# Appendix — RSR Corp. v. Federal Trade Commission

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1394%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1980
- **Citation:** 445 U.S. 927

## Text

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-

. ‘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-

7la

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 economic entity ; (2) peculiar pro-
duct characteristics and uses, (3) unique production facilities, (4)
distinct customers, (5) distinet prices; (6) sensitivity to price
changes and (7) specialized vendors.

Se EN OER CT ON maT aCe | ERR on nT Ts hn a ne ee eee

124a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

2) Distinct Product Characteristics and End Uses

The ALJ further concluded that secondary lead and
primary lead have distinct characteristics and end uses.
While primary and secondary lead do compete to-a limited
extent, their lack of interchangeability for certain major
end uses is almost complete, and of sufficient significance
to support the denomination of secondary lead as a valid
submarket.§

Battery producers are the major source of lead consump-
tion, with battery grids and posts accounting for 23% and
battery oxides accounting for 26% of lead consumption in
1972. (I.D. 149) For reasons summarized here and detailed
in the initial decision secondary producers provide vir-
tually the entire supply of lead used by battery manufac-
turers to produce grids and posts, (I.D. 135) while primary
producers provide the bulk of lead used by battery makers
for battery oxides. (I.D. 137 )

As the law judge noted, production of battery grids and
posts requires antimonial lead (lead alloyed with antimony)

* Obviously there will often be some degree of interchangeability
between products in different submarkets of the same overall mar-
ket. This is implicit in the concept of a submarket. A concise de-
scription of the situation in this case is contained in an RSR filing
with the SEC, prepared in 1972:

“The Company competes not only with other independent sec-
ondary 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.” (LD. 41)
[emphasis added]

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Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

which constituted roughly 70% of the output of secondary
smelters in 1972. (I.D. 115) Secondary producers have an
advantage in the production of antimonial lead because the
scrap they smelt (often consisting of discarded batteries)
already contains large quantities of the necessary anti-
mony. (I.D. 118) While primary producers are capable of
adding antimony to their output of “pure” lead to produce
antimonial lead, the end product has generally turned out
to be unsuitable for casting grids and posts, (I.D. 119) and
is somewhat more expensive to produce. (L.D. 118) Asa
result, only a small amount of antimonial lead is produced
by primary producers, (I.D. 116) and all of the lead used
in battery grids and posts is supplied by secondary smel-
ters. (I.D. 117)

The symbiotic existence of battery manufacturers and
secondary lead producers is further reflected in the exis-
tence of numerous “tolling” agreements, whereby smelters
obtain discarded scrap batteries from battery producers,
smelt them down, and return antimonial lead to the manv-
facturers for use in new batteries. (ID. 138-140)

Antimonial lead used by battery manufacturers amounted |
in 1972 to more than 50% of all secondary lead produced.
(I.D. 117; CX 19E, W) Thus, with respect to the disposi-
tion of more than half their output, secondary producers
simply are not in competition with the primaries.*

* Respondent suggests that the ALJ improperly disregarded the
increasing popularity of calcium lead batteries in defining the mar-
ket. Respondent argues that because grids and posts of so-called
maintenance-free batteries are made with calcium lead, an alloy
which primary producers are readily eapable of producing, the out-
put of primary producers therefore competes with the antimonial
lead produced by the secondaries. This argument must be rejected
because maintenance-free and regular batteries are in a funda-

126a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

The situation is more equivocal in the case of end uses
such as battery oxides and other products which must be
produced from “pure” (also “soft” or “unalloyed”) lead.
Some measure of competition exists here between primary
and secondary producers, but it is limited by differing pro-
duction economies in the manufacture of primary and sec-
ondary lead, as well as by real and perceived differences
in the two products. There is some dispute in the record
over the extent to which recycled soft lead can be made
to match the purity of primary soft lead for various ia-
dustrial uses. As the law judge noted, fabricators of metal
products have historically preferred primary soft lead,

on grounds of its actual and perceived greater purity (I.D. |

165). The extent of such preferences has apparently de-
clined as improved analytical techniques have increased the
purity of recycled soft lead (I.D. 165), but they still remain
an important factor in determining the demand for lead.
(I.D. 165-6) Moreover, for certain (relatively minor) end
uses requiring soft lead, customers will purchase only pri-
mary lead because the presence of certain trace impurities
in secondary lead would adversely affect the quality of the
product. (I.D. 168) 7

For the foregoing reasons, and due as well to the nature
of production economies which encourage the secondary
producer to turn out alloyed lead, primary producers ac-
count for most unprocessed pure lead sales to battery
manufacturers and lead products fabricators (I.D. 137).

mental sense different products (or, different “end uses”) and a
manufacturer’s decision to shift production between one and the
other is likely to depend on far more than simply the relative prices
a and calcium lead. See also discussion at pp. [149a-

ee

127a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

Only a small fraction of the secondary smelter’s pure lead
output is sold in unprocessed form, the bulk being con-
verted internally into lead oxide and sold to battery manu-
facturers (I.D. 115, 145-6, 150).7 Some secondary producers
(although neither RSR nor Quemetco at the time of their
merger) also sell pure lead to manufacturers of gasoline
antiknock additives (tetraethyl lead). Generally, however,
this lead is limited to that derived from the conversion of
TEL slag, a process peculiarly within the competence of
secondary producers. The bulk of lead from general pro-
duction used in TEL is still supplied by primary producers.
(I.D. 144)

3) Other Factors

Record evidence with respect to relative pricing patterns
of primary and secondary lead is not abundant, The ALJ
noted that some measure of price disparity exists between
primary and secondary lead, with secondary lead custom-
arily selling for less than primary. (I.D. 169, 172). Respon-
dent’s own internal analysis supports this conclusion, (CX
22B, A) although ascribing this situation to the lower cost
of recovering secondary lead. If “lead is lead”, as respon-
dent has insisted throughout this proceeding, then price
differentials based simply upon differing methods or costs
of production should not persist. If purchasers viewed sec-
ondary lead as an undifferentiable substitute for primary
lead, we trust that neither the generosity nor the lower

7Of course, to some extent, the pure lead made into oxide by
secondary producers must be viewed as in competition with the
pure lead sold by primaries to battery manufacturers for their own
production of oxide, even though such manufacturers might not
buy pure lead directly from a secondary producer.

128a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

cost curve of secondary producers would suffice to maintain
secondary prices consistently below those achieved by com-
petitors selling an allegedly identical product. The fact
that, by respondent’s own admission, secondary prices do
generally fall below those for primary lead clearly lends
support to the ALJ’s conclusion that “ [secondary] lead is
not [primary] lead.”

Finally, the ALJ took note of considerable industry
recognition of lead recycling as a distinct and significant
economic activity. (I.D. 39-43, 148) In the words of Robert
Quenell, Quemetco’s founder:

Q. Mr. Quenell, did you consider St. Joe to be a com-
petitor of Quemetco’s at the time they were acquired
by St. Joe?

A. No.

Why not?

We were not competitors. We did not sell the same
product. We never came across St. Joe in that re-
spect. They were sellers of primary lead and we
never sold primary lead, and we very seldom sold
any soft lead or pure lead at all. Therefore, we
were not competitors.

po

Q. Did you consider Quemetco to be a competitor with
RSR at the time RSR acquired Quemetco?
A. Yes.

Q. Why?

A. We were in the same business. We were secondary
smelters. They were secondary smelters, We sold
to the same customers. We sold the same product
to the same customers. We competed in the open

es

129a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

market for the same parcels of scrap. We were di-
rect competitors. (Tr. 505)*®

4) Conclusion

We think the preceding considerations weigh disposi-
tively in favor of the ALJ’s determination that secondary
lead constitutes a valid submarket for antitrust purposes.
Primary and secondary lead production constitute econom-
ically distinct activities, involving different technologies
and different raw materials, thereby eliminating competi-
tion between the two for the factors of production. On
the supply side, the outputs of primary and secondary
producers are to a considerable degree not interchange-
able. This is particularly so with respect to the antimonial
lead sold to battery manufacturers, which accounts for
more than half of secondary production. A battery manu-
facturer seeking material for the grids and posts of or-
dinary batteries simply cannot feasibly look beyond a
small number of secondary producers to provide the nec-
essary inputs, A merger which limits competition among
secondary producers will, to the very same extent, limit

* Respondent objects to this testimony by Mr. Quenell on grounds
that having been deposed as leader of Quemetco by virtue of con-
flicts arising from RSR’s acquisition, he cannot be considered an
unbiased witness. While it is true that any witness’ testimony must
be weighed in light of his or her possible biases, we see no reason
to ignore the cited testimony, inasmuch as it is generally corrobo-
rated by other aspects of the record. Many of the witnesses in this
ease, including both RSR officials who testified for respondent and
industry members who testified for complaint counsel, may have
personal reasons for favoring one outcome of this case over an-
other; this in itself does not render such testimony invalid, it is
merely a factor to be considered in weighing each facet of it.

130a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

the competition available to satisfy the battery manufac-
turer’s needs,

The situation is less sharply defined with respect to the
use of pure lead, but once again, the extent of competi
tion between priraary and secondary output is restricted
by differences in the products and in their methods of
production. Finally, the existence of distinct prices for
primary and secondary lead, and some submarket recog-
nition by industry members point modestly to the existence
of a separate secondary lead submarket, For all of the
above reasons we shall adopt this submarket for purposes
of our analysis of the merger before us.°

Geographic Market

The law judge agreed with complaint counsel that the
United States as a whole constituted an appropriate geo-
graphic market within which to test the merger. The
judge based his conclusion on the fact that NI Industries,
Ine., the largest secondary producer, has for years main-
tained smelters in various parts of the country and sold
on a national basis, negotiating national supply contracts
with battery manufacturers covering their production
throughout the country. An important purpose of RSR’s
acquisition was to permit it to compete more effectively
with other national sellers of lead, and by virtue of its
acquisition it has been enabled to sell in almost every sec-
tion of the country. (I.D. pp. [103a-104a])

Respondent objects to the ALJ’s conclusion while com-
plaint counsel quarrel with certain subsidiary findings,

*The same conclusion with respect to secondary lead has been
reached in a monopolization ease, United States v. American Smelt-
ing and Refining Co., 182 F. Supp. 834, 853-55, (S.D.N.Y. 1960).

13la

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

Respondent argues that lead recycling is essentially a re-
gional business, and that transportation economies dictate
that recyclers sell within a radius of a few hundred miles
from their plants. As a result argues respondent, RSR
and Quemetco before the merger sold principally in the
limited number of states surrounding their smelters, with
very little geographical overlap. Both, in respondent’s
view, were regional producers, whose marketing areas co-
incided only insignificantly.’

Market definition is seldom an easy task and this case
is no exception. The nature of secondary lead production
is such that any approach to defining one or more appro-
priate “sections of the country” within which to test a
merger is unlikely to be wholly satis*ying to those who
would aspire to absolute precision. The Supreme Court
has recognized, however, that the language of Section 7
does not require delineation of the section(s) of the coun-
try in which a merger may affect competition “by metes
and bounds as a surveyor would lay off a plot of ground.”
United States v. Pabst Brewing Co., 384 U.S. 546, 549
(1966). Our review of the evidence in this case convinces
us that on balance the United States as a whole is a
proper market within which to evaluate the effects of the

1° Respondent’e answer to the complaint appears to acknowledge
the existence of a national market, while denying that either of the
acquisition partners participated in it. Thus, respondent averred
in Paragraph 15 of its amended answer that
“... there are regional markets in addition to the national mar-
ket, that prior to RSR’s acquisition of Quemetco in October,
1972, RSR and Quemetco each participated in some of said
regional markets but not others, and that prior to that acquisi-
tion, neither RSR nor Quemetco was a participant, in any
meaningful sense, in the national market.”

132a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

challenged merger, albeit regional submarkets might also
be appropriately designated.

To be sure, the area in which a secondary lead producer
is likely to compete will be heavily influenced by the loca-
tion of its plants. Shipment sizes of secondary lead are
rarely large enough to justify train transportation, (I.D.
182) and trucking tariffs do not provide the same favor-
able rates over long distances as do trains. (I.D. 183-185).
As a result, all things being equal, a secondary producer
would prefer to sell to those accounts closest to the supply-
ing plant, All things, however, are rarely equal, and un-
der appropriate circumstances seconda1 y producers will
ship product over substantial distances.

There are no physical limitations on the distances which
lead may be shipped, only economic ones, A smal] plant
located in the midst of a heavy consuming area may be
able to market its entire output within that area. This is
illustrated by Quemetco’s City of Industry (Los Angeles)
smelter, which shipped its output average distances of only
66 miles in 1971 and 57 miles during the first ten months
of 1972. On the other hand, a plant less favorably situ-
ated (perhaps as the result of shifts in demand patterns)
may find it necessary to ship longer distances to find an
outlet for its supplies. A dramatic illustration of this
phenomenon appears to be Quemetco’s Seattle smelter
whose average shipping distances were 027 miles in 1971

The Commission has caleulated the average shipping distance
for secondary lead output of RSR’s plants gp hero aig ee
transferred intra-company for internal consumption) from raw
data compiled by respondent and introduced by complaint counsel.
The results of these calculations are arrayed and explained in the
PRS sec ge to wor en as ms Commission’s reasons for re-
Jecting the analysis of the raw data i
relied upon, in part, by the ALJ. Pay Ae een and

PN IA Ewin nanis ial kets

133a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

and 554 miles during the first 10 months of 1972. To reach
major consuming areas in California the Seattle plant
shipped more than 45% of its output (exclusive of that
consumed internally for production of lead oxide) to loca-
tions more than 700 miles from Seattle. In 1971 the cor-
responding figure exceeded 40%. (Appendix).

Shipping distance may also be a function of the inter-
action of plant size and economies with market conditions.
A larger, more efficient plant can ship its output farther,
as the ALJ found, because lower unit production costs
permit absorption of larger freight costs. (I.D. 214) RSR’s
Dallas plant is by far the largest of those involved here
and it made substantial shipments of lead to the Midwest
“in order to maintain a market position” (I.D. 214) and
to the Kast.”

Shipped output of secondary lead was transported ap-
proximately 300 miles on average from the Dallas plant
in 1971, and over 400 miles during the first 10 months of
1972. During this latter period more than 30% of the
secondary lead sold by the Dallas smelter was trucked to
consumers more than 700 miles from the plant, including
7.6% shipped over 1500 miles to areas in the East and
10.9% shipped between 900 and 1000 miles. (Appendix).

Thus, while average shipping distance was approxi-
mately 220 miles for Quemetco’s plants during the 1971-72
period preceding the merger, and 275 miles for RSR’s, it
is clear that plants of both companies had the capacity

18 The law judge also found that RSR was considering establish-
ment of a new plant in the Miawest. Preliminary findings indicated
such a plant would not be feasible, and plans were subsequently
abandoned when Quemetco, with its Midwestern (Indianapolis)
facility was acquired. (I.D. 283-234)

134a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

to, and did, compete substantially in market areas far
more distant.

Respondent, in arguing against its presence in a national
market, makes much of the ALJ’s findings that substan-
tial sales by Quemetco and RSR were limited to a fraction
of the 50 states, with significant overlap in only a few.
Thus, the ALJ found that nearly all of Quemetco’s sales
in the 1971-72 period preceding the merger were made
within 11 states surrounding its plants (I.D. 194), while
RSR shipped more than 1% of its plant output to only
13 states. (RX 29C) All told, Quemetco shipped to 16
states in 1971 and 15 during the first 10 months of 1972.
RSR shipped to 20 states and 19 states respectively dur-
ing these periods. (I.D. 198, RX 29C) RSR did not ship
to the West Coast, where Quemetco sold most of the out-
put of its Seattle and City of Industry plants. (I.D. 204).

These figures, however, tell only part of the story. In-
clusion of the Wallkill plant, for which Quemetco was
soliciting customers at the time of the merger, adds several
states in which Quemetco was for all intents and purposes
competing when it was acquired. Moreover, in large areas
of the country consumption of lead generally and anti-
monial lead in particular is virtually nil (I.D. 220, OX
19X) and the absence of shipments to states in these areas
is of correspondingly slight significance. Undeniably, both
Quemetco and RSR prior to the merger were actually sell-
ing in (or soliciting business in the case of Quemetco’s
Wallkill plant) or within reasonable shipping range of,
areas of the country accounting for the major share of

domestic lead consumption. As the law judge found, in |

1972 Quemetco made sales from existing plants or ex-
pected to sell from its Wallkill plant in states whose lead

135a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

consumption represented 70% of total U.S. lead consump-
tion, while RSR made sales in states whose consumption
represented 80% of total U.S. lead usage (I.D. 226). With-
in 300 miles of Quemetco’s four plants, including Wallkill,
lie 22 states which accounted for 78% of United States
lead consumption in 1972. Similarly, within 800 miles of
RSR’s plants, a distance to which the Dallas smelter
shipped more than 20% of its output during the first 10
months of 1972** were states which accounted for 87.5%
of total lead consumption in 1972. Corresponding statistics
for secondary lead are not available (Tr. 654), but the
record does contain statistics on consumption of antimouial
lead (CX 19X, Table 16) which indicate, as complaint
counsel point out, that the 13 states surrounding Que-
metco’s four plants accounted for 59% of antimonial lead
consumption in 1972, while the states within the 300 mile
radius cited by the ALJ accounted for well over 60% of
such consumption. RSR in 1971 shipped lead to states ac-
counting for over 70% of U.S. antimonial lead consump-
tion. (CX 19X, Table 16; LD. p. [54a], n.7)*

18 The figure cited in I.D. 227 is 13.4% of consumption. Our
20% figure is based upon the computations contained in the ap-
pendix, and excludes secondary lead production which was con-
sumed internally by the Dallas plant, and which was counted as
being shipped zero miles for purposes of the ALJ’s computation.

* The administrative law judge refused to use figures pertaining
to total lead consumption in determining the existence of a national
secondary lead market. While this was certainly understandable,
we think complaint counsel are correct in pointing to data on anti-
monial lead consumption in the absence of existing information on
secondary lead. Inasmuch as the output of primary smelters con-
sists almost entirely of non-antimonial lead while the output of
secondary smelters consists of 70% or so antimonial lead, and sec-
ondary shipments consist of a much larger fraction since most
secondary pure lead is used internally, figures with respect to anti-

136a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

Other indicia of a national market cited by complaint
counse} include common customers and common prices, or
at least nationwide pricing interdependence. The law judge
appears not to have considered theg& factors important
in his decision. While such factors do not militate un-
ambiguously in favor of the designation of a national
market, they do on balance lend support to it.

As the ALJ recognized, secondary lead nroducers
throughout the nation share the same principal customers,
the major battery manufacturers. These manufacturers,
however, all maintain multiple plant locations, which are,
as a rule, serviced by smelters located in their general
geographic area. In disregarding commonality of cus-
tomers as a factor, the judge in effect seems to have viewed
each plant as a separate purchaser, leading to the conclu-
sion that smelters in different sections of the country do
not share the same buyers.

It is clear, however, that to some extent, the small num-
ber of companies to which secondary lead producers sell
does affect the nature of the market. Thus, a firm with
capacity to supply various regions of the country can con-
tract on a national or wide-regional basis with the few
major customers involved to supply multiple battery plant
locations nationwide or at least within several large re-
gions of the country. (I.D. 187, Tr. 520-21) Moreover, the
fact that a lead smelter supplies a customer in one region
of the country with product, may, by virtue of that cus-
tomer’s nationwide business lead the smelter to compete
in other regions of the country as well.

There is, for example, discussion by respondent about
“accommodation” sales, occasional deliveries to a cus-

monial lead constitute a reasonable proxy for secondary lead con-

sumption figures.

137a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

tomer’s distant plant designed to tide it over during a

period of shortage. A smelter selling to a battery plant

nearby may be required to accommodate a plant far away
in order to retain the manufacturer’s patronage. RSR
seeks to explain most of its long distance sales on grounds
they constituted just such accommodations. Assuming
arguendo that is so, it does not derogate from RSR’s or
any accommodator’s status as a competitor for the busi-
ness of that distant plant. The fact that a company serv-
iced by a smelter in one region of the country can count
on accommodative supplies to another plant in a different
region of the country means that such customer need not
be prey to whatever more onerous emergency arrange-
ments a secondary producer with a smelter nearer by might
be willing to make. In such a case the accommodating
supplier has competed, or shared customers with the nearer
would-be supplier just as surely as if it were next door.

Evidence with respect to pricing patterns also supports
the designation of a national market. There is one na-
tional published price for lead, with frequent discounting
throughout the country. The size of regional discounts,
however, is likely to respond quickly to competitive con-
ditions in neighboring regions. (I.D. 229) As prices rise
in any given area, smelters at increasing distances have
an economic incentive to ship into that area. (Tr. 1301,
1419) While quantification of this phenomenon must -nec-
essarily be imprecise, the record does suggest some of the
relevant dimensions. According to a graph of transporta-
tion costs prepared by respondent*® it would cost 1 cent
per pound to ship lead roughly 300 miles by truck common

** RX 27. The graph reflects shipping costs at the time it was
prepared, apparently 1975 (Tr. 841-843).

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Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

carrier, 2 cents per pound to ship it approximately 750
miles, and 3 cents to ship a pound of lead roughly 1350
miles. The respective costs of shipping by RSR’s private
trucking would be somewhat less. What these figures imply
is that relatively small price increases in one region will
render economical the transshipment of product from
plants far removed. For example, a 1 cent per pound rise
in the price of lead in a particular area (a 5%-7% increase,
CX 61E) would enable a smelter already transporting its
product an average distance of 300 miles to ship that
product on average an additional 450 miles while main-
taining the same profit margin. Thus any recycler or group
of recyclers which would seek to raise prices in its sur-
rounding territory must take into account the possible com-
petitive response of firms with plants hundred> of miles
distant, and such distant firms are in turn limited in their
behaviour by the presence of plants hundreds of miles
distant from them. The result can only be a significant
measure of nationwide pricing interdependence. See
United States v. Bethlehem Steel Corporation, 168 F. Supp.
576, 598-600 (S.D.N.Y. 1958).

For the foregoing reasons we find that the law judge
was correct in designating a national market within which
to evaluate the instant merger. The largest firm in the in-
dustry, National Lead, does compete indisputably in a
nationwide market, U.S. v. Grinnell Corp., 384 U.S. 563,
575 (1966), and RSR viewed the Quemetco acquisition as
a means of enabling it to compete throughout this same
nationwide market. While shipping costs place a constraint
on the distance to which individual plants are likely to send
their product, the constraint is only relative, and individual
smelters can and do frequently ship product into regions

palit i ii a

139a

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

far distant from their plants, a factor which, combined
with the presence of only a few major customers creates
a substantial measure of regional interdependence. More-
over, the acquired firm, Quemetco, possessed plants (in-
cluding Wallkill) located throughout the country and serv-
ing, or (in the case of Wallkill) about to serve sections of
the country accounting for a very large proportion of total
lead and antimonial lead consumption. RSR similarly sold
in areas of the country accounting for a large share of such
consumption, and actual sales activity by the two firms
overlapped in at least two major consuming regions, the
Midwest and East, cf. United States v. Bethlehem Steel
Corp., supra.

While it is clear from our review of the evidence that
it might well be possible to define appropriate regional sub-
markets within which to test this merger,’* the existence

4*Tt should be noted, however, that designation of particular
regional submarkets would be fraught with imprecision and un-
certainties suggested by the preceding discussion, a point perhaps
recognized by respondent which has declined throughout the pro-
ceedings to suggest what regional markets it believes are appro-
priate alternatives to the national market alleged in the complaint.
In particular, it would make little economic sense to treat as rele-
vant markets only those states in which the acquired firm actually
made substantial sales at the time of its acquisition. For this reason
we believe the Supreme Court’s decisions in United States v. Marine
Bancorporation, 418 U.S. 602 (1974) and United States v. Con-
necticut National Bank, 418 U.S. 656 (1974) upon which respon-
dent relies, are inapposite. The Court in the bank cases dealt with
an intensely localized industry whose members exerted a competi-
tive effect only within a narrow radius, coextensive with or barely
larger than that from which their customers were drawn. See
Umited States v. Philadelphia National Bank, 374 U.S. 321, 358
(1963). Restriction of the permissible geographic market to the
county in which the acquired bank was marketing its services to a
significant degree was thus underpinned by the economic realities
of the situation. We do not believe that in taking the approach it

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Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

of such is “not a basis for the disregard of a broader line
of commerce that has economic significance”, United States
v. Phillipsburg National Bank, 399 U.S. 350, 360 (1970).
The market for secondary lead obviously partakes of both
national and regional characteristics. What this suggests
is not that it is impossible to designate an appropriate
“section of the country” for purposes of antitrust scrutiny
but rather simply that designation of an appropriate mar-
ket does not end the analysis and divest the Commission
of an obligation to keep in mind the multifaceted character
of the market in its analysis of anticompetitive effects.

Anticompetitive Effects

The ALJ found that RSR’s acquisition of Quemetco may
tend substantially to lessen competition in the national
market for secondary lead. Any analysis of this issue must
begin with the substantial concentration in secondary lead
production, concentration which this merger aggravated
severely, In 1971, the year prior to the challenged merger,
the top four secondary lead producers accounted for
64.43% of industry shipments and the top eight firms for
79.81% of such shipments. (I.D. 263) By 1972, the respec-
tive four and eight firm figures had increased to 65.4 and
81.41%, (I.D, 264) By far the largest factor in the market
was, and remains National Lead. RSR, in second place,
accounted for 12.16% of production, and Quemetco, in fifth
provided 7.02% of U.S. secondary lead shipments in 1972.
(I.D. 257) The merger created a new number two firm

did the Supreme Court meant to set forth a standard requiring that
in widely differing industries economic realities justifying broader
markets be ignored.

a i a i

l4la

Opinion and Final Order of
the Federal Trade Commission, December 2, 1976

accounting for 19.18% pro forma of industry shipments in
the year of the merger, and increased 4-firm concentration
from 65.4% to 72.41% pro forma, and from 81.41% to
83.77% pro forma for the top eight firms. (I.D. 264-265)

Moreover, the foregoing figures if anything understate
the actual imminent increase in concentration resulting
from this merger, because Quemetco’s productive capacity
at the time of the merger was about to increase by a sub-
stantially larger amount than the quantum of productive
capacity lost to RSR by the closure of its Newark smelter.
This results from the fact that Quemetco’s Wallkill and
new Indianapolis smelters, both designed’ to produce from
30-36,000 tons yearly (I.D. 25-26), were not finished until
late in 1972, and their productivity is thus not included
within the available market share figures.’ When this
factor is taken into account it is evident that this merger
created a new number two company with the immediate
prospect of generating well over 20% of industry ship-
ments.

As the Supreme Court has observed in United States v.
Philadelphia National Bank:

“... [a] merger which produces a firm controlling an
undue percentage share of the relevant market, and
results in a significant increase in the concentration
of firms in that market, is so inherently likely to lessen
competition substantially that it must be enjoined in

In the case of Indianapolis, the new plant was designed to re-
place an older, somewhat smaller one. (I.D. 260) With respect to
the eastern region, the cited market share figures do include the
output of RSR’s Newark plant, but its capacity was considerably
less than that of the Wallkill plant with which RSR in essence re-
placed it, and even less than the 24,000 ton plant which RSR had
planned to construct as a substitute (I.D, 343).

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the absence of evidence clearly showing that the merger
is not likely to have such anticompetitive effects.”
[374 U.S. 321, at 363 (1963) ]

Quite clearly, concentration figures of the magnitude of
those present in this case must give rise to a presumption,
or prima facie case of illegality, Philadelphia National
Bank, supra; see United States v. General Dynamics Corp.,
415 U.S. 486, 497 (1974). Moreover, the loss in competition
which is likely to result from the disappearance of separate
competitive entities in the highly concentrated secondary
lead industry need not be left solely to presumption in this
case, since the record contains documented instances in
which RSR’s acquisition of Quemetco was followed by the
exaction of more restrictive terms from certain customers
of both RSR and Quemetco than had previously been in
existence, (I.D, 348-351)

While the ALJ concluded that “[t]he record does not
establish as complaint counsel contend, that RSR’s acqui-
sition of Quemetco enabled it to ‘force’ supply contracts
upon such large customers as ESB and Prestolite” (I.D. p.
[108a], n. 11), the ALJ did find that RSR’s post-acquisition
terms to its buyers were less flexible than those previously
in effect. Thus, RSR instituted contractual arrangements
for the purchase of lead where previously such had seldom
existed (I.D. 349). These contracts had a 2-year term
committing buyers to purchase specified tonnages of lead
at specified future prices. The representative of at least
one customer, Prestolite, testified that it did not have such
contracts with any other supplier and the contracts limited
its ability to negotiate elsewhere. (I.D. 350). Finally, an
agent of ESB testified that his company had 1-year tolling

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agreements with both RSR and Quemetco at the time of
the merger, which permitted ESB to “purchase our ma-
terial more economically”, but was obliged to enter into a
less favorable straight purchase contract with RSR when
the tolling agreements expired (I.D. 351, Tr. 254-256). The
witness was of the view that Quemetco’s disapperance as
an independent competitor and supplier had unfavorably
altered ESB’s position in bargaining for supplies of sec-
ondary lead, (Tr. 256)

RSR seeks to denigrate the significance of the concen-
tration data by arguing that the areas of actual competitive
overlap between itself and Quemetco were slight, and thus
that national concentration figures overstate the degree of
actual competitive foreclosure. It also attempts to take
the sting out of the concentration evidence by pointing to
new industry entrants and the absence of insurmountable
barriers to new entry.

While the record does not permit a precise statistical
analysis of the trend of concentration in secondary lead
over time, it does reflect a somewhat larger number of
exits than entries during the period preceding and imme-
diately following the merger, including both exits by bat-
tery manufacturers (compare I.D. 274-284 with I.D. 271)
and exits by independent producers (compare I.D. 285-291
with I.D. 271). Certainly there is nothing here to suggest
that concentration in the secondary lead industry (the
effects of RSR’s merger aside) has been declining during
any period of time preceding or following the merger. If
anything the record suggests the contrary."

18 We should note, that even were the record to point (as it does
not) to a decline in concentration exclusive of this merger, such a
consideration could not weigh heavily in the face of the high ab-

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Barriers to entry are obviously not insurmountable, but
they are clearly significant. Construction of a 40,000 ton
secondary smelter would today cost around $10 million
(I.D. 302), and may require as much as three years, (I.D.
304). The necessity for expensive quality control equip-
ment (I.D. 303) and stringent environmental and occupa-
tional safety and health standards have combined to raise
the costs of smelter operation and hasten the exit of smaller,
technologically obsolescent firms from the industry, (I.D.
291) while increasing the costs associated with de novo
entry.

Although battery manufacturers are seemingly strong
candidates for entry into the secondary lead industry, the
record reflects a considerable lack of success by some in
their smelting operations, and a reluctance by many to
incur the different set of problems occasioned by the pro-
duction of secondary lead. (I.D. 276-277, 282-283).

Evidence concerning the existence of potential competi-
tors and the height of barriers to their entry may be of
relevapze in a horizontal merger case by giving some in-
dication of the extent to which anticompetitive abuse facil-
itated by the merger will be allowed to occur before new
competition is encouraged to enter and bring a halt. But
even proof of low entry barriers (not present here) can
be at most of slight exculpatory value in the face of prob-
able anticompetitive effects, since all it suggests is that
such effects may be smaller or shorter-lived, not that they

to show a violation in a case such as United States v. Von’ P
L - Von’s Grocer
Co., 384 U.S. 270 ( 1966) involving comparatively small tharient
shares and comparatively low concentration. It is obviously not
necessary 1n a case involving large shares and high concentration.

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are unlikely to occur. Ekco Products Co., 65 FTC 1163,
1208 (1964), aff'd. 347 F. 2d 745 (7th Cir. 1965). Here, in
any event, the record points to the existence of substantial
entry barriers, and this, if anything, enhances the force
of other evidence suggesting a likely anticompetitive im-
pact from the merger.

We must also reject RSR’s contention that the incrim-
inating national concentration and production figures need
be discounted in light of the limited extent to which Que-
metco and RSR actually made sales in the same states at
the time of their merger. Since the record establishes that
the market for secondary lead is of national scope, and
that prices in one region may directly affect prices else-
where, the national figures lose no force by virtue of the
fact that actually consummated sales by the merging par-
ties overlapped only in certain states. These national
figures reflect the total supply of secondary lead and the
number and size of independent sources available to meet
fluctuations in demand throughout the nation. As such,
the figures are reliable indicators of the competitive effects
of this merger.

Moreover, our own analysis leads us to c

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1394%3A2. Public record. Not legal advice.