Affected market: Manufacturing of PET resin
The OFT’s decision on reference under section 33(1) given on 7 February
2008. Full text of decision published on 21 February 2008.
Please note that square brackets indicate text or figures which have
been deleted or replaced with a range at the request of the parties and
third parties for reasons of commercial confidentiality.
Beacon Global Limited (Beacon) is a company incorporated in
Thailand. It is at the head of the Indorama group, which is active
world-wide in the production of clothing, polyester and other yarns and
chemicals. One of its divisions is Indorama Polymers (Indorama),
which produces polyethylene terephthalate (PET) resin in Lithuania,
Thailand and the USA, and PET-based food and drink packaging in
Eastman Chemical Company’s European PTA and PET plants (the Eastman
plants) consist of a plant in Workington (the UK), producing PET resin,
and a plant in Rotterdam (the Netherlands), producing PET resin and
purified terephthalic acid (PTA). Both plants are currently owned by
Eastman Chemical Company. The UK turnover of the Eastman plants in 2006
was €[ ] million, which at the current exchange rate is around £[more
than 70] million.
Beacon, through its Indorama subsidiaries, has agreed to acquire the
assets that constitute the Eastman plants, subject, among other things,
to clearance by the relevant competition authorities.
The parties filed a satisfactory submission on 21 December 2007. The
administrative deadline is therefore 20 February 2008.
As a result of this transaction Indorama and the Eastman plants will
cease to be distinct. The UK turnover of the Eastman plants exceeds £70
million, so the turnover test in section 23(1)(b) of the Enterprise Act
2002 (the Act) is satisfied. The OFT therefore believes that it is or
may be the case that arrangements are in progress or in contemplation
which, if carried into effect, will result in the creation of a relevant
Indorama and the Eastman plants both produce PET resin in the EU. PET
resin is used to manufacture packaging materials. The Eastman plants
also produce PTA in the EU, which is one of the inputs for PET resin.
Indorama also produces PET-based packaging in Thailand, consisting of
PET containers and PET preforms (which are semi-finished PET
containers). As these products are made from PET resin, there is a
potential vertical relationship between the parties in this respect.
However, in a recent decision regarding this industry the OFT found,
taking a cautious approach, that the geographic frame of reference for
PET containers and PET preforms was not wider than the UK and the EU
respectively due to, in particular, transport costs [See note 1] As Indorama does
not produce PET containers or PET preforms in the EU, the OFT has not
further considered these products.
Product and geographic market
In its recent decision the OFT found that PTA and PET resin were
appropriate product frames of reference, with the EU as the appropriate
geographic frame of reference for PTA and, taking a cautious approach,
for PET resin [See note 2]. Indorama agrees with this finding and no third
parties submitted information to suggest a different approach. Accordingly,
the OFT has considered the present using these frames of reference.
The parties overlap in the production of PET resin in the EU. Indorama
submitted that in 2007 its share of supply was around [0-10] per cent
and that the Eastman plants’ share of supply was around [5-15] per
cent, with a combined share of around [10-20] per cent. These shares
are similar whether calculated on the basis of turnover, volume or
capacity. Third parties broadly supported these share figures.
Indorama submitted that the merged entity will face a number of
competitors. Artenius (part of La Seda de Barcelona) has a significantly
larger share than the parties, while there are four competitors that
have shares that are not much smaller than the parties’ share. In
addition, there are a number of smaller competitors as well as some
imports of PET resin from outside the EU. Competitors also have
significant spare capacity and are therefore able to expand production
in response to any price increase by the merging parties.
Barriers to entry and expansion
Indorama submitted that barriers to entry and expansion are low.
According to Indorama, although significant investments are needed to
set up a PET resin production facility, there are no other material
barriers to entry. Indorama referred to recent entry, including by
Indorama itself, which before 2006 was hardly active in the market.
Indorama also referred to examples of significant recent expansion. This
was broadly supported by third parties. However, there is no need for
the OFT to conclude on barriers to entry and expansion given its
findings in paragraphs 9 and 10 above.
Indorama submitted that buyers are generally large industrial companies
with significant buyer power. Third parties agreed that customers have a
degree of buyer power. However, there is no need for the OFT to conclude
on buyer power given its findings in paragraphs 9 and 10 above.
As a result of the merger, Indorama will acquire production capacity of
PTA, which is an input of PET resin. For a vertically-integrated firm to
have the ability to foreclose supply or market access, it must have a
degree of market power on at least one level of the supply chain. Due to
the factors set out above, the OFT does not consider that the merged
entity will have significant market power in the production of PET
resin. In addition, with regards to the production of PTA, the OFT found
in its recent decision regarding this industry that the Eastman plants'
share in the production of PTA in the EU is limited and that there are
at least three producers with a higher share [see note 3]. Hence, the
OFT does not consider that the
merged entity will have significant market power in the production of
Further, Indorama submitted that almost all of the PTA currently
produced by the Eastman plants is used in the Eastman plants' own
production of PET resin. No third parties raised any concerns about
THIRD PARTY VIEWS
No third parties raised any concerns about the merger.
Indorama and the Eastman plants overlap in the production of PET resin.
The OFT does not consider that the merger raises horizontal concerns,
due to the merged entity's limited share of supply, the presence of
strong competitors and the availability of spare capacity.
The merger will also create a vertical link, as PTA, produced by the
Eastman plants, constitutes an input for PET resin. The OFT does not
consider that the merger raises concerns in this respect, as the merged
entity will not have significant market power in the supply of either
PET resin or PTA.
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- OFT decision of 4 October 2007
regarding the anticipated acquisition by La Seda de Barcelona S.A. of
Amcor PET Packaging Europe, paragraphs 16 and 17.
- Idem, paragraphs 7 to 9 and 12 to 15.