a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

ter would have to employ a new and different smelting pro-

cedure. At the very least, the lead ore would have to be

sintered before being introduced into a secondary lead

smelter. (Mardick 296-97; Craig 418; Quenell 535; Bers

1316-17)

113. There are substantial differences in the outputs of

primary and secondary smelters resulting from the dis-

tinct processes used to produce primary and secondary

lead.

114, In 1971 and 1972, the output of primary lead smel-

ters consisted almost entirely of soft lead. (CX 19T, Table

7; CX 19U, Table 8)

115. In 1971 and 1972, the output of secondary lead

smelters consisted of approximately 70 percent antimonial

lead and 30 percent soft lead. (CX 19V, Table 11; CX

25E; see Craig 485) Quemetco’s secondary lead produc-

tion in 1971 and 1972 consisted of approximately two-

thirds antimonial lead and one-third soft lead. (Blair 31;

Quenell 522-23, 577) The vast majority of soft lead pro-

duced by secondary smelters is consumed internally by

the producer rather than sold on the open market. (F. 146)

116. While it is possible for a primary lead smelter to

produce antimonial lead from pure lead through the addi-

tion of antimony and other metals to antimony-free lead

ores, or if antimony happens to be present in the lead ore,

such smelters do so only in very small quantities. (CX 19U,

Table 8; Blair 39; Kenkel 393, 397, 399; Craig 422-23,

Rete An ee itera ee ele

3la

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

484) In 1971 and 1972, such production by primary smel-

ters accounted for less than 3 percent of their lead pro-

duction. (CX 19T, Table 7; CX 19U, Table 8)

117. Antimonial lead produced by primary smelters

generally is not sold to battery manufacturers, principally

for two reasons.

118. It is more economical to use secondary sources to

produce antimonial lead than to use primary sources. A

secondary smelter’s raw material already contains, at no

extra charge over the scrap lead price, all the ingredients

to produce antimonial lead; in contrast, a primary smelter

generally would have to purchase such relatively costly

metals as antimony, tin and arsenic to add to its pure lead

in order to make antimonial lead. (Third Request For

Admissions and Answer, Pars, 12-14; OX 220; OX 250,

F’; Blair 39; Craig 423; Quenell 529-30; Prengaman 1094,

1103-04; Bers 1262-63)

119. Antimonial lead made from primary lead is gen-

erally unsatisfactory for use in producing battery grids

due to its poor castability compared to secondary anti-

monial lead. Small amounts of certain impurities found

in secondary antimonial lead enhance its castability. (Blair

39-40; Kenny 240-41; Mardick 291-92) Primary lead pro-

cessors would have to add additional alloying agents to

produce a primary antimonial lead satisfactory for the

manufacture of battery grids. (Prengaman 1093) <A sec-

ondary blast furnace using slag from a reverberatory fur-

nace as its principal feed produces antimonial lead con-

32a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

taining approximately 3 percent antimony, .5 percent tin,

.015-.2 percent arsenic, and traces of copper, silver, nickel,

and bismuth. (Blair 27-28; Mardick 281)

120. The antimonial lead produced by a secondary

smelter, almost without exception, contains each of the

various minerals found in the scrap or other raw materials

processed. (CX 25F; Blair 28-29; Mardick 281) Thus, the

secondary smelting process does not generally lose or sepa-

rate minerals contained in the feed. (Blair 28-29; Mardick

294-95; Craig 422; Lospinoso 792-93; Prengaman 1104)

121. In contrast, the soft lead produced in a primary

smelter contains only minute traces of minerals other than

lead despite the fact that the lead ore for the primary

smelter often contains other metal values, such as zine,

silver, cadmium, cobalt, mercury and bismuth. (Blair 34;

Mardick 289; Kenkel 364-65; Craig 409, 421- 22) Some of

the minerals other than lead contained in the ore are re-

moved during material preparation while others are re-

moved in the refining process, (Craig 409, 421-22; Los-

pinoso 839)

122. In a primary smelter, metal values other than lead

are recovered separately and sold either as metal or con-

centrates. (Blair 34, 40-41; Mardick 294-95 ; Kenkel 364-

65; Craig 409; 421-22: : Gedehinke 839)

123. The ratio between the output of alloyed lead and

soft lead by secondary lead smelters is determined by the

economics involved in smelting. (Blair 33; Quenell 524)

r

33a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

124. One secondary smelter, the Federated Metals Divi-

sion of ASARCO, did not find it economically feasible to

produce any soft lead and thus produced only alloyed

lead in 1971 and 1972, (Kenkel 365-66)

125. The principal product of the secondary smelting

process is antimonial lead. If the scrap which constitutes

the recycler’s raw material does not include sufficient anti-

mony to allow production of only antimonial lead contain-

ing the percentage of antimony required, some soft lead

is also produced ir. the course of the smelting process.

(Craig 486) The smelter then has a choice of buying

enough antimony from outside sources to produce more

antimonial lead or to use or sell the soft lead. ( Craig 487-

88) Additional soft lead can be obtained by further pro-

cessing of the alloyed lead, but recyclers generally do not

do so because antimonial lead is considered a valuable

product. (Craig 486-87; see also Mardick 285)

126. As a secondary lead smelter seeks to increase the

percentage of its soft lead as a percentage of its total

production, it incurs additional processing costs. (Mardick

276; Lospinoso 994) In order for a secondary lead smelter

to produce increased amounts of soft lead above its normal

output, the smelter must rerun the reverberatory slag back

through the reverberatory furnace while the blast furnace

remains idle. (Lospinoso 820-21, 837, 994) Each successive

run of the slag through the reverberatory furnace yields

a diminishing quantity of soft lead and a more highly

alloyed antimonial lead slag. (Lospinoso 820-21, 837)

34a

Initial Decision of Montgomery K. Hyun,

Admuwunistrative Law Judge, April 20, 1976

Finally a point is reached where the high antimonial slag

can no longer be run through the reverberatory furnace.

(Lospinoso 837) A secondary lead producer such as RSR

does not have the equipment to turn such high antimony

slag into a saleable by-product. (Lospinoso 837-38, 950-51)

127. As the blast furnace remains idle while the slag is

being rerun, producing more pure lead causes a secondary

smelter to incur the high cost of keeping expensive equip-

ment idle and/or continually starting and stopping such

equipment. (Lospinoso 995)

128. It is more economical for a secondary smelter mak-

ing oxide to purchase the majority of its soft lead needs

for oxide production or fabrication rather than attempt

to convert a greater percentage of its mixed antimonial

lead/soft lead output into soft lead. (Blair 33; Mardick

285-86; Kenkel 365-66, 384-85; Craig 486-88)

129. In general, it takes a secondary smelter a longer

period of time to produce the same number of tons of soft

lead than it takes to produce hard lead. (Blair 33)

130. There are differences in the soft lead produced by

primary and secondary smelters, with the product of the

former typically containing fewer impurities than the

product of the latter. (Blair 35-36; Mardick 290; Lospin-

oso 990-91; Prengaman 1097-98) Beeause of this difference

in purity, secondary soft lead can be distinguished spectro-

graphically from primary lead. (Mardick 291)

35a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

131. Secondary soft lead generally contains close to the

maximum impurities allowable in order to meet the ASTM

specifications of 99.97 percent purity, while primary soft

lead generally contains impurities in amounts far below

those allowable under the ASTM specifications. (Blair 36;

Lospinoso 990-91; Prengaman 1097-98; Bers 1257) The

impurities generally contained in secondary soft lead are

antimony, copper, bismuth and silver. (Blair 36; Bers

1257)

132. There are differences in the marketing of primary

and secondary lead. These differences in marketing arise

from differences in the production process and products

of the two submarkets.

133. Secondary lead producers basically sell to the

customers from whom their raw materials are obtained.

(Quenell 525)

134. The principal customers of secondary lead produc-

ers are battery manufacturers. (CX 25H; Blair 25, 31-32;

Mardick 277-78; Craig 440; Quenell 520, 525)

135. Secondary producers sell battery manufacturers

almost their entire needs for hard or alloyed lead. (Ray

184; Kenny 242; Craig 424-25, 440; Quenell 529; Prenga-

man 1092-93, 1104-05; Cassara 1378, 2400) Primary pro-

ducers “essentially don’t compete for” sales of antimonial

lead to battery manufacturers. (Craig 424-25; Quenell

505, 528)

36a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

136. In addition, NL and Quemetco sold oxide to battery

manufacturers in 1972. These secondary lead smelters

manufactured oxide principally from primary lead but to

a limited extent oxide was also made from their own pro-

duction of secondary soft lead. (Blair 32; Mardick 275-76,

287; Craig 446-47, 459; Quenell 523-24) Quemetco made

its oxide for sale to Globe-Union from a blend of its sec-

ondary lead with primary lead in some instances in order

to meet Globe-Union’s specifications. (Quenell 524-25)

137. Nonintegrated battery manufacturers who made

oxide did so almost entirely from primary lead. (Warren-

der 129; Ray 183-84; Kenny 244-45; Mardick 322-23)

138. Battery companies are the principal source of raw

materials for secondary lead smelters, either through toll-

ing arrangements or outright sale of scrap and repurchase

of recycled lead. (Quenell 525-26)

139. One of the two largest domestic battery manufac-

turers, Globe-Union, Inc., derived its antimonial lead re-

quirements through tolling arrangements with various

secondary lead smelters. (Warrender 120, 122-23; Quenell

526) Under these tolling arrangements, Globe-Union fur-

nished junk batteries to selected secondary lead smelters,

paid these smelters a conversion fee to smelt and refine

antimonial lead to its specifications from the junk batteries

it delivered, and received back the lead values of its bat-

teries. At all times Globe-Union retained title to the lead

it furnished under the tolling arrangements. Globe-Union

37a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

delivered batteries to its customers in its trucks, picked up

used batteries traded in to those customers, dropped these

junk batteries off at the secondary smelters and picked up

antimonial lead from these smelters which it transported

to its battery manufacturing plants. (CX 25F; Warrender

120, 122-23)

140. Battery manufacturers other than Globe-Union have

also had tolling arrangements or similar types of arrange-

ments with secondary lead producers, including RSR. (CX

10B ; Kenny 254; Craig 426; Quenell 526; Bers 1287) Dur-

ing the first six months of 1972, 34 percent of RSR’s raw

materials were obtained on the basis of conversion (toll-

ing) arrangements. (CX 25F)

141. In contrast to its tolling arrangement with sec-

ondary producers for securing hard lead, Globe-Union pur-

chased its requirements for soft lead from primary pro-

ducers. (Warrender 129)

142. In 1972, and for many years prior thereto, two sec-

ondary lead smelters who processed TEL slag sold re-

fined soft lead to the TEL producers. (Bers 1230-35, 1241-

42, 1279)

143, Southern Lead (later Murph Metals) also sold

some secondary refined lead to TEL manufacturers at least

prior to 1962. (Cassara 1325-26)

144. Aside from purchases from those secondary lead

smelters who reprocessed their slag, U.S. TEL producers

38a

Imtial Decision of Montgomery K. Hyun,

Admuistrative Law Judge, April 20, 1976

in 1972 and previously purchased lead from primary pro-

ducers. (CX 25G; CX 26B; Craig 424, 440; Bers 1253,

1268) As the leading processor of THi stated: “If I

wanted to I couldn’t have supplied du Pont with their re-

quirements [for TEL] no matter what I did because their

requirements were so great. All I did was a service for

them by being able to convert the by-product back so that

they would not have t- ** >. ‘t away,....” (Bers 1269)

By 1975, RSR was supplying some secondary soft lead, not

made from reprocessed TEL slag, to TEL manufacturers.

(Lospinoso 716, 946; Bers 1279)

145. Sales by secondary smelters, other than to battery

companies or TEL producers, have consisted almost en-

tirely of alloyed lead, including antimonial lead, calcium

lead and lead-tin alloys. (Blair 31-32; Quenell 520, 577;

Lospinoso 753; Bers 1252-53) Such secondary lead was

used for products such as weights, primarily automotive

wheel weights, ammunition, tubes, dies, solders, and type

metal. (Blair 31; Mardick 277-78; Kenkel 362; Quenell 520;

Lospinoso 753; Bers 1252)

146. Except for soft lead sales to TEL producers (F.

142-144), very little or no secondary soft lead was sold

by secondary smelters in 1972 and the years prior thereto.

(Blair 32; Mardick 279; Kenkel 366; Craig 482; Quenell

505) Quemetco “very rarely” sold soft lead on the open

market. (Quenell 523) NL, the largest secondary lead

producer in the United States, did not and does not now

regularly sell secondary soft lead. (Mardick 279, 323)

However, NL plans to begin producing and selling secon-

39a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

dary soft lead in the future. (RX 142B; RX 144J; RX

145G) By 1975, RSR was selling significant quantities of

secondary soft lead. (Lospinoso 834-35)

147. Soft lead and alloyed lead are generally employed

for different end uses.

148. These different uses led the executive vice president

of NL, the leading producer of secondary lead, to consider

secondary and primary lead to be “essentially” separate

markets. (Craig 439-40)

149, The largest use of lead is in the manufacture of

batteries, accounting for 49 percent of 1972 cc.isumption.

(CX 19W; Table 15; Kenny 257). There are two basic uses

for lead in the manufacture of batteries, production of

oxide, the “active material” in the battery, and the produc-

tion of the structural members of the battery, i.e., the grids,

posts and connectors. (Answer to Third Request For Ad-

missions, Par. 4; Blair 15-16; Warrender 120-22; Ray 167,

170; Kenny 240-41) Use for battery oxide accounted for

26 percent of 1972 U.S. lead consumption; use for grids,

posts, etc., accounted for 23 percent of 1972 U.S. lead con-

sumption, (CX 19W, Table 13)

150. Soft lead is used in the manufacture of battery

oxide. (Answer to Third Request For Admissions, Par. 4;

Warrender 21; Ray 167-68, 170; Kenny 240; Prengaman

1007, 1106) Alloyed lead, specifically antimonial lead, can-

not be used to produce battery oxide, as oxide made there-

from will not perform satisfactorily, if it performs at all.

(Blair 36-39; Ray 170-71; Mardick 291; Prengaman 1106)

40a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

151. Alloyed lead in the form of hard lead is used by

battery manufacturers to produce grids, posts, straps and

connectors. (Answer to Third Request For Admissions,

Par. 4; Warrender 121-22; Ray 167-68; Kenny 240; Mar-

dick 277; Prengaman 1062) Soft lead could not practically

be used for the production of grids, posts, straps, and con-

nectors as such lead would be too soft. (Ray 171)

152. Another major use of lead is in the manufacture

of ammunition which accounted for 5.7 percent of 1972

U.S. lead consumption. (CX 19W, Table 13; Lospinoso

753) Ammunition is made almost entirely from alloyed

lead, specifically a low percentage antimonial alloy, some-

times containing arsenic. (Lospinoso 727, 738, 753; Pren-

gaman 1015)

a

153. Cable covering in 1972 accounted for 3.1 percent of

U.S. lead usage. (CX 19W, Table 13) Cable covering is

often made from alloyed lead, specifically antimonial or

calcium lead. (Lospinoso 753, 992; Prengaman 1022)

154. Weights and ballast in 1972 accounted for 1.4 per-

cent of U.S. lead usage. (CX 19W; Table 13) Such weights

are often made from alloyed lead, specifically a low per-

centage antimonial alloy. (Lospinoso 753; Prengaman 1046-

47)

155. Solder and terne metal in 1972 accounted for 4.8

percent of U.S. lead usage. (CX 19W, Table 13) Solder

is made from alloyed lead, usually containing tin, or

sometimes antimony. (Lospinoso 887, 889 ; Prergaman

1034; Bers 1293) Terne metal is a lead tin alloy with a tin

content of between 2 and 10 percent. (Prengaman 1033)

4la

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20; 1976

156. Bearing metals in 1972 accounted for 1.1 percent of

U.S. lead usage. (CX 19W, Table 13) Such products are

made from alloyed lead, mainly an alloy with antimony and

tin. (Prengaman 1018)

157. Collapsible tubes, casting metals and foil in 1972

accounted for 1.1 percent of U.S. lead usage. (CX 19W,

Table 13) These products are made from alloyed lead,

specifically antimonial lead. (Lospinoso 891, 896; Prenga-

man 1025-26)

158. Type metal in 1972 accounted for 1.3 percent of

U.S. lead usage. (CX 19W, Table 13) This product is

made from alloyed lead, usually containing 10 percent anti-

mony and 3 or 4 percent tin. (Lospinoso 898; Prengaman

1035)

159. Only soft lead is used to produce the following

products: gasoline antiknock compounds; brass and bronze;

caulking-lead; white lead; red lead and litharge; pigment

color; miscellaneous chemicals; annealing, and galvanizing.

(Prengaman 1014, 1020, 1024, 1037-38, 1041-44) Generally

soft lead is sold for pipe, lead plating, and for traps and

bends. (Prengaman 1028, 1045) Such uses of soft lead

plus battery oxide production accounted for 54.8 percent of

U.S. lead usage in 1972. (CX 19W, Table 13)

160. Primary and secondary lead are functionally inter-

changeable for most end uste~(Prengaman 1007-09, 1014-

15, 1018, 1022-23, 1025-27, 1029, 1030-31, 1037, 1041-46)

161. Primary and secondary pure lead are generally

competitive with one another for the same end uses. (Blair

42a

Initial Decision of Montgomery K. Hyun,

Admwnistrative Law Judge, April 20, 1976

83; Quenell 595; Ryan 687-88, 690; Cassara 1325-28, 1356-

57)

162. Pure lead is traded on the London Metal Exchange

(LME), the principal world market for lead trading.

(Threlkeld 1426) The minimum standard of purity for lead

deliverable on the LME is 99.97 percent. (RX 42A; RX

45A; Threlkeld 1445) Both primary lead and recycled

lead have met this standard. (Kenkel 386; Threlkeld 1446-

49; see also Ryan 690)

163. Primary and secondary alloyed lead, if made to

conform to the same specifications, can also both be used

for most end uses. (Kenkel 393, 399; Craig 422; Ryan 695;

Lospinoso 817-19)

164. Battery grids and posts constitute the largest end

use for alloyed lead. (RX 80; RX 81) Most grids and posts

have been made from secondary antimonial lead. (Warren-

der 122; Ray 167-68; Kenny 241-43) However, at least one

primary producer, ASARCO, has made and sold some anti-

monial lead for use in battery grids. (Lospinoso 817-19)

The primary producers compete to some extent with re-

cyclers in the production and sale of antimonial lead for

other end uses, (Kenkel 393, 399; Craig 422, 484; Ryan

694-95; Lospinoso 817-19; Bers 1255)

165. Some customers have historically preferred or

specified only primary lead for certain end uses, although

the incidence of this preference is declining due to improved

analytical techniques and resulting higher purity of re-

cycled soft lead. (Blair 86; Craig 425; Lospinoso 991) For

example, as of 1971 and 1972, some oxide producers pre-

43a

Initial Decision of Montgomery K. Hyun,

Admunistrative Law Judge, April 20, 1976

ferred to use primary lead in the manufacture of battery

oxide. (Biair 86; Warrender 148-49; Mardick 287; Quenell

991) On the other hand, ESB will not approve the use of

more than 25 percent primary lead in the production of

its requirements of antimonial lead. (Kenny 240-41)

166. At identical prices, some battery manufacturers

would always buy primary lead for use in making oxide.

(Mardick 287) Indeed, for many soft lead uses, if the

price of primary and secondary is identical, users will pur-

chase only primary lead. (Mardick 288-89)

167. However, some secondary soft lead is used in the

manufacture of battery oxides. (Ray 184, 206-07; Quenell

524; Lospinoso 747; Cassara 1327) Some secondary soft

lead is also currently used in the production of tetraethyl

lead (TEL). (Blair 81-82; Kenny 257; Quenell 594; Lospi-

noso 716, 816; Bers 1238-39, 1241-42; Cassara 1325-26)

168. For certain uses customers purchase only primary

lead, as secondary lead is not suitable for manufacture of

some products. (Blair 87; Kenny 247) For example, pri-

mary lead must be used in the manufacture of certain lead

chromate pigments and other lead chemicals, because the

presence of certain trace impurities in secondary lead would

adversely affect the quality of the product. (Blair 87; Bers

1257) NL’s paint, oxide, industrial and chemical division

refused a request by its secondary lead division to alter

specifications to permit the use of secondary as well as

primary lead. (Mardick 288-89)

169. Prices of secondary lead and primary lead are

not identical. (Mardick 287, 320-32)

44a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

170. Lead prices are published each week in an industry

publication known as Metals Week. This published price

is based on the prices of the primary lead producers. (Mar-

dick 321; Craig 481; Cassara 1420) There is no separate

published list price for secondary lead. (Craig 481; Cas-

sara 1420) The published price of lead is not necessarily

the price of secondary lead (Mardick 321), but the price of

secondary lead is related to the price of primary lead.

(Kenkel 370-72; Cassara 1420)

171. Both primary and secondary sellers discount from

published prices. (Mardick 325; Craig 470-7 1; Quenell 601;

Cassara 1348-49) However, secondary producers tend to

discount more than primary producers. (Mardick 325; Cas-

sara 1401)

172. Generally, under normal market conditions, secon-

dary soft lead will sell at a lower price than primary lead.

(Mardick 287, 325; Bers 1294) Such price differential

normally is around 10 percent. (Mardick 322)

173, An RSR internal analyses of lead markets at the

time of the acquisition states as follows:

Prices are set by reference to the daily quoted rate

for lead on the U.S. Producer Lead market (which, in

turn, reflects lead prices on the London Exchange),

with secondary (scrap recovery) suppliers usually

selling at a discount from the U.S. Producer Lead

Market price as a reflection of the lower costs typically

incurred in recovering lead from secondary sources as

distinct from the mining and processing of primary

lead. (CX 22B)

45a

Imitial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

174. Prices of both primary and secondary soft lead

vary over short periods of time. (Craig 469; Bers 1289-

91) In addition, the price differential between secondary

and primary lead fluctuates. (Mardick 287-88, 321; Bers

1289-91)

175. The secondary lead market is an appropriate prod-

uct market for the purposes of this proceeding.

V. The Relevant Geographic Market

176. The relevant geographic market for the purposes

of this proceeding is the United States as a whole.

A. The U.S. Lead Market

177. In 1972 and subsequently, there was a national

market for lead. (See Answer, as amended 7 /2/74, Par. 15)

178. The lead-producing mines in the United States are

concentrated in Missouri and the Rocky Mountain States.

(Blair 34; Trozzo 1530; RX 72) The major primary lead

producers—St. Joe, ASARCO, Bunker Hill and AMAX—

have located their smelters and refineries close to their

sources of raw materials. (Blair 34; Mardick 295-96 ;

Trozzo 1531-32; RX 74; RSR’s Answer to Third Request

For Admissions 30)

179. Because of economies of rail carload transportation

and favorable in-transit rates (F. 183, 184), the primary

producers can ship their lead on a regular basis to almost

any part of the United States by rail. (Craig 430, 466-61 ;

Lospinoso 846-47; Bers 1256, 1260, 1296-97; Cassara 1330-

34, 1367)

46a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

180. NL Industries, Inc. (“NL”), the largest producer

of secondary lead, also ships lead throughout the nation

from its plants dispersed in various areas of the nation.

(F. 186) NL and the four largest primary producers ac-

counted for 54.4 percent of 1972 shipments of lead in the

U.S. lead market. (CX 64A-C, in camera)

B. The Secondary Lead Market

181. Because of high truck transportation costs incurred

in bringing scrap in as well as in shipping lead out, lead

recycling is conducted essentially on a regional basis. The

capacity of a recycling facility is limited by the amount of

scrap it can regularly acquire within a few hundred miles

of its location. (Lospinoso 770-71, 845-46, 986-88; Bers

1244; Cassara 1327) Given this restriction on the output

of their facilities, and the cost of transportation incurred

in two directions, recyclers cannot profitably ship their lead,

on a regular basis, to customers located more than a few

hundred miles from their recycling plants. (Blair 79; Craig

467; Quenell 520-21, 579; Lospinoso 839, 845-56, 851-51A;

Bers 1253, 1256, 1292; Barber 2100-04, 2106-08, 2113, 2117-

19; Cassara 1229-31)

182. Since the primary lead producers are able to pro-

duce in large volumes at a single location, they are generally

able to ship most of their lead by rail in carload quantities.

(Lospinoso 846-47; Cassara 1359; Barger 2067, in camera,

2100, nm camera, 2199) Because of the limitations on a re-

cycler’s plant capacity and the need to collect scrap, re-

cyclers are dependent on truck transportation for most of

their shipments. (Lospinoso 770, 839-40; Bers 1300-01;

Cassara 1359; Barber 2100, in camera, 2185-86, 2200; Her-

= Rei eR ar Se NE RN ee

a area

47a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

ald 2381; RX 31, in camera) Secondary lead processors use

trucks both for shipping lead out of the plant and for sup-

plying lead scrap to the plant. Trucks are routed so that a

truck making a delivery to a customer can also carry lead

scrap on its return trip. (Barber 2108-09, 2200) For ex-

ample, RSR uses the backhaul method almost exclusively

to supply its plants. Its fleet of trucks deliver lead to cus-

tomers and then pick up lead scrap at a nearby scrap yard

for return to the plant. (Lospinoso 770-72) Recyclers do

not ship in sufficient time-unit quantities to make shipping

by rail a feasible alternative for the bulk of their shipments.

(Barber 2200)

183. The cost of shipping lead by rail in carload quanti-

ties is substantially less than the cost of shipping lead by

truck for any distance exceeding 500 miles. (RX 27; Los.

pinoso 845; Trozzo 1548; Barber 2105-06).

184. The primary lead producers are able to ship by rail

at rates even lower than the standard carload rates, because

they take advantage of special in-transit rates. (Cassara

1330; Barber 2183-85, 2193; see also Bers 1296-97) One such

rate, called “milling-in-transit”, provides the shipper’s cus-

tomers with considerable freight savings in the movement

of their lead products. (Cassara 1330-31) A Chicago oxide

producer, for example, can buy pure lead from a primary

producer in Missouri; the lead can be shipped from Mis-

souri to Chicago, converted into oxide, and then shipped

out to an oxide-consuming plant in Memphis, Tennessee.

(Cassara 1333) The only freight paid on the shipment from

Chicago to Memphis will be a very nominal payment repre-

senting the difference between a through rate and an inter-

mediate stop rate. (Cassara 1333-34) The freight from

EE oa

48a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

Chicago to Memphis would be far greater if the oxide pro-

ducer were to purchase the lead from a recycler in the

Chicago area; he would then have to pay the full going

rate on the subsequent shipment of oxide to Memphis.

(Cassara 1334)

185. With the aid of favorable rail carload and in-transit

rates, the primary producers can ship their lead on a reg-

ular basis to almost any part of the United States, (Craig

430, 466-67; Lospinoso 846-47; Bers 1256, 1260; Cassara

1330, 1367; Barber 2066-67, in camera; RX 31, in camera)

Because of their dependence on truck transportation, re-

cyclers are much more limited in their sales areas, and do

not ship their lead, on a regular basis, to customers located

more than a few hundred miles from their recycling plants.

(Craig 47-69; Queneli 509; Lospinoso 845-46, 851-51A; Bers

1256; Cassara 1329-31, 1357-59; Barber 2100-04, in camera,

2106-08, 2117-19; RX 29; RX 31, in camera; CXs 69-79, in

camera) The average length of haul for one of the smaller

primary producers in 1971 and 1972 was three times the

average length of haul for RSR and Quemetco in that

period. (Barber 2100-04, in camera; RX 31, in camera)

186. In 1971 and 1972, NL sold lead throughout the na-

tion from nine recycling plants located across the country.

(Mardick 271-72; Cassara 1366)

187. NL obtains “national” contracts with the major bat-

tery manufacturers. NL’s sales staff meets with the pur-

chasing agents of these manufacturers and negotiates sales

to all or most of their plants. (Bers 1261-62; Mardick 2317,

2328-31)

49a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

188. In 1971 and 1972, ASARCO’s Federated Metals

Division (Federated) had secondary lead smelting and re-

fining plants in New Jersey, Texas, Indiana and California

and a fabricating plant in New Jersey. It sold tin-lead

alloys, tin-lead-antimony alloys and fabricated products on

a national basis, but did not sell significant quantities of

antimonial lead to lead-acid battery manufacturers. (Ken-

kel 362-63, 378, 380)

189. Smaller secondary smelting operations, including

Quemetco and RSR, competed with NL and Federated for

sales within regional areas. (Ray 186-88; Mardick 278, 304,

2333-36; Kenkel 362-63; Quenell 530) Many battery manu-

facturers maintain more than one source of supply for lead

for each of their manufacturing plants, and smaller re-

cyclers can and do compete successfully with NL for con-

tracts for specific _ lant locations. (Ray 186, 188; Mardick

304, 2309-12, 2334-36; Cassara 1344, 1346, 1348) However,

only NL could serve all plant locations of multiplant bat-

tery manufacturers ; other recyclers would serve only plants

located in certain areas. (Cassara 1366-68)

190. In 1971 and 1972, Quemetco made most of its sales

of secondary lead in the seven states surrounding its three

plants.

191. In 1971, more than 59 percent of Quemetco’s total

shipments of recycled lead were made to customers within

the State of California; more than 75 percent were made

to customers within the Pacific Coast States of California,

50a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

Oregon and Washington.’ (RX 29B; see also Quenell 509,

520-21)

192. In the first 10 months of 1972, 58.9 percent of Que-

metco’s total shipments of recycled lead were made to

customers within the State of California; more than 80

percent were made to customers within the Pacific Coast

States of California, Oregon and Washington. (RX 29B;

see also Quenell 509, 520-21)

*RX 29B provides the following breakdown of Quemetco’s total

shipments of smelted and refined lead in 1971 and the first 10

months of 1972:

First

1971 % of 10 Mos. % of

State (Tons) Total 1972 (Tons) Total

California 23,705.7 59.17 21,267.4 58.95

Oregon 3,826.4 9.55 4,205.9 11.66

Washington 3,621.7 9.04 4,029.6 11.14

Indiana 5,388.1 13.45 3,975.1 11.02

Kentucky 1,233.3 3.08 903.4 2.50

Illinois 852.4 2.13 628.2 1.74

Ohio 348.0 0.87 624.7 1.73

Idaho 401.0 1.00 125.7 0.35

Towa — —_ 104.4 0.29

North Carolina 127.3 0.32 83.2 0.23

Michigan 315.5 0.79 79.8 0.22

Nevada — — 29.9 0.08

Pennsylvania 73.3 0.18 10.5 0.03

Arizona 0.3 0.00 0.5 0.00

New Mexico 0.3 0.00 0.5 0.00

Hawaii 41.7 0.10 _— _

Missouri 122.8 0.31 — —

Colorado 4.2 0.01 — —

Unknown — — 1.4 0.00

Mexico 4.8 0.01 17.0 0.05

Canada 1.5 0.00 _ does

Total 40,068.3 100.01 36,077.2 99.99

5la

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

193. In both 1971 and the first 10 months of 1972, more

than 80 percent of Quemetco’s total shipments of recycled

lead were made to customers within California, Washington

and Indiana, the three states in which Quemetco’s plants

were located. (RX 29B) According to Mr. Quenell: “Our

actual deliveries of products were made in the midwest and

on the Pacific coast. Only rarely would we deliver outside

of those areas, and that would be upon request, if they had

some difficulty.” (Quenell 521; see also Quenell 509, 520-21)

194. In both 1971 and the first 10 months of 1972, more

than 99 percent of Quemetco’s total shipments of recycled

lead were made to customers within 11 states, the 3 in which

its plants were located (California, Washington and Indi-

ana) and 8 others immediately adjacent to those 3 ( Oregon,

Kentucky, Illinois, Ohio, Idaho, Michigan, Nevada and Ari-

zona). RX 29B, G, H; see also Quenell 580-82)

195. In 1971, Quemetco shipped recycled lead to custom-

ers within a total of 16 states; of those 16, only 7 (Cali-

fornia, Oregon, Washington, Indiana, Kentucky, Illinois

and Idaho) received as much as 1 percent of Quemetco’s

total shipments that year. (RX 29B, G; see Hatten 1148-

49) In the first 10 months of 1972, Quemetco shipped re-

cycled lead to customers within a total of 15 states; of those

15, only 7 (California, Oregon, Washington, Indiana, Ken-

tucky, Illinois and Ohio) received as much as 1 percent of

Quemetco’s total shipments in that period. (RX 29B, H;

see also Hatten 1149-50; Quenell 580-81)

196. Quemetco’s salesmen were instructed that the com-

pany’s sales policy was to solicit sales where they would

52a

Initial Decision of Montgomery K. Hyun,

‘Admunistrative Law Judge, April 20, 1976

yield the most profit. Because of the high cost of shipping

lead, this policy generally resulted in soliciting prospective

customers located as near as possible to each of Quemetco’s

plants, except where competitive sales practices permitted

freight to be charged to the customer. (Mardick 313; Ken-

kel 384; Quenell 520-21, 581; see Hatten 1166; Bers 1256;

Cassara 1329-30)

197. Consistent with that policy, Quemetco did not solicit

sales of recycled lead for shipment to customers located in

the Middle Atlantic, Southeastern and South Central areas

of the country, solicited sales in New England only for the

prospective output of the Wallkill plant, and seldom actu-

ally shipped lead to those areas, in 1971 and the first 10

months of 1972. (Quenell 581-85)

198. Consumers of lead are dispersed throughout the

United States. There were 45 states in which lead was

consumed in 1971 and 1972. (CX 16K, Table 15; CX 19X,

Table 16.)* Quemetco’s shipments were limited to 16 states,

58a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

or only one more than a third of the states in which lead

was consumed, in 1971. Quemetco’s shipments were limited

to 15 states, or exactly one-third of the states in which

lead was consumed, in the first 10 months of 1972. Quemet-

co’s shipments in significant quantities (1 percent or more

of its total shipments) were limited to seven states, or less

than one-sixth of the states in which lead was consumed, in

both 1971 and the first 10 months of 1972. (F. 195)

199. RSR’s shipments of lead were also largely concen-

trated in the states surrounding its plants. In 1971, 41.8

* CX 16K, Table 15, and CX 19X, Table 16, provide the follow-

ing breakdown of total U.S. lead consumption, in short tons, in 1971

and 1972:

% of % of

State 1971 Total 1972 Total

California 128,062 8.95 137,018 9.23

Colorado 4,113 0.29 4,452 0.30

Connecticut 26,942 1.88 22,001 1.48

District of Columbia ' 2 0.01 114 0.01

Florida 11,190 0.78 14;853 1.00

Georgia 71,878 5.02 76,672 5.16

Illinois 155,265 10.85 154,594 10.41

Indiana 136,885 9.56 150,803 10.15

Kansas 24,142 1.69 21,402 1.44

Kentucky 20,311 1.42 18,416 1.24

% of % of

State 1971 Total 1972 Total

Maryland 22,797 1.59 15,416 1.04

Massachusetts 3,278 0.23 3,321 0.22

Michigan 37,055 2.59 35,643 2.40

Missouri 45,934 3.21 44.456 2.99

Nebraska 8,253 0.58 6,629 0.45

New Jersey 155,216 10.84 162,773 10.96

New York 57,098 3.99 57,536 3.87

Ohio 18,761 1.31 26,062 1.75

Pennsylvania 120,842 8.44 109,528 7.37

Rhode Island 1,545 0.11 2,048 0.14

Tennessee 16,567 1.16 25,771 1.74

Virginia 4,187 0.29 4,253 0.29

Washington 13,870 0.97 16,157 1.09

West Virginia 20,963 1.46 17,879 1.20

Wisconsin 12,675 0.89 13,967 0.94

Alabama and Mississippi 7,538 0.53 10,813 0.73

Arkansas and Oklahoma 8,701 0.61 9,143 0.62

Hawaii and Oregon 6,950 0.49 12,905 0.87

Iowa and Minnesota 16,547 1.16 21,057 1.42

Louisiana and Texas 244,267 17.06 252,269 16.98

Montana and Idaho 692 0.05 697 0.05

New Hampshire, Maine,

Vermont, Delaware 19,831 1.39 25,647 1.73

North and South Carolina 8,996 0.63 10,924 0.74

Utah, Nevada, Arizona 34 - «0.00 35 0.00

Total 1,431,514 100.08 1,485,254 100.01

54a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

percent of RSR’s total lead shipments were made to cus-

tomers within the State of Texas; approximately 52 percent

were made to customers within the three Southwestern

States of Texas, Oklahoma and Louisiana. (RX 29C; Hat-

ten 1145-46).”

200. In the first 10 months of 1972, approximately 37

percent of RSR’s total lead shipments were made to cus-

tomers within the State of Texas; 44 percent were made

to customers within the three Southwestern States of

7 RX 29C provides the following breakdown of RSR’s total lead

shipments in 1971 and the first 10 months of 1972:

First 10

1971 % of Mos. 1972 % of

State (Tons) Total (Tons) Total

Texas 31,469.2 41.80 27,614.1 37.02

Pennsylvania 2,177.6 2.89 10,151.2 13.61

Indiana 6,279.7 8.34 6,809.6 9.13

Maryland 12,979.0 17.24 4,717.8 6.33

New York 3,475.9 4.62 3,714.7 4.98

Oklahoma 3,780.4 5.02 3,591.9 4.82

Illinois 93.4 0.12 3,208.4 4.30

Missouri 1,005.0 1.33 2,990.2 4.01

New Jersey 3,010.3 4.00 2,422.2 3.25

Kansas 2,975.0 3.95 2,358.4 3.16

Connecticut 1,201.5 1.60 2,339.2 3.14

Louisiana 4,094.2 5.44 1,792.9 2.40 .

Georgia 1,040.9 1.38 1,554.5 2.08

Arkansas 427.1 0.57

Arizona 23.7 0.03 266.9 0.36

Iowa 861.2 1.14 138.3 0.19

Tennessee 93.0 0.12 135.8 0.18

Massachusetts 93.9 0.12 100.7 0.14

Rhode Island 131.8 0.18 100.5 0.13

Michigan 499.1 0.66 3

Ohio 7.6 0.01

Puerto Rico 149.1 0.20

Total 75,292.4 — 99.99 74,583.5 100.00

55a

Initial Decision of Montgomery K. Hyun,

Admunistrative Law Judge, April 20, 1976

Texas, Oklahoma and Louisiana. (RX 29C; Hatten 1145-

46)

201. In 1971, approximately 30 percent of RSR’s total

lead shipments were made to customers within the seven

Northeastern States of New York, New Jersey, Pennsyl-

vania, Maryland, Connecticut, Massachusetts and Rhode

Island. (RX 29C, I) In the first 10 months of 1972, ap-

proximately 31 percent of RSR’s lead shipments were made

to customers within those same seven states. (RX 29C, J)

202. Thus, in 1971, about 82 percent of RSR’s lead ship-

ments were made to customers within the 10 states sur-

rounding its two plants; in the first 10 months of 1972,

about 75 percent of its shipments were made to customers

within those states. (F. 199-201)

203. In 1971, approximately 18 percent of RSR’s lead

shipments were made to states other than those identified

above; in the first 10 months of 1972, approximately 24

percent of its shipments were made to states other than

those identified above. (RX 290, I, J) The state receiving

by far the greatest portion of these relatively long distance

shipments in both 1971 and 1972 was Indiana, a state then

experiencing extremely rapid growth in lead demand and

consumption. (CX 16K, Table 15; CX 19X, Table 16; Bar-

ber 2132-33)

204. RSR made no shipments to California, Oregon or

Washington in 1971 or the first 10 months of 1972, (RX

29C)

205. RSR’s policy is, and was in 1971 and 1972, to ship

its lead to customers as close to its plants as possible.

56a

Initial Decision of Montgomery K. Hyun,

Admunistrative Law Judge, April 20, 1976

(Hatten 1165-66) Most of RSR’s shipments are made with-

in 450 miles or less of its plants. (Lospinoso 776-77; RX

115B)

206. In 1971, there were only seven states that received

lead shipments from both RSR and Quemetco. Of those

seven, only one (Indiana) received as much as 1 percent

of each company’s total shipments of lead in that year.

(RX 29D, K)

207. In the first 10 months of 1972, there were only five

states that received lead shipments from both RSR and

Quemetco. Of these five, only two—Indiana and Illinois—

received as much as 1 percent of each company’s total ship-

ments of lead in that period. (RX 29D, L)

208. In some circumstances, in order to accommodate

customer requests or emergencies, secondary smelters will

ship recycled lead long distances ranging over 1,000 miles.

(CX 69A-E-79A-E, in camera; Mardick 311; Quenell 522,

533-34, 593-94; Lospinoso 777-78; Bers 1274-75) The

normal distance shipped by secondary producers depends

on their profit margin, with a larger margin enabling ship-

ments to be made to more distant customers. (Craig 439,

464-65; Quenell 534)

209. Schuylkill Products ships some 60 percent-antimo-

nial lead throughout the United States from its plant in

Louisiana. It is purchased primarily by other secondary

smelters who use it to raise the antimony content of their

tead. (Bers 1274-75) |

57a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

210. ESR purchased secondary lead for its Puerto Rico

plant from NL’s and RSR’s New Jersey smelters. (Kenny

246-47) Furthermore, ESR shipped back to these New

Jersey smelters its scrap batteries from Puerto Rico.

(Kenny 247) An Atlanta secondary lead smelter, Seitz-

inger, shipped some lead into New England. (Mardick

311) Quemetco shipped secondary lead from Seattle to

Los Angeles. (Quenell 594) Schuylkill obtains TEL slag

from Wilmington, Delaware, ships it to Baton Rouge,

Louisiana, smelts and refines the lead and ships some of

the lead back to Wilmington. (Bers 1279-80)

211. Another factor determining the distance secondary

lead is shipped is the advantage to be gained by assuring

an emergency supply to distant plans of a customer who

purchases for his closer locations. (Cassara 1370-71) As

stated by Mr. Quenell:

Consequently when approaching a National [sic] com-

pany with plants in other parts of the country where

we did not have manufacturing plants we found it

necessary to assure them that in the event they were

deprived of supply that we would undertake to supply

them regardless of their location. (Quenell 522)

The witness added, however, “Fortunately, we were never

called on to do very much of that.” (Id.)

212. RSR made shipments from its Dallas facility to

customers located closer to its Newark facility because,

“they [Dallas] were filling in what the Newark smelter

could not fill.” (Hatten 1201) Fer example, RSR generally

sold lead to Nassau Smelting in New York from its Newark

58a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

smelter but, because it could only make calcium lead at

Dallas, RSR shipped the calcium lead desired by Nassau

Smelting from Dallas. (Hatten 1205-06) High antimonial

lead was also shipped to Delco’s New Brunswick, New

Jersey battery plant from RSR’s Dallas plant because its

Newark plant could not make such lead. (Hatten 1204-05)

213. A further factor determining the distance a secon-

dary lead smelter is willing to ship is the presence of

excess capacity. (Quenell 534; Bers 1306) A secondary

lead smelter with excess capacity “can afford to ship a

greater distance rather than to shut down his plant be-

cause the extra sales absorb part of his overhead.” (Que-

nell 534)

214, Generally, a larger secondary plant such as RSR’s

Dallas plant can ship longer distances because of its econo-

mies of scale in production. (Craig 439) RSR’s Dallas

smelter could and did ship to New York, New J ersey and

into the Midwestern states in which Quemetco’s Indian-

apolis plant made shipments. (CX 75A-B, in camera;

Craig 439; Quenell 533; Lospinoso 778; Hatten 1199, 1201,

1203-05) In 1972, RSR was “shipping about 18,000 tons

per year of lead into the Midwest in order to maintain a

market position.” (CX 221) About 13.4 percent of RSR’s

lead shipments from the Dallas plant in the first 10 months

of 1972 went to the States of Indiana and Illinois, a dis-

tance of about 850 miles from Dallas.

215. Long distance shipments are not a regular prac-

tice for secondary smelters; most of their sales are made

to customers located within a few hundred miles of their

59a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

plants. (Mardick 313; Craig 467-69, Quenell 546; Lospi-

noso 839, 851-E* A; Bers 1253, 1256; Cassara 1258-59, 1329-

31; F. 181, 185)

216. One witness noted the general rule for determining

the distance a firm ships recycled lead as follows:

[There is a rule of thumb the more you can sell close

to you, the better off you are if those customers will

keep buying from you over a period of time. So you

have a nexus, a center of your business and stretch out

when yeu have to and contract when you can. (Craig

466; see Quenell 581, 593-94)

217. The average length of haul for all Quemetco ship-

ments in 1971 and the first 10 months of 1972 was less than

[see In Camera Findings] miles. (RX 31, in camera; CXs

69-71, im camera; Barber 2087, 2103-04, in camera) The

average shipments of Quemetco’s Seattle, Indianapolis and

City of Industry plants were [see In Camera Findings]

miles, respectively, in 1971 and [see In Camera Findings]

miles, respectively, for the first 10 months of 1972. (Id.)

218. The average length of haul for all of RSR’s ship-

ments was less than [see In Camera Findings] miles in

1971 and less than [see In Camera Findings] miles in the

first 10 months of 1972. (RX 31, in camera; CXs 75-77, 79,

im camera; Barber 2087, 2103-04, in camera) The average

distance of RSR shipments from its Dallas plant was [see

In Camera Findings] miles in 1971 and [see In Camera

Findings] miles in the first 10 months of 1972; the average

distance of shipments from its Newark plant was [see In

Camera Findings] miles in 1971 and [see In Camera Find-

ings] miles in the first 10 months of 1972. (Id.)

- PPE PEE EEE

60a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

219. The nation’s largest manufacturers of lead-acid

storage batteries, Delco-Remy, ESB, Globe Union, Gould,

Prestolite, and General Battery Corporation (Ray 164-65),

manufacture batteries, and thus consume lead, at plants

dispersed throughout the United States. (RX 33A-B; RX

34; RX 1448, U, W, Z-1, Z-3, Z-5; RX 145) The battery in-

dustry accounted for about 50 percent of total U.S. lead

consumption in 1971 and 1972, (RXs 80-81; RX 145D)

220. In 1972, there were no manufacturers of lead-acid

storage batteries located in the States of Idaho, Montana,

Wyoming, North Dakota, South Dakota, N evada, Utah,

New Hampshire or Alaska. (CX 21C-G, in camera; Quenell

_ 931-32) Only to a limited extent were batteries manufac-

tured or assembled in the States of Alaska, New York,

Maryland, Arizona, New Mexico, Rhode Island, Maine,

Massachusetts, West Virginia, Hawaii and Nebraska. (CX

21C0-G, im camera; Quenell 531-33)

_ 221. The six largest U.S. battery companies relied on at

least two secondary lead producers as suppliers, including

both single plant and multiplant firms, with no single sup-

plier serving all locations. (Warrender 123-24; Ray 185-88;

Kenny 242-43; Cassara 1344, 1383; Mardick 2333-35, 2341)

Many of such companies as a matter of purchasing policy

sought to have multiple sources of supply of secondary

lead. (Ray 185-86; Kenny 243; Cassara 1346, 1348, 1409-10;

Mardick 2327)

222. In 1972, both RSR and Quemetco made substantial

sales to the major battery manufacturers. (CX 64F-H, in

camera; CX 65D-E, G, K-L, in camera) However, neither

6la

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

company sold to all plant locations in the United S{ites.

(Cassara 1366-67)

223. [See In Camera Findings]

224. [See In Camera Findings]

225. In 1971 and 1972, only five battery plants received

lead shipments from both RSR and Quemetco, (RX 29E)

226. In 1972, Quemetco made sales from existing plants

or expected to make sales from its Wallkill plant in states

whose lead consumption represented 70 percent of total

U.S. consumption. (CX 19X, Table 16; CX 69A-B, in

camera; CX 70A-B, in camera; CX 714A, in camera) In

1972, RSR made sales in states whose lead consumption

represented 80 percent of total U.S. consumption. (CX

19X, Table 16; CX 75A-B, in camera; CX 76A, in camera)

227. Within 300 miles of Quemeteco’s four plants, includ-

ing Wallkill, lie 22 states which represented 78 percent of

total U.S. lead consumption in 1972. (CX 19X, Table 16)

Within 800 miles of RSR’s plants, the approximate distance

to which it shipped 13.4 percent of the Dallas smelter’s pro-

duction in the first 10 months of 1972, lie states which ac-

counted for 87.5 percent of total U.S. lead consumption in

1972. (CX 19X, Table 16)

228. The record does not show the geographic distribu-

tion of secondary lead consumption.

229. There is one national published price for lead, but

that price does not necessarily reflect the actual price of

secondary pure or antimonial lead in a specific locality.

62a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

(Cassara 1416-17) The record does not show that prices

for recycled lead are uniform throughout the nation. It

appears rather that prices reflect regional variation, but

that prices in adjoining regions affect one another.. (Bers

1361; Cassara 1419) A high demand area, for example,

will attract lead shipments from adjoining areas if the price

rises high enough to compensate more distant producers for

additional freight charges. (Bers 1303-04)

230. The price of lead scrap and scrap batteries varies

in different sections of the country and smelters compete

for scrap on a regional basis. There is no uniform national

price for scrap. (Mardick 1305) Recyclers compete with

one another within an area of 200 to 300 miles from their

plants. (Bers 1245) Price levels for lead scrap in one area

may affect prices in another area, but recyclers rarely go

beyond their surrounding area to purchase scrap. (Bers

1246, 1303)

231. Prior to the acquisition, Quemetco had begun con-

struction of two new secondary smelting and refining

plants, one to replace its existing plant in Indianapolis and

a new facility in Wallkill, New York intended to serve cus-

tomers within a radius of 250 to 300 miles. (F. 25, 26;

Quenell 546) At the time of acquisition, neither plant was

completed, but both were about to begin production. (F. 26;

Blair 61-62) The plants were part of a program to expand

the geographic base of Quemetco’s manufacturing facilities,

(Quenell 498, 537)

232. RSR was also considering expansion of its recy-

cling operations. The company stated that a portion of the

proceeds of a stock offering might be used as follows:

63a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

The balance may be used to pay for feasibility

studies and applied toward acquisition or construction

costs of a third plant at a location not yet selected and,

to the extent not so used, will be added to the Com-

pany’s working capital. However, there is no assur-

ance that feasibility studies will justify the acquisition

or construction of an additional plant. (CX 25D)

233. RSR had considered construction of a battery

wrecking facility, a secondary lead refinery or a secondary

lead smelter in the Midwest. (Hatten 1198-99)

234. In July of 1972, RSR conducted a “Plant Site Sur-

vey Analysis” for a Midwestern location. (CX 21A-U, in

camera) This study included a consideration of the cost of

constructing a battery wrecker and refinery. (CX 21L-M,

im camera) Included in a study was a listing of the locations

of secondary lead smelters throughout the United States.

(CX 21B, in camera) The preliminary findings of the study

indicated that a facility in the location considered would be

unprofitable. (Hatten 1198) After the acquisition of Que-

metco, RSR ceased further consideration of the Midwestern

facility. (Hatten 1224-25)

235. RSR acquired Quemetco because it wanted to be-

come a significant competitor in the lead industry over a

broader geographic area. (Craig 437) The acquisition of

Quemetco provided RSR with the multiplant network

needed to compete for national sales contracts with pri-

mary producers and with NL, the largest supplier of sec-

ondary lead. RSR can now ship recycled lead throughout

most of the nation. (Bers 1264-66; Cassara 1366-68 ; Barber

2138)

64a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

VI. Structure of the Industry

A. Sources of Lead

236. Lead sold in the United States comes from the fol-

lowing sources: primary smelters, secondary smelters, im-

ports of primary lead and drawdowns of the government

stockpile (GSA stockpile). (CX 25E; Craig 426-27, 431-32)

237. The disposal of the lead contained in the GSA stock-

pile has been made through releases to the primary lead

producers, with the one-time exception in 1974 of a release

made to lead users as well as to the primary producers,

(Blair 59; see Craig 432)

238. In 1970, only 12,117 tons of lead were released

from the GSA stockpile while in 1971, that figure decreased

to 10,010 tons. (Fifth Request For Admissions and An-

swer, Pars. 10-12)

239. Currently there is a little over 70,000 tons of lead

available that could be released from the GSA stockpile.

(Craig 432)

240. The GSA stockpile contains 460,000 tons of lead

that is not authorized for sales. (Craig 432) Oongres-

sional action would be required before such lead could be

sold. (Craig 432) It does not appear that release of that

lead is imminent. (Craig 432)

241. Lead is a commodity which moves freely in inter-

national trade, In 1969, a year respondent’s witness stated

was representative in terms of lead demand, about one mil-

lion tons of lead were exported from one country to an-

65a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

other. That amount represented nearly 30 percent of total

world consumption of lead in that year. (RX 91; Trozzo

1569, 1576; see also Threlkeld 1450-52)

242. The United States is a net importer of lead. (Com-

pare RX 91 with RX 85 and RX 90.) Imports of lead pigs

and bars into the United States have been in excess of

200,000 tons in every year but three since 1960, and ranged

as high as 363,594 tons in 1967. However, imports of these

products in the years 1971 through 1974 were only 195,587,

242,390, 178,096 and 118,359 short tons, respectively. (RX

85) The United States has also been a major importer of

lead ores, concentrates and mattes; the import volume of

these lead-bearing materials, in terms of lead content, has

been between 66,000 and 148,000 tons every year since 1960.

However, imports. of these products in the years 1971

through 1974 were 65,998, 101,514, 102,483 and 94,406 short

tons, respectively. (RX 90) ©

243, From 1971 through 1975, only small quantities of

secondary lead were imported into the United States.

(Blair 54; Warrender 128; Ray 184; Kenny 247 ; Mardick

301-02; Kenkel 373-74; Quenell 547-58)

244. The price barometer for the international lead

trade is the going price for lead on the London Metal

Exchange, (Threlkeld 1451-52; see also Craig 469) The

U.S. price of soft lead is distinct from the international

price. (CX 19C Table 1; Craig 480-81; Quenell 599; Cas-

sara 1412-13) But while the U.S. price and the LME price

are not identical, and are arrived at through different

processes (Kenkel 392; Cassara 1412-13), the U.S. price

‘

66a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

and the LME price tend to rise and fall along generally

similar patterns. (Warrender 149; Kenkel 392; Threlkeld

1451-52; Trozzo 1786-87 ; see also Cassara 1339, 1374; Craig

469; RX 94) |

B. The U.S. Lead Market

1. Market Universe and Shares

245. The sum of production, importation and draw-

downs from the GSA stockpile of smelted and refined lead

in the United States was 1,550,000 short tons in 1971 and

1,700,000 short tons in 1972. (CX 64A, in camera)

246. In 1971, the year prior to the acquisition, RSR ac-

counted for [see In Camera Findings] percent and Quem-

etco accounted for [see In Camera Findings] percent of

shipments in the U.S. lead market. (CX 64A-C, in camera)

247. For the year 1972, RSR, excluding the acquired

Quemetco plants, accounted for [see In Camera Findings]

percent and Quemetco accounted for [see In Camera Find-

ings] percent of shipments in the U.S. lead market. (CX

64A-C, in camera)

248. For the year 1972, on a pro forma basis, RSR and

Quemetco combined accounted for [see In Camera Find-

ings] percent of overall lead shipments. (CX 64A-C, in

camera)

249. These market shares are understated to the extent

that the production capacity of the new Wallkill and Indi-

anapolis smelters are not included in the data. (See F. 259,

260)

67a

Initial Decision of Montgomery K. Hyun,

Admunistrative Law Judge, April 20, 1976

2. Market Concentration®

250. In 197), the year prior to the acquisition, the top

four firms in the overall U.S. lead market accounted for

03.84 percent and the top eight firms accounted for 70.39

percent of total lead shipments. (CX 64A-O, in camera)

251. Concentration decreased slightly in 1972, without

regard to the acquisition, with the top four firms account-

ing for 50.22 percent and the top eight firms accounting for

68.56 percent of that year’s total shipments of lead in the

U.S. lead market. (CX 64A-C, in camera)

252. For 1972, taken on a pro forma basis to account

for the acquisition of Quemetco, concentration in the U.S.

lead market remained 68.56 percent for the top eight firms

and decreased to 47.65 percent for the top four firms. (CX

64A-C, im camera)

253. The three largest producers of smelted and refined

lead in 1971 and 1972—NL, ASARCO and St. J oe—pro-

duced comparable amounts of smelted and refined lead in

those years. The fourth and fifth largest producers of

smelted and refined lead in 1971 and 1972—AMAX and

Bunker Hill—produced comparable amounts of smelted

and refined lead in those years, and the amounts they pro-

duced were about two-thirds the amounts that were pro-

duced by the three largest producers in those years.

(Trozzo 1748; CX 64A-C, in camera)

* The sales of Federated Metals Division have been included in

the market share of ASARCO, and Quemetco’s saies have been in-

cluded in the market share of St. Joe, its parent company.

68a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

254. RSR was the sixth largest producer of smelted and

refined lead in 1971 and 1972. It produced less than half

the amount produced by the fifth largest producer in 1971;

about 40 percent less than the amount produced by the fifth

largest producer in 1972; and about one-third the amount

produced by each of the three largest producers in each

of those years. (CX 64A-C; in camera)

C. The Secondary Lead Market

1. Market Universe and Shares

299. The total shipments of smelted and refined lead

derived from scrap materials in the United States was

596,797 short tons in 1971 and 616,597 short tons in 1972,

(CX 64A, im camera)

256. In 1971, RSR accounted for [see In Camera Find-

ings] percent and Quemetco accounted for [see In Camera

Findings] percent of U.S. secondary lead shipments, (CX

64A-C, in camera)

257. In 1972, RSR, excluding the acquired Quemetco

plants, accounted for [see In Camera Findings] percent

and Quemetco for [see In Camera Findings] percent of

total yearly secondary lead shipments, (CX 64A-C, in

camera)

258. In 1972, on a pro forma basis, RSR and Quemetco

combined accounted for [see In Camera Findings] percent

of the total secondary lead shipments for that year. (OX

64A-C, in camera)

259. Included in RSR’s acquisition of Quemetco were two

secondary lead smelters in Indianapolis, Indiana and Wall-

69a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

kill, New York which were nearing completion at the time of

acquisition. Because these facilities were not completed

until late in 1972, the production capacity and market con-

trol which they gave to RSR are not reflected in the 1972

data. (F. 25-26)

260. The new Wallkill and Indianapolis smelters were

both designed to produce between 30,000-36,000 tons of lead

per year. While the Indianapolis facility was constructed

to replace an existing Quemetco smelter, it (the new smel-

ter) was designed to have a greater productive capacity for

secondary lead. (CX 22H; F. 25-26)

261. In 1971 and 1972, RSR was the nation’s second

largest producer of secondary lead. It produced about one-

fourth the amount produced by NL, the largest producer of

secondary lead, in 1971, and about one-third the amount

produced by NL in 1972. (CX 64, in camera)

262. In 1972, RSR and Quemetco combined produced

about 53 percent of the amount of secondary lead produced

in that year by NL. (CX 64, in camera)

2. Market Concentration

263. In 1971, the year prior to Quemetco’s acquisition by

RSR, the secondary lead market was very highly concen-

trated, with the top four firms accounting for 64.43 percent

and the top eight firms accounting for 79.81 percent of total

shipments. (CX 64A-C, in camera) |

264. By 1972, the year of the acquisition, that already

high concentration had increased, prior to the acquisition,

| ee

70a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

to 65.40 percent for the top four firms and 81.41 percent for

the top eight firms. (CX 64A-C, in camera)

265. As a result of the combination of RSR and Que-

metco, the 1972 concentration ratios jumped to 72.41 per-

cent pro forma for the top four firms and 83.77 percent pro

forma for the top eight firms, (CX 64A-C, in camera)

266. Concentration in the production and sale of second-

ary lead has been increased through mergers and acquisi-

tions. ‘Ve

267. RSR’s present market position was largely

achieved through acquisitions. In 1971, RSR acquired

Murph Metals, a much larger secondary lead smelter. (CX

25E) RSR’s principal enhancement of its market position

occurred in 1972 with its acquisition of Quemetco’s four

secondary smelters, including one about to begin operation.

268. Prior to its acquisition by RSR, Quemetco itself had

grown due in part to acquisition. In 1969, Quemetco ac-

quired the Pacific Division of Bunker Hill Company, con-

sisting of a secondary lead smelting operation and oxide

manufacturing facilities located at Seattle, Washington.

(CX 15; Blair 19-20) ,

269. Likewise, NL, the largest supplier of secondary

lead, has enhanced its position in the market through ac-

quisitions. (Answer To Third Request For Admissions,

Par. 23) NL acquired a secondary lead smelter in Detroit

from Prestolite. (F.281) NL also has acquired Continental

Smelting Company and Goldsmith, two formerly indepen-

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

dent secondary lead smelters with plants located in

Chicago. (Quenell 650-61)

D. Market Entrants and Exits

270. The record does not reflect the total number of sec-

ondary smelters existing in the United States. An employee

of the United States Bureau of Mines estimated that there

are about 100 secondary smelting plants in the United

States, many under common ownership. (Ryan 636-38)

Fifteen companies owning 41 plants comprise about 93

percent of the total production of secondary lead reported

to the Bureau of Mines. (Ryan 638-39)

271. Several companies have begun to smelt and refine

secondary lead in the United States in the past several

years. East Penn Manufacturing Company entered by

building a smelter and refinery in Lyon Station, Pennsyl-

vania, in 1971. (Ray 221; Kenny 261; Mardick 314-15;

Quenell 555) Tonolli Co., a Canadian company, entered by

building a smelting and refining facility in Scranton, Penn-

sylvania, in 1975. (Kenny 262; Mardick 310) Conrex en-

tered by building a smelter and refinery in Georgia in 1971.

(Ray 219; Mardick 31<) In addition, firms already engaged

in primary and secondary lead production have built new

plants to expand their operations. Interstate Smelting ex-

panded by building another facility in Pedricktown, New

Jersey, in 1973. (Kenny 262) Conrex expanded by building

another facility in Mississippi in 1973. (Ray 219-26; Mar-

dick 314) Gould expanded by building another facility in

Farmer’s Branch, Texas, in the early 1970’s. (Ray 221;

Kenny 261; Mardick 315; Kenkel 396; Quenell 555) General

FO ee Or OR

Le nem

72a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

Battery built a new facility in Reading, Pennsylvania, in

1973. (Warrender 152; Ray 220; Kenny 261; Kenkel 395;

Quenell 553) St. Joe doubled the capacity of its Hercu-

laneum plant in approximately 1969. (Craig 414) NL In-

dustries recently announced plans to double its capacity by

1980 and to triple it by 1988, a plan involving construction

of six new plants and the modernization and expausion of

three others. (RX 145-50)

272. A number of firms have also exited from the USS.

lead market. The record does not reflect the relative im-

pacts on competition in the lead industry of these entrances

and exits. U.S. lead consumption has grown at a low rate

over the past several years; the compounded rate of growth

has been about one percent per year since 1950. (Trozzo

1645; RX 80)

273. Anaconda recently exited from the primary lead

business, (Craig 427-28)

274. Major battery producers have accounted for many

exits from the U.S. secondary lead market.

275. In 1964, Globe-Union formed a joint venture with

Quemetco (then Western Lead Products Co.) to engage in

the production of secondary lead and lead oxide at Indian-

apolis, Indiana. (CX 23A; Warrender 130-31 ; Quenell 497)

276. Globe-Union reasoned that entry into secondary

lead smelting was “the next logical step”, as it already was

into the oxide business to a limited degree. (Warrender

131) Globe-Union “didn’t have the courage” to enter into

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

the secondary lead smelting alone, so they went in with per-

sons who had the know-how to design and operate a smelter.

(Warrender 131) Throughout the history of this joint

venture, Quemetco managed the smelter. (CX 23D; War-

render 131-32; Quenell 519-20)

277. In 1967, Globe-Union sold its interest in the second-

ary lead joint venture to Quemetco, because the joint ven-

ture was unprofitable. (CX 23B-D; Warrender 132; Quenell

497-98)

278. Prestolite Division of Eltra Corporation, a major

battery producer (hereinafter “Prestolite”’), entered into

secondary lead smelting in 1961 through the acquisition of a

small independent secondary lead smelter located in De-

troit, Michigan. (Ray 164-65, 196, 219)

279. Prestolite purchased this secondary lead smelter

because :

I had heard opinions it was beneficial for a battery

manufacturer to purchase that type of integration and

I had heard opinion that it was not and I felt that some

way we had to find out whether this was or was not

beneficial.

The Detroit smelter offered us an opportunity to do

that.... (Ray 198)

280. Prestolite shipped the secondary antimonial lead,

the sole product made at its smelter, to Ford Motor Com-

pany’s Owosso, Michigan battery plant, and some to-its own

Niagara Falls, New York and Vincennes, Indiana plants.

(Ray 197-98)

e

74a

Imtial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

281. In October 1964, Prestolite sold its secondary lead

smelter to NL. (Ray 196, 198, 203, 219; Mardick 316) Sub-

sequently NL closed this smelter. (Ray 219; Mardick 316)

282. Prestolite’s reasons for the sale of its secondary

smelter were 4s follows:

... It subsequently developed that in my judgment,

the smelter operation was taking a disproportionate

share of my time and the time of all our key staff peo-

ple in relationship to the profits that were being gener-

ated by the smelter and I felt that, number one, we were

not learned enough in secondary lead smelting to be in

the business. I felt that we were learned and astute

enough in the buying of scrap batteries and felt that I

had found out what I wanted to find out and basically

this was not our cup of tea. (Ray 200)

283. ESB operated a single secondary lead smelter in

Philadelphia, Pennsylvania for many years prior to 1971.

(Kenny 247-48; Bers 1271; Cassara 1327, 13873) ESB closed

its secondary lead smelter in 1971 because of problems of

compliance with environmental regulations. (Cassara 1387)

284. Lippinsett, a battery producer, formerly operated

a secondary lead smelter, first located in Nevada and then

moved to Ontario, California. (Quenell 560) In approxi-

mately 1962, Lippincott ceased its secondary lead smelting

activity. (Quenell 560) Douglass Battery Company, a bat-

tery company located in the Carolinas, had a secondary lead

smelter but has closed it. (Quenell 563) Western Battery,

formerly a Denver, Colorado battery manufacturer, built a

75a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

secondary lead smelter in the late 1960’s. (Quenell 562)

Both Western Battery’s smelter and its battery operation

are now out of business. (Quenell 562)

285. There have been numerous exits from the U.S.

secondary lead market through acquisition of one second-

ary producer by another.

286. In 1956-57, Bers Smelting, a Philadelphia second-

ary lead smelter, acquired Metro Smelting Company, also

ar. independent Philadelphia smelter which produced some

secondary lead. (Bers 1312)

287. In the 1950’s, General Battery Company, then an

operator of a secondary lead smelter, purchased Price Bat-

tery Company, also an operator of a secondary lead smel-

ter. (Warrender 157; Quenell 553-54; Bers 1249-50, 1270)

In 1973, General Battery built a single new smelter to re-

place both its original smelter and that one formerly oper-

ated by Price Battery Co. (Warrender 152, 157; Ray 220,

235; Quenell 553-54; Bers 1270-71) In 1974, General Bat-

tery Company purchased Dixie Lead Company, which for-

‘merly was an independent firm operating two secondary

lead smelters, one in Dallas, Texas and the other in Louisi-

ana. (Warrender 152; Ray 220, 236; Craig 474; Quenell

554) The Dallas smelter, however, has not operated since

early 1974. (Quenell 554)

288. In the early to mid-1960’s, Gould Inc. purchased an

independent secondary lead smelter in Omaha, Nebraska,

marking Gould’s entry into secondary lead production.

(Warrender 153, 158; Ray 221; Mardick 315; Quenell 556;

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

Bers 1288) In 1969, Gould Inc. purchased Bers Company,

then an independent secondary lead smelter located in

Philadelphia, Pennsylvania. (Warrender 153; Ray 221,

235-36; Mardick 315; Quenell 557; Bers 1239-40) Gould

Inc.’s smelter in Philadelphia has been shut down except

for some refining. (Mardick 315; Quenell 557 ; Bers 1284)

NL smelted the lead being refined by Gould in Philadelphia.

(Quenell 557 ; Bers 1287)

289. In 1974, Memphis Lead, a single plant secondary

lead smelter, acquired another secondary lead smelter,

Florida Smelting Company. (Kenny 242-43; Quenell 563;

Norman 2346)

290. A further source of exits from the U.S. secondary

lead market has been the “obsolescence of smaller, older

technically nonsophisticated smelters.” (CX 22H) Among

such exits from the smelting of secondary lead have been:

Houston Lead Products (Quenell 561); Eastern Smelting

and Refining, an independent Los Angeles, California sec-

ondary lead producer (Quenell 560) ; National Smelting, an

independent Fort Worth, Texas secondary lead smelter

(Quenell 561); International Lead, an independent San

Francisco, California secondary lead producer (Quenell

599) ; and Reliance Smelting, an independent Newark, New

Jersey secondary lead smelter (Quenell 561-62).

291. Increasingly stringent environmental and occupa-

tional safety and health standards have led to, and are

likely to continue to lead to, the closing of small, older

plants producing lead where the cost of installing emission

control equipment and providing safer working environ-

77a

Imtial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

ments cannot be justified. (Answer to Third Request For

Admissions, Par. 25) Many of the plants which smelt and

refine secondary lead in the United States were built in the

1930’s. (Revised Answer to Fifth Request For Admissions,

Par. 2) To bring an established secondary lead smelter and

refinery with an annual capacity of approximately 15,000

short tons into overall compliance with applicable anti-

pollution and worker safety standards can require a capital

investment of $3 million or more. (Revised Answer to

Fifth Request For Admissions, Par. 3)

E. Potential Entrants

292. Battery manufacturers are the largest consumers

of lead and they are, therefore, important potential en-

trants into the secondary lead industry. (Warrender 150;

Kenny 260; Bers 1259) Ray Kenny, Director of Material

Planning and Purchases for ESB Inc., testified that ESB

continually evaluates the possibilities of entering the lead

business and would do so if it became economically attrac-

tive. (Kenny 260) Four battery manufacturers—Gould,

General Battery, East Penn and Conrex—have already en-

tered the industry. (Ray 219-21; Kenny 261-62; Mardick

314-15; Quenell 553-55)

293. Several major battery manufacturers, including

Globe-Union, Prestolite and ESB, were at one time engaged

in secondary lead production, and have since discontinued

their recycling operations. (F. 274-284)

294. Globe-Union’s management until at least late 1973

did not and would not consider reentry into secondary lead

smelting because, in the words of its then chief executive,

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

“I didn’t think we had the skill nor the manpower.” (War-

render 117, 132-33)

295. In response to an inquiry concerning Prestolite’s

possible future involvement in secondary lead smelting,

the president of Prestolite stated:

We do not have any plans and I would not anticipate

that we would ever get back into secondary smelting.

I would never propose it.

I don’t believe it’s the kind of business that we should

get in to [sic]. (Ray 202)

296. ESB’s Director of Material Planning and Purchases

stated that “one of the prime reasons” a battery manufac-

turer would not enter the secondary lead market was that

“...1t is a completely new field to him... .” (Kenny 248)

297. General Motors’ Deleo-Remy Division, one of the

largest U.S. battery producers, is not engaged in secondary

lead smelting, but only operates a sweater to recover some

of its internal scrap from manufacturing. (Mardick 308)

298. In RSR’s judgment, vertical integration by large

battery manufacturers “does not pose a major threat to

RSR’s markets or business.” (CX 2B)

299. Attempts by a battery manufacturer to vertically

integrate into smelting of secondary lead would be handi-

capped by the fact that smelting facilities would have to be

located around the country in proximity to the manufac-

turer’s battery plants. One plant could not service all of a

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

system of geographically dispersed manufacturing plants.

(Mardick 307-08)

F. Barriers To Entry

300. The cost of erecting a lead smelter is substantial.

(Kenkel 364; Cassara 1387) The investment required for

newer lead-processing technology, including “secondary”

lead-processing technology, has risen from October 26, 1972

to the present and RSR expects such costs to continue to

rise in the future. (Answer to Third Request For Admis-

sions, Par. 27; see Bers 1285-86)

301. A primary lead smelter would cost approximately

$55 to $70 million to build. (Craig 414) Indeed, the doub-

ling of the capacity of St. Joe Minerals’ smelter to a 225,000

_ ton capacity cost $25 to $30 million. (Craig 414)

302. The cost of constructing a complete secondary lead

production unit including oxide manufacturing facilities

was approximately $4 to $7 million in 1972. (Answer to

Second Request For Admissions, Par. 2; Third Request

For Admissions and Answer, Par. 28; CX 250-D, G; Blair

62-63; Mardick 272-73; Bers 1286) Today a 40,000 short

ton capacity secondary lead plant would cost approximately

$10 million to build. (Mardick 317)

303. The production of lead, specifically secondary lead,

requires extensive quality control and the use of expensive

quality control equipment. (CX 25E; Lospinoso 821; Pren-

gaman 1048, 1052-57, 1107)

304. Entry into secondary lead smelting takes a consider-

able period of time. For instance, Tonolli Co., a Canadian

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

firm, seeking to enter into U.S. production from Canada,

has had a secondary lead smelter under construction for

three years. (Quenell 559; Bers 1283-84) In its attempt

to enter, Tonolli has experienced construction, equipment

and environmental problems. (Quenell 559)

305. Entry into primary smelting is especially difficult,

even for a secondary smelter. (Cassara. 1388)

306. There is no evidence in the record of absolute im-

pediments or substantial long-term barriers to entry into

lead smelting. There is no evidence, for example, of long-

term exclusive contracts or patents on basic processes that

potential entrants would be unable to obtain.

307. Muliiplant lead recycling operations possess certain

competitive advantages over single-plant operations, For

example, a multiplant secondary lead processor can assist

a multiplant battery manufacturer in adjusting imbalances

in its serap and lead inventories. (Warrender 125; Cassara

1364-66, 1410) A multiplant recycler can also offer battery

manufacturers the assurance of supply provided by pos-

session of “back-up” capacity. (Quenell 522; Cassara 1366,

1371; Norman 2351) It can continue supplying its custom-

ers’ lead requirements despite a strike or a breakdown at

any one of its facilities. (Mardick 2316-17) Assurance of

supply is a matter of critical concern to battery manufac-

turers. (Cassara 1371)

308. A multiplant operation can achieve cost savings in

areas such as production techniques, design engineering,

environmental services, research and development, employ-

ing consultants, personnel training, corporate overhead,

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

and the purchasing of supplies and equipment. (Lospinoso

856-64; Hatten 1170-72; Norman 2354, 2356)

309. A multiplant firm can allocate corporate overhead

expenses over a greater number of plants and a greater

number of tons, thereby achieving lower unit costs. RSR

now has a single staff for sales, a single staff for account-

ing, a single staff for data processing, serving all of the

plants. (Hatten 1170-72)

310. RSR has achieved cost savings in purchasing sup-

plies and equipment on a multiplant basis, particularly in

the purchasing of coke, fuel, oxygen, teflon bags, and air

and water pollution equipment. (Lospinoso 861, 969-71)

311. However, single plant operations are viable busi-

nesses, and compete effectively with larger secondary lead

smelters. (Norman 2353; F. 189) Many major battery

manufacturers purposefully maintain more than one source

of supply for lead for each of their manufacturing plants,

and single plant operation can compete successfully with

multiplant operation for supply contracts. (F. 189; see

Mardick 2307-12) In fact, a witness from NL testified that

there is no competitive advantage in the possession of

multiplant capacity alone, for contracts with national bat-

tery companies are awarded solely on the basis of price.

(Mardick 2307)

G. Recent Industry Developments

1, Environmental and Worker Safety Laws

312. Lead is a toxic material, exposure to which is dan-

gerous to workers or others. (Blair 24) In recent years,

as

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

environmental controls and worker health and safety regu-

lations have increased costs in the lead industry. (Blair

71-74) Government regulations have required lead produc-

ers to install expensive air pollution equipment. (Blair 24;

Mardick 308-09; Kenkel 369) Likewise, government regu-

lations require control of emissions by lead producers into

sewers or the soil, including control over the disposal of

waste materials. (CX 25C, H; Blair 71; Quenell 509) Such

regulations have become substantially more rigid over the

period since 1970, and, due to the rising cost of pollution

controls, these regulations have resulted in substantially

increased costs and larger plant size. (Answer to Third

Request For Admissions, Par. 26; CX 250, H; Blair 71;

Quenell 509; Lospinoso 865, 958) Prior to the acquisition

of Quemetco by RSR, new environment controls were rap-

idly outmoding many older, smaller plants of the secondary

lead suppliers (Third Request For Admissions and Answer,

Par. 1), and many additional secondary lead smelters have

become nonviable due to the increased capital expenditures

necessary to meet environmental requirements. (Mardick

316; Quenell 558; Lospinoso 961) The installation of safety

equipment by lead smelters is also mandatory under OSHA

standards, promulgated under the 1970 Occupational Safety

and Health Act. (Blair 73-74) These standards have be-

come increasingly stringent in recent years. (Blair 73-74)

313. NL has concluded that “[w]ith the enormous non-

productive investment required to meet environmental re-

strictions, only very large plants become economical in

terms of unit and capital costs per ton.” (RX 144N) Thus,

the new plants that it is planning to build in an expansion

program will have capacities three to six times that of the

83a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

average recycling plant today. (RX 142A; RX 144N; RX

1451, N) The plants will be built with a new “closed system”

that will “meet all existing and future stundards with re-

spect to worker safety and health and environmental pro-

tection”, which “means no interruption of supply to bettry

[sic] customers because of environmental problems.” (RX

144Z-6)

2. Calcium Lead “Maintenance-Free” Batteries

314. In recent years, some battery manufacturers have

begun to use calcium lead rather than antimonial lead in

the manufacture of battery grids and posts. (Blair 50-51;

Ray 208; Craig 432-33)

315. Calcium lead is an alloy of lead and calcium, often

also containing tin. (Blair 50; Mardick 298; Craig 432;

Quenell 548; Lospinoso 752-53, 866-67) Generally the alloy

contains less than 1 percent calcium. (Mardick 298; Los-

pinoso 752)

316. Calcium lead is currently made predominantly from

primary lead, but secondary lead can be used as well. (Blair

91-52; Lospinoso 953; Prengaman 1009, 1013, 1072)

317. Calcium lead alloys have long been used. (Blair 53;

Kenkel 375) Calcium lead is one form of hard lead that is

used in the manufacturing of anodes, pipe and cable cover-

ings as well as to a limited extent in the manufacture of

battery grids. (Blair 50; Mardick 298; Kenkel 375; Quenell

548; Lospinoso 753; Prengaman 1022)

318. Batteries having calcium lead grids have been in

use for over 10 years. (Warrender 133-34) However, their

84a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

use was limited to nonautomotive applications until recent-

ly, due to the relatively high cost of producing such bat-

teries, the difficulties encountered in calcium lead grid pro-

duction and the problems of the service life of the batteries

themselves. (Blair 53; Warrender 133-36; Ray - 229-31;

Kenny 252; Mardick 298; Prengaman 1082, 1118-19)

319. Calcium lead provides many important advantages

over antimonial lead as a battery alloy. It produces a bat-

tery with increased hydrogen overvoltage, so that very

little if any gas is generated; there is no need to add water

(with attendant impurities which impede battery perfor-

mance) ; and the battery can be sealed. (Blair 53; Lospinoso

865-66; Prengaman 1064-65; Bender 1677 ) Sealing permits

the battery to be installed in a place other than under the

hood, where the high temperatures reduce battery life; the

battery can be shipped in any position without dry-charg-

ing, which is an extra cost in battery manufacturing. (Los-

pinoso 865-66; Prengaman 1066) The battery is less sus-

ceptible to corrosion and self-discharge (Prengaman 1067-

69; Bender 1677-78) ; there is greater resistance to vibra-

tion, and the battery as a whole can be smaller and lighter

(Bender 1677); the service life is increased. (Lospinoso

866; Bender 1677-78)

320. Battery manufacturers using calcium lead to pro-

duce grids for “maintenance free” batteries often use

antimonial lead or a lead-tin alloy containing cadmium

for the other parts of such batteries that require hard

lead. (Ray 208-09; Mardick 300-01; Prengaman 1062, 1114)

321. St. Joe and NL are currently producing small

quantities of caleium lead (Mardick 299; Craig 433-34),

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

and calcium lead batteries are being produced by Delco-

Remy Division of General Motors Corporation, by Presto-

lite and by Gould. (Ray 209, 224, 225; Bender 1666-67; RX

160A, B) ESB has had a calcium lead battery on the

“drawing boards” for about five years, and has the capa-

bility to produce such a battery, though it has not done 80

to date. (Kenny 251) However, calcium lead batteries

currently account for only a very small percentage of U.S.

battery production. (Warrender 139; Ray 224; Craig 432-

34; Lospinoso 953-54; Prengaman 1078, 1111) RSR has

developed the capability to produce calcium lead and is

seeking orders for that product from battery manufac-

turers. (Lospinoso 953; Prengaman 1013)

322. Only one major battery manufacturer is heavily

committed to producing calcium lead batteries. The Delco-

Remy Division of General Motors Corporation first in-

stalled a prototype of the calcium lead, maintenance-free

battery, called the “C-89” battery, as standard equipment

on the Pontiac Gran Prix, and it later became available as

an option on some Buicks, Olds and Pontiacs (Bender

1689-90); over 100,000 C-89 batteries were sold (Bender

1727-28). Delco is now producing a calcium lead mainte-

nance-free battery known as the “Freedom” battery. (Ben-

der 1667; RX 160A-B)

323. The Freedom battery is now being used as original

equipment in several 1976 car lines. General Motors is

currently producing about 6,000 cars per day with the

calcium lead battery installed as original equipment. (Ben-

der 1702)

86a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

; 324. Deleo-Remy is currently advertising and promot-

ing the Freedom battery for use as a replacement battery,

and is selling these batteries to J. QC. Penney. (Bender

1703-05 )

325. Delco-Remy is also producing a calcium lead

maintenance-free battery known as the “Delco 1200” bat-

tery, for trucks and tractors. (Bender 1681; RX 37) All

of the major truck manufacturers have purchased some

Delco 1200 batteries and are installing them on a special

order basis. (Bender 1687-88)

326. [See In Camera Findings]

327. Prestolite is promoting a calcium lead maintenance-

free battery known as the “Liberator” battery. (Ray 209

224; RXs 1-2) Prestolite began producing the Liberator

battery about three years ago (Ray 224), and has made a

substantial investment in its development. (Ray 227-28,

tm camera) However, the Liberator battery makes up only

a small part of Prestolite’s total production. (Ray 224)

328. Increased production of calcium lead batteries by

Delco will probably accelerate the production of similar

batteries by other manufacturers and thus accelerate the

use of calcium lead on an industrywide basis. (Blair 83-

84; Warrender 144) However, even if Delco switches to

calcium lead batteries as a large percentage of its produc-

tion, the effect of calcium lead batteries on the recycled

lead market would be small. (Kenkel 384)

329. While calcium lead is gaining in use as a grid al-

loy, there is wide disagreement among members of the

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

lead and battery industries as to the extent to which it will

replace antimonial lead in the manufacture of automotive

batteries. (Blair 50; Ray 224) Some battery manufac-

turers and lead recyclers believe that calcium lead will be-

come a significant factor in the market. (Ray 224-25; Craig

432-33) Others, however, are of the opinion that difficul-

ties in the manufacturing of calcium lead batteries, includ-

ing the fact that calcium is so readily oxidized that the

product must be produced in an inert atmosphere or in a

vacuum, and that calcium alloy is difficult to cast, weld and

fuse (Blair 52-53), and the fact that calcium lead batteries

will probably be more expensive than antimonial lead bat-

teries (Kenny 252), will impede widespread acceptance

and use of calcium lead, and that it will not replace anti-

monial lead in the production of batteries in the foresee-

able future. (Blair 50; Ray 225; Kenny 251)

330. RSR’s in-house expert on calcium lead grid bat-

teries estimated that such batteries would account for only

about 20 percent of battery production in 5 years and

could not estimate when such batteries would account for

as much as 50 percent of battery production, stating that

“it is pure speculation” as to what share of the market

such batteries would have in the future. (Prengaman 1112-

14)

331. Some battery manufacturers are developing a low

antimonial lead battery which would be competitive with

the calcium lead battery as a low maintenance battery.

(Craig 433; Quenell 548-49, 551-52)

88a

Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

332. The lead contained in calcium lead batteries is re-

coverable by secondary smelters. (Blair 51; Warrender

137; Mardick 299; Kenkel 376; Craig 432; Lospinoso 867)

333. The lead recovered by a blast furnace from calcium

lead batteries would contain any tin or other alloying metal

found in the original alloy but would not contain the cal-

cium. (Blair 51-52; Kenkel 376) Thus, in order for a

secondary lead smelter to produce calcium lead, calcium

has to be added back, probably from a specially prepared

calcium concentrate or “king metal”. (Blair 52; Warrender

137)

334. Secondary lead smelters have the ability to pro-

duce calcium lead. (Blair 52; Mardick 299) RSR, NL, and

the Federated Metals Division of ASARCO, are produc-

ing, and for some time have been producing, secondary

calcium lead. (Mardick 298; Kenkel 386; Lospinoso 856;

Prengaman 1030-31; Hatten 1203-04)

335. Even if calcium lead batteries become the only type

of automotive batteries, the secondary lead industry would

continue to exist. (Blair 54; Warrender 137-38; Ray 229;

Mardick 299; Quenell 549-50) The nation’s overall need

for lead can only be met practically by the production of

secondary lead. (Blair 54-55; Quenell 594-50; Lospinoso

981-82) Even if all batteries were made with calcium lead

grids, millions of scrap batteries would be generated each

year, thereby necessitating their disposal. (Warrender

138-39; Kenkel 370-71; Quenell 550) Each scrap battery

contains a significant amount of recoverable lead. (Quenell

550) Thus, the same marketing process is likely to be

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followed for calcium lead batteries as for antimonial lead

batteries, with the battery companies accumulating the

scrap, selling or sending it to a secondary smelter for re-

processing and getting back lead for grids (calcium lead)

and maybe some oxide. (Blair 55-56; Warrender 139; Que-

nell 549-50; see Kenkel 370-71) The largest producer of

calcium lead batteries, GM’s Delco-Remy Division, is al-

ready negotiating with RSR for its supply of calcium lead,

negotiations which RSR believes will soon result in its

becoming Deleo’s supplier. (Prengaman 1013)

VII. Effects of the Acquisition

A. U.S. Lead Market

336. RSR’s acquisition of Quemetco did not eliminate

substantial actual competition between the two firms in the

U.S. lead market. (F. 246-248, 190-195, 199-204)

337. RSR’s acquisition of Quemetco did not significantly

increase concentration in the United States lead market.

(F. 250-252)

B. Secondary Lead Market

338. RSR’s acquisition of Quemetco eliminated substan-

tial actual competition between the two firms in the secon-

dary lead market. (F. 339-340)

339. In 1971 and 1972, the bulk of Quemetco’s sales of

recycled lead were made in the States of California, Oregon

and Washington. (F. 191, 192) Substantial sales were also

made in the Midwestern States of Indiana, Kentucky, Il-

linois and Ohio. (F. 191, 194) RSR, in the same years,

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Initial Decision of Montgomery K. Hyun,

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made the bulk of its sales in the Southwestern States of

Texas, Oklahoma and Louisiana, and the Northeastern

States of New York, New Jersey, Pennsylvania, Maryland,

Connecticut, Massachusetts and Rhode Island. (F. 199-201)

However, RSR also made substantial sales in the Mid-

western States of Indiana, Illinois, Missouri and Kansas.

(F. 199)

340. Immeditaely prior to the acquisition, RSR was

shipping about 18,000 tons per year of lead into Midwest

markets in order to maintain a market position there.

After the acquisition, RSR planned to ship part of this

production to other geographic markets, and to transfer

6-8,000 tons of its current Midwestern sales to Quemetco’s

Indianapolis plant. (CX 221)

341. The acquisition significantly increased concentra-

tion in the secondary lead industry. (F. 263-265)

342. Immediately prior to the acquisition, RSR had a

secondary lead smelter located in Newark, New Jersey

which was being forced to relocate. (CX 25B, G; Craig

437-38; Lospinoso 961; Herald 2365)

343. Prior to acquiring Quemetco, RSR planned to re-

place this Newark facility with another secondary lead

smelter located in the New York-New Jersey area, with a

planned capacity of 24,000 short tons per annum, a sub-

stantial addition to its former plant’s capacity. (CX 10B-C;

CX 13D; CX 25B; Lospinoso 961) The replacement facil-

ity was estimated for completion in September 1973. (CX

25G) :

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

344. At the time immediately prior to its acquisition,

Quemetco was establishing a new secondary lead facility

in the New York and New Jersey area. (F. 26) At this

time, Quemetco sought future sales of secondary alloyed

lead and lead oxide from its soon to be completed Wallkill

plant. (Quenell 527, 581-83, 585-86) Globe-Union had plans

to purchase antimonial lead from Quemetco’s Wallkill plant

prior to the acquisition of that plant by RSR. (Warrender

140; Quenell 527-28) Likewise, Quemetco had commitments

from Delco-Remy, ESB and Prestolite for secondary lead

to be delivered from its soon to be opened Wallkill, New

York smelter. (Quenell 527-28) Such commitments repre-

sented the total planned production of secondary lead by

Quemetco’s Wallkill facility. (Quenell 527-28)

345. At the time of the acquisition, the Wallkill plant

had its equipment installed and had commenced production

of oxides and was in the final testing stage prior to be-

ginning of smelting and refining operations within a month.

(F. 26)

346. The acquisition of Quemetco and its Wallkill facil-

ity obviated the need for RSR to build a new secondary

smelter to replace its Newark plant. (CX 6D; CX 7B; Craig

437-38; Quenell 542; Lospinoso 964; Herald 2370)

347. RSR partially equipped its newly acquired Wall-

kill plant with equipment, including test equipment and a

blast furnace, taken from its Newark smelter. (Lospinoso

964) The key personnel from the Newark smelter were

transferred by RSR to the Wallkill smelter. (Lospinoso

965) In December 1972, RSR closed its Newark smelter

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Initial Decision of Montgomery K. Hyun,

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(CX 6D; Lospinoso 967) and shifted its Newark customers

to the Wallkill smelter. (CX 22H)

348. The acquisition of Quemetco strengthened RSR’s

position in the secondary lead market. (IF. 349-351)

349. RSR, after the acquisition, instituted contractual

arrangements for the supply of its lead, whereas only very

seldom had such arrangements existed previously between

RSR and its customers or Quemetco and its customers.

(Ray 189; Quenell 515-18)

350. RSR’s post-acquisition supply contracts had a

2-year term and committed buyers to purchase specified

tonnages of lead. (Ray 189; Quenell 516) These contracts

covered each of the buyers’ plants and provided specific

price terms. (Ray 189-90) Absent such a contract, RSR

charged 2 cents a pound more for its secondary lead.

(Quenell 516) Prior to the acquisition, neither RSR nor

Quemetco had any commitments for the purchase of spe-

cific tonnages nor did they have fixed future price terms.

Prestolite does not have such a contract with any other

suppliers. RSR’s new supply contracts limited its cus-

tomers’ flexibility to purchase or negotiate with other

suppliers. (Ray 190-95)

351. Immediately subsequent to the acquisition of

Quemetco, ESB had two 1-year contracts, one with RSR

and the other with Quemetco. These were “tolling” (con-

version) contracts. After the expiration of its initial post-

acquisition contracts with RSR, ESB entered into 4

straight “purchase” contract with RSR. ESB preferred

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

the tolling contracts as they enabled it to “purchase our

material more economically.” ESB felt its bargaining posi-

tion was unfavorably altered because of the elimination of

Quemetco as a supplier. (Kenny 254-56)

352. Mr. Quenell, former president of Quemetco, testi-

fied that a reasonable price for the acquired plants would

be $1 million for the Los Angeles plant, and $2.5 to $3

million each for the Indianapolis plant and the Los Angeles

plant. He testified that it might not be possible to sell the

Seattle plant. (Quenell 572-74)

353. As of the end of 1974, RSR had about $22 million

of long-term debt, $38 million of total liabilities, and a net

worth of about $9 million. Assuming that the acquired

plants are sold for $10 million, the divestiture sale would

result in a loss of about $12 million, giving RSR a negative

net worth of about $3 million, causing it to be in default of

all of its current loans. (Hatten 1176, 1192, 1197)

Discussion

A. Introduction

This proceeding involves Section 7 legality of the 1972

acquisition of Quemetco, the fifth-ranking lead-scrap re-

cycler, by RSR, the second-ranking lead-scrap recycler in

the United States. The acquisition effected a combination

of Quemetco, essentially a regional seller of recycled lead

alloys (principally antimonial lead) and some lead oxides

in the West and the Midwest, and RSR, essentially a

regional seller of recycled lead alloys (principally anti-

monial lead) in the Southeast, Northeast and a portion of

the Midwest. After the acquisition, the RSR-Quemetco

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Initial Decision of Montgomery K. Hyun,

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combination became a national seller of recycled lead and

lead alloys (principally antimonial lead), but remained a

distant second to NL Industries, Inc., the largest national

seller of recycled lead and lead alloys in the United States.

Complaint counsel’s theory of violation is essentially that

the challenged acquisition eliminated the substantial actual

competition which had existed between two national sellers

of recycled lead and significantly increased the concentra-

tion in the lead-scrap recycling industry on a national basis.

Complaint counsel also allege similar anticompetitive ef-

fects in the overall “U.S. lead market”, comprising the

primary and secondary lead producers, on a national basis.

Respcondent’s defense is twofold. First, it disputes the

validity of the secondary lead market. It argues that “lead

is lead” regardless of the raw material source because of

complete functional interchangeability between primary

and secondary lead. In the overall lead market, which is

national in scope, it is argued, the challenged acquisition is

procompetitive because, by combining two small firms, it

enabled the resulting firm to offer new competition to the

leading industry giants.

Second, respondent argues that, if the secondary lead

market were a valid Section 7 product market, the geo-

graphic market relevant to this proceeding cannot, as a

matter of law, be larger than the area to which Quemetco,

the acquired firm, shipped lead to a significant degree. Re-

spondent also argues that there is no national market for

secondary lead because the transportation characteristics

of recycled lead effectively limit the area to which recycled

lead may be economically shipped. Thus, the area of effec-

tive competition is regional. Finally, respondent argues

that the acquisition is procompetitive because it gave re-

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

spondent multiplant capability and enabled respondent to

compete with the “dominant” firm (NL Industries) in the

recycled lead market on a national basis for the first time.

On the basis of the record evidence as a whole, I have

determined that recycled lead (or secondary lead) is a valid

product market for the purposes of this case based on well

recognized practical indicia which are economically signi-

ficant, such as unique production facilities, peculiar use

patterns, distinct vendors, distinct prices, and historic rec-

ognition of the lead-scrap recycling operation as an eco-

nomically significant and separate activity. It is also my

determination that, although there may be valid regional

markets in the lead-scrap recycling industry, the effect of

the challenged acquisition may also be examined in terms

of a national market in this proceeding because (1) the

leader in the secondary lead market (NL Industries) sold

nationally, (2) RSR acquired Quemetco concededly in order

to become a national seller, and (3) after the acquisition,

respondent sold nationally in competition with other na-

tional sellers. I have concluded that, in the U.S. secondary

lead market, the challenged acquisition eliminated sub- —

stantial actual competition between the two firms and signi-

ficantly increased concentration in violation of Section 7.

The principal arguments of the parties and the reasons for

my determinations are discussed in greater detail in the

following pages.

B. The Product Market

The complaint alleges two separate product markets:

(1) the U.S. lead market, consisting of primary lead and

secondary (or recycled) lead, and (2) the U.S. secondary

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

lead market, consisting of recycled lead. The parties agree

that the U.S. lead market is an appropriate product market

for the purposes of this proceeding. However, there is a

sharp disagreement with respect to the U.S. secondary

lead market, more specifically as to whether recycled lead

is an appropriate submarket under the Brown Shoe guide-

lines. Brown Shoe Co. v. United States, 370 U.S. 294, 325

(1962). That guideline states in part:

... The boundaries of such a submarket may be deter-

mined by examining industry or public recognition of

the submarket as a separate economic entity, the prod-

uct’s peculiar characteristics and uses, unique produc-

tion facilities, distinct customers, distinct prices,

sensitivity to price changes and specialized ven-

dors....

And if there is a reasonable probability that the merger will

substantially lessen competition in any economically signi-

ficant submarket, the merger is proscribed. Jd. It is my

opinion that the record as a whole clearly demonstrates that

recycled lead is a valid submarket in terms of a number of

practical, economically significant indicia, including unique

production facilities, use patterns, distinct prices, special-

ized vendors and industry recognition.

First, the raw material for primary lead plants are lead-

bearing ores and concentrates. The raw material for re-

cycling plants is lead-bearing scran, primarily scrap lead-

acid type batteries. The evidence shows that the production

facilities employed in the scrap recycling operation are

substantially different from those employed in the smelting

and refining of ores and concentrates. The scale of pro-

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

duction facilities in scrap recycling operation is markedly

smaller than that of a primary plant. (F. 63) Because of

radically different plant sizes and capacities, different scale

economies and costs apply to a primary plant and a second-

ary plant. (F’. 59-62, 64-65) Furthermore, the ore prepara-

tion and sintering processes, important in a primary

operation, are absent in a secondary operation. (F. 72-74,

80) Also, primary plants are located in or near the Lead-

Belt States of Missouri and the Rocky Mountain States,

while recycling plants are scattered in the various popula-

tion centers of the country. (F. 68-69, 178) Perhaps most

important, the normal output of a primary smelter is radi-

cally different from that of a recycling plant. While the

normal output of a secondary smelter consists of about 70

percent antimonial lead (hard lead) and about 30 percent

soft lead, the normal output of a primary smelter consists

of soft lead. (F. 114, 115) In order to produce hard lead,

including antimonial lead, a primary smelter must further

process its soft lead output by adding the requisite amounts

of antimony or other hardening elements. And this is an

expensive process. (F'. 116, 118-119)

Second, the normal use patterns of primary plant output

are radically different from those of a recycling plant out-

put, The record shows that the bulk of antimonial Jead

output of a recycling plant is sold, without further pro-

cessing, to automotive battery manufacturers of the nation

and is fabricated into battery grids and posts. (F. 133-135)

The bulk of soft lead output of a recycling plant is used by

the recycler to produce lead oxide, which is sold to battery

manufacturers for use as battery oxide, or fabricated into

various lead products, such as wheel weights, ammunition,

tubes, dies, solder and type metal. (F. 136, 145) Little re-

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Initial Decision of Montgomery K. Hyun,

Administrative Law Judge, April 20, 1976

cycled soft lead is sold in the open market. (F. 146) On

the other hand, a lion’s share of the soft lead output of a

primary smelter goes to battery manufacturers for the

production of lead oxides and to producers of chemicals,

mostly TEL, for use as gasoline antiknock additives; the

remainder is further processed into pigments, or into lead

alloys for fabrication of various metal products. (F. 137,

150, 159) Very little primary soft lead is processed into

antimonial lead and sold to battery manufacturers for use

as battery grids and posts. (F. 116, 164) As is evident

from the foregoing discussion, the bulk of a recycling plant

output has been sold historically to battery manufacturers,

either as antimonial lead or as soft lead. The output of a

primary smelter (soft lead) is sold to diverse customer

groups, including battery manufacturers, with or without

further processing. ;

The record also shows that fabricators of lead products

have historically preferred primary lead or recycled lead,

as the case may be, on the basis of different physical charac-

teristics of each type of lead and intended end use of the

lead, although such preference appears to have decreased

somewhat as improved analytical techniques have resulted

in higher purity of recycled soft lead. (F. 155)

Third, recycled lead is of course sold only by scrap re-

cyclers, a distinct vendor group. (F. 44-49) Fourth, the

lead-bearing scrap recycling industry (the secondary lead

industry) has historically been recognized as a separate

and significant economic activity. (F. 39-43) And, there

is evidence tending to show that there is a significant price

differential between primary lead and recycled lead, nor-

mally amounting to 10 percent. (F. 169-172)

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Finally, and most important, these distinctions discussed

above are not mere theoretical differences; they are prac-

tical distinctions which have important economic signifi-

cance to both the producer and the user. Therefore, there

is no room for any serious dispute that recycled lead is a

valid submarket which constitutes a product market for

Section 7 purposes. In view of the overwhelming evidence

discussed above, respondent’s argument that lead is lead,

that primary lead and secondary lead are functionally in-

terchangeable when processed to meet particular product

specifications for the various uses, falls far short of the

mark,

C. The Geographic Market

There is a sharp dispute between the parties with respect

to the appropriate geographic market in which the effect of

the challenged acquisition should be assessed. It is well

settled that the criteria to be used in determining the

appropriate geographic market are essentially similar to

those used to determine the relevant product mar

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