In the last six to eight weeks, I have heard numerous rumblings about an anti-trust case brought against eight US steel producers (ArcelorMittal; ArcelorMittal USA, United States Steel Corporation; Nucor Corporation; Gerdau Ameristeel Corporation; Steel Dynamics, Inc.; AK Steel Holding Corporation; Ssab Swedish Steel Corporation; Commercial Metals, Inc.) The case, Standard Iron Works vs. ArcelorMittal et al., though not a “newsworthy event from a timing perspective (the case remains in discovery), does raise plenty of interesting issues from a strategic sourcing and steel pricing perspective. We spoke to a few attorneys (some on and some off the record) who shared with us some background and insight on antitrust cases in general and this one impacting the steel industry in particular.
First a little background on the case. We should point out this case is a class action lawsuit with a named plaintiff, Standard Iron Works. According to the complaint, Standard Iron Works “purchased steel products directly from Defendants between January 1, 2005 and the present, a multi-year antitrust conspiracy amongst Defendant domestic steel producers to reduce the production of steel products in the United States in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.Specifically, Plaintiffs collectively allege that on at least three occasions during the class periodâ€mid-2005, late-2006, and mid-2007 â€each Defendant implemented coordinated production cuts for the express purpose of raising the price of steel products.
Antitrust allegations in the steel industry go back to the turn of the last century (if not earlier). In fact, US steel producers have often found themselves embroiled in antitrust litigation going back to 1911 when an antitrust case was brought against US Steel. However, we’d argue that many factors have changed in regard to global steel markets (and now more than ever, we need to include the global element to provide context for antitrust claims against US producers). According to the complaint, “A successful claim under Section 1 of the Sherman Act requires proof of three elements: (1) a contract, combination, or conspiracy; (2) a resultant unreasonable restraint on trade in the relevant market; and (3) an accompanying injury.” The complaint has proceeded to the discovery phase. One interesting note involves the Judge hearing the case, Judge Zagel (who will also preside over the Governor Blagojevich case) has published a book and appeared in two movies, “Â¦was appointed to the federal bench in 1987 by President Ronald Reagan, and while his law enforcement background has given him a reputation for leaning toward the government’s view, he is widely viewed by members of the defense bar as predictable and fair, according to this blog post from the Chicago Tribune.
So what makes this case interesting? We believe two key issues provide context and color. We’ll describe both of them here and then in a follow-up post review the case made by the plaintiffs as well as review some of the case law history. The two primary issues relate to: the markedly changed structure of the US steel industry (from many/most producers operating un-profitably, often below the marginal cost of production) to greater industry concentration and hence a fundamental shift from poor industry economics to a healthier set of economics and the role of imports in setting domestic steel prices and how those imports affected the market during the period in dispute. Other factors that we will examine include historic demand (during the time in question), the resulting economic collapse in 2008 that severely impacted the steel industry and the speed in which mills can increase/shut down capacity. We’ll also weigh the merits of the plaintiff’s case and what impact this decision could have from a buying organization’s perspective.
MetalMiner would like to thank Don Hibner an anti-trust expert with the law firm, Sheppard, Mullin, Richter & Hampton. Mr. Hibner is a member of the California State Bar, and the Bar of the United States Supreme Court, and has represented clients in federal and state antitrust proceedings for over 40 years.