ARCELOR/CORUS MERGER INQUIRY

Market information request

replied by Ispat Polska Stal SA
ul. Chorzowska 50, 40-121 Katowice, Poland

Contents

A. General Information

B. The market(s)

C. Pricing

D. Customers

E. Production

F. Barriers to entry, expansion and exit

G. The merger

A. General information—Your business

1. Please provide details of:

(i) the volume of annual HRSSP production for each of your mills –

HRSSP are produced in Dąbrowa Górnicza branch unit (formerly Huta Katowice)
only at heavy section mill.
Yearly production during the last few years was as follows:

Year Production in thousand metric tonnes

2001 49,4

2002 62,7

2003 49,3

(ii) the proportion of each mill’s total output accounted for by this HRSSP production,

Year Share of HRSSP production in total

production of heavy section mill

2001 6,5 %

2002 6,7 %

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 2003 5,1%

(iii) details of any other products produced at each mill,

Dąbrowa Górnicza Branch (formerly Huta Katowice)

Heavy section mill is unit situated at Dąbrowa Górnicza Branch. DG Branch is an integrated
steel plant with crude steel capacity is ca. 5,3 million tpy.

Besides sheet piles the product range of heavy section mill at IPS SA Dąbrowa Górnicza
Branch includes:
− sections for steel structures (channels, angles, beams)
− railway and tramway rails,
− sections for mining supports

Sections

Table 1. Sections made according to European standards

Economical
Normal Flange Wide Flange Hot Rolled Unequal
Parallel Flange Equal Angles
I- Beams I-Beams Channels Angles
I-Beams
I IPE HE … A, B, M C L L
Technical
PN93419:1997 Technical Terms HK
PN-H-93452: PN-86/H Terms HK
+Ap1:2003 WT/PT-/J.034
PN-91/H- 1997 93403+A1:1 WT/PT-/J.034
DIN 1025- PN-EN10056-
93407; DIN 1025-2÷4: 996
5:1994 PN-EN10056-2: 2:
DIN 1025- 1994 PN-
EURONORM 1998+Ap1:200
1:1995 EURONORM 86/H93400: 1998+Ap1:2003
19-57 PN-EN10056-1: 3
PN-EN 10024: 53-62 2003
EN 2000 PN-EN10056-
1998 EN 10034:1993 DIN 1026-1:
10034:1993 EN10056- 1: 2000
EN 10024: PN-EN 2000
PN-EN 1:1998 EN10056-
1995 10034:1996+Ap EN 10279:
10034:1996 EN10056- 1:1998
1: 1999 2000
+Ap1:1999 2:1993 EN10056-
2:1993

HE 200A
I 200 IPE 200 HE 200B C 200
HE 200M
HE 220A
I 220 IPE 220 HE 220B C 220
HE 220M
HE 240A
I 240 IPE 240 HE 240B C 240
HE 240M
HE 260A
I 260 C 260
HE 260B

2
 HE 260M
IPE 270
HE 280A
HE 280B C 280
HE 280M
HE 300A
I 300 IPE 300 HE 300B C 300
HE 300M
HE 320A
HE 320B
HE 320M
IPE 330
I 340
I 360 IPE 360
I 400 IPE 400
I 450 IPE 450
I 500 IPE 500
I 550 IPE 550
*- production may be activated upon negotiations

Table 2. Sections made according to BS, JIS, GOST, WT , ZN.

Japanes
Special Special Wide Flange e Economic
American I, H –
Economica Economic I -Beams Economi al
Columns and Beams acc.
l al cal Channels
Beams to JIS
I-Beams I-Beams Channel
s
IPE … A HE … AA HE ... C UB, UC JIS C …E
Technical Technical
Technical JIS G 3192-
terms HK
terms HK 2000 PN-71 / H-
terms HK ZN-HK JIS G
ZN-HK BS 4: Part 1 JIS A 5526- 93451
0646- 3192-
0646- EN 10034: 1993 1994 GOST
WT/TN/J.0 24:2003 2000
25:2003 ZN-91/0646- 8240-89
32
20

UC 203x203x46;
200x100
HE 200 C 52; 60;71
IPE 200AA HE 200AA 200x150 200 E
UB 203x133x25;
200x200
30
IPE 220AA HE 220AA HE 220 C
IPE 240AA HE 240AA HE 240 C 240 E*
UB
250x125
254x102x22;25;
250x250
28
HE 260AA HE 260 C
IPE 270AA 270 E*
HE 280AA HE 280 C
HE 300 C 300x150
IPE 300AA HE 300AA 300x200 300 E*
300x300

3
 HE 320AA HE 320 C
IPE 330AA
UB 356x127x33;
IPE 360AA
39
UB 406x140x39;
IPE 400AA 400x200 400 E*
46
UB 457x152x52;
IPE 450AA
60; 67
IPE 500AA 500x200
IPE 550AA
* - production may be activated upon negotiations

Table 3. Sections made according to American ASTM standard.

„C” – SHAPES „W” – SHAPES Unequal Angles

Equal Angles
C W L L

ASTM A 6/A 6M-

ASTM A 6/A 6M-02b ASTM A 6/A ASTM A 6/A 6M-02b
02b
6M-02b
(Inch sizes)
W 8x18; 21; 31; 35; 40;
C 8x11,5; 13,75
48
W 10x12; 15; 17; 19; 22;
C 10x15,3; 20
26
C 12x20,7; 25
W 14x22; 26
W 16x26; 31
W 18x35; 40; 46
W 21x44; 50; 57

Rails

Maximum possible production amounts to 350,000 MT per annum in the rail weight range of
1 running meter from 35 to 75 kgs.
The rails may be utilized for railway tracks as well as metro and tramway track systems.

The following types of railway rails are produced:

S 49, S 54, UIC 54, UIC 60, UIC 54A, 90RA-A (TR 45), 115 RE (TR 57), 136 RE (TR 68),
BS 80A, R 50*, R65*, China 50**, China 60*, IRS 52**.The most often produced rail sections
comprise types: UIC 60, S 54 and S49.

The following types tram rails are produced:

Ri 60, Ri 60N, Ri 59**, Ri 59N**, 180 S

“V” shapes and mining supports

Present capacity is in the range of 96,000 to 100,000 MT per year.

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“V”shapes are used as the primary component of mining supports in main underground
galleries of deep shaft coal mines.
Branch produces the following mining supports:
• flexible arch support type ŁP (3 and 4 segmented),
• higher flexible arch support type ŁPP (3 and 4 segmented),
• closed flexible support type ŁPZ and ŁPZS (3 and 4 segmented),
• arch-and straight “V” shapes “V”25, “V”32, “V”34, “V”36.

Production of products marked * may be activated upon negotiations

Production of products marked ** is expected to be activated shortly.

(iv) the value of annual HRSSP sales,

We are not disposed to reveal these values.

and (v) annual capacity data for each of the mills producing HRSSP products over the last five
years in the UK and European reference areas. (Where the capacity for producing HRSSP is
less than the mill’s total capacity, please provide details.) If any proportion of your production
of each of the relevant HRSSP products is used by yourself, please differentiate between net
production and sales (ie excluding ‘in house’ use) and gross production and sales in the data
you provide.

The heavy section mill at Dąbrowa Górnicza branch of IPS S.A. (formerly Huta Katowice) is
the only mill in Poland and European reference areas belonging to IPS SA, and LNM Group,
which produces HRSSP products. The annual capacity of this mill was same over the last
five years and amounted to 950.000 MT.
The total annual capacity for actual production range of sheet piles amounts to 90,000 MT
i.e. ca 10% of heavy section mill capacity.
The following types of sheet piles can be produced:
G-46, G-46/P1*, G-46/P2*,G-46/P3*;
G-61,G-61/C1*, G-61/P1.0*, G-61/P1*, G61/P1.1*,
G-61/P1.2*, G-61/P2.1*, G-61/P2.2;
G-62, G-62/C1*, G-62/P1*, G-62/P2*.

The following types of sheet piles belong to the most often produced sections of this
range:

G 46, G 61, G 62 according to EN 10248.

In comparison with leading producers of sheet piles production range of IPS SA is

very narrow and market share very low.

No sheet piles are used for “in house” use.

B. The market(s)

2. (a) Are there any alternative products or services, besides HRSSP products, which your
customers might reasonably use in place of HRSSP products? Please provide evidence.

Customers may reasonably use in place of HRSSP products:

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 - cold bended sheet piles made of steel sheet in case the project does not specify any
minimum strength required from the wall

- “H’ type poles in case of high strength required from the protection wall.

No evidence can be submitted to support this information.

(b) How effective are such alternatives? Please provide evidence.

It is hard to say how effective such alternatives are.

(c) Do such alternatives effectively compete directly with HRSSP products? Please provide
evidence.

In our opinion such alternatives do not compete directly with HRSSP products.

(d) Are particular alternatives suitable mainly for certain applications? If so, please explain
why.

Alternatives we mentioned answering the question 2a are suitable mainly for certain
applications described under 2a.

(e) Do you, or any of your competitors in HRSSP products, produce any of these
alternatives? If so, please provide details.

We do not produce any of the a/m alternatives and we do not have information on
production of these alternatives by any of our competitors in HRSSP products. However
any producer of steel sheets can easily produce cold bended sheet piles and any producer
of heavy sections of heights more then 600 mm can produce “H’ type poles

3. How price sensitive are your customers? Please provide us with any information you have
on the price elasticity of demand for HRSSP products (both the price elasticity of demand
you face and the price elasticity of demand in the market generally), and cross-price
elasticities with related products.

If our HRSSP products meet technical requirements of the customer price is key to the
success.

We have not made any research on price elasticity of demand for HRSSP products. We
assume the demand for HRSSP products. does not change because of change of prices.

4. (a) Please provide details of any other companies that might be able easily to switch to,
or start up in, the production of HRSSP (e.g. manufacturers of other long carbon steel
products not currently producing HRSSP products).

In our opinion any company having heavy section mill which currently does not produce
HRSSP products but manufacture sections of heights more than 550 may quite easily
switch to, or start up in, the production of HRSSP. However we cannot make a list of
such companies.

(b) How easy would it be from a technological standpoint for such companies to change
to the supply of HRSSP products (e.g. what new equipment, if any, would be needed)?

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 Any company which manufacture sections of heights more than 550 may to switch to, or
start up in, the production of HRSSP needs only to purchase suitable rolls and some
additional fittings.

(c) For each company, please illustrate the changes that they would need to make in
order to switch to, or start up in, the supply of HRSSP products.

Since we do not have a list of companies, which may switch to, or start up in, the
production of HRSSP, we cannot illustrate the changes that they would need to make.

(d) Please provide an estimate of the likely cost to each company of making such a
switch to, or of starting up in, the production of HRSSP products.

Since we cannot illustrate the changes that the companies would need to make a switch
to, or of starting up in, the production of HRSSP products we cannot prepare any
estimates.

(e) How would you expect the profitability of producing HRSSP products to compare to
the profitability of each company’s existing product range?

We do not make any assessment of such profitability.

(f) How high would the price charged for HRSSP products have to rise for these
companies to switch/start up?

We do not make any assessment of such price rise.

(g) Given the factors in parts (b) to (f), for each company, please outline how likely you
feel it is that they will begin supplying HRSSP products in the next year or so.

Please provide reasoning for your answers.

We feel it is unlikely that any company will switch to, or start up in, the supply of HRSSP
products in the next year or so, generally because of the existing sufficient capacity.

5. Specifically looking at the UK market for HRSSP, how do you view your long term
position in this market? Do you perceive the overall UK market to be growing? Please
explain.

We do not sell directly to the UK market. We assess that our position in UK market does
influence this market since our share in the market is much below 5%.

C. Pricing

6. Please provide details of all tenders for HRSSP products in the UK and European
reference areas that you have bid for in the last three years. Please give details of (i) the
awarding authority/customer (including any relevant reference number, e.g. invoice
number, OJEC tender), (ii) the tender date and the award date, (iii) the awarding
procedure (e.g. open tender, restricted tender, bilateral negotiation) [Note: a restricted
tender is an open tender among a pre-selected group of suppliers], (iv) the incumbent
supplier at the time of the tender, (v) the tender details (e.g. product specification, quantity,
length of contract, delivery time, intended use, whether the tender was subdivided into lots
and, if so, how many), (vi) the value of the winning bid and whether it was the lowest bid,

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 (vii) the number of competing bidders and their identities (if the tender was subdivided into
lots, please indicate which competing bidders tendered for which lots), (viii) the cost to
Arcelor of supplying the product(s) tendered for.

We have not participated in any tender for HRSSP products in the UK and European
reference areas during last three years.

As far as we know generally tenders under which one may supply HRSSP products are for
execution of civil works with usage of the machinery and equipment being at the disposal
of a contractor and materials supplied by such a contractor.

7. (a) Please outline how you set prices for HRSSP products (e.g. what are the main factors,
such as costs, that you consider when setting prices?).

We follow market prices.

(b) Are any additional costs added to the sales price, such as transport or insurance? If
so, please provide details.

Transport or insurance cots are added to sales price only if the agreed delivery terms state
that transport and insurance is our responsibility. Such costs are calculated for each
transaction individually.

(c) Do you have list prices and, if so, are these published? If so, please provide details
and price histories for each relevant HRSSP product in the UK and European reference
areas in the last five years.

We do not have list prices for HRSSP products.

(d) What discretion is there in price setting? Are individual prices negotiated with
customers? If so, please describe. (For example, which staff are involved in negotiations?
Over which aspects of the contract are staff able to negotiate, e.g. just price? How are
base prices determined? What are the procedures for negotiation, e.g. what triggers
referral to a higher negotiating authority? How are staff incentivized in negotiations, e.g.
commission? What information is available to staff involved in negotiations?)

The minimum sale prices for HRSSP products are established by the Corporate Sales and
Marketing Director. Individual prices are negotiated with customers on the basis of specific
offer quoting the offered price which follows market price and should be higher than the
minimum sale price for specific HRSSP product established by the Corporate Sales and
Marketing Director. Staff is able to negotiate the price between the offered price and the
minimum price, delivery terms and some exemptions from the standard conditions of sale.

For the time being IPS does not have any incentive system for sale staff.

The following information is available for the staff involved in negotiations

- minimum sale prices for HRSSP products established by the Corporate Sales and
Marketing Director

- information on market price of HRSSP products

- information on transport and insurance costs

- specimen of standard offer

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 (e) Are prices transparent?

Prices are transparent to the staff involved in negotiations.

(f) In general, are there any customers or groups of customers who pay more or less than
typical prices? If so, please describe the characteristics of these customers (e.g. smaller
customers, customers on short contracts, customers using particular hot-rolled steel sheet
piling for particular applications, customers in particular locations).

Since prices in contracts are agreed upon during individual negotiations it is possible that
prices for all customers are not identical. However IPS does not follow policy of price
differentiation for some specific groups of customers.

8. Please provide data on average prices for each relevant HRSSP product over the last five
years for the UK and European reference areas. Please provide this data at the highest
frequency possible (e.g. weekly, monthly).

Since such information is company’s secret, we are not disposed to reveal these prices.

D. Customers

9. Please provide, in order of importance, a list of all customers for HRSSP products in the
UK and European reference areas, and the volume and value over the past five years of
HRSSP products purchased by each. Please also indicate the nature of these customers
e.g. stockholders, contractors, end users etc.

Since such information is company’s secret, we are not disposed to reveal such list and data.

10. Do any of your customers possess buyer power? Explain your answer and provide
evidence to support it, including details of the basis of any buyer power.

None of our customers possess buyer power, because sheet piles are only one of the
products which can be rolled in the heavy section mill and we decide whether to offer or not
HRSSP products for a specific customer.

E. Production

11. (a) Please provide details of total HRSSP production capacity in the UK and European
reference areas for the last five years, split by types of relevant HRSSP products.

We do not know details of total HRSSP production capacity in the UK and European
reference areas for the last five years.
We assess that total yearly production of HRSSP products in EU 25 amounts to 900.000
MT.
However we are not in a position to split this production by types.

(b) What proportion of total heavy- and medium-section mill capacity did HRSSP capacity
account for in each of the last five years?

We may assume that HRSSP capacity in total capacity of the heavy section during the last
five years mill has been similar to the share we note in our heavy section mill which
accounts for ca. 10% of the total heavy section mill capacity.

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 (c) Please provide details of share of capacity in the UK and European reference areas for
all companies involved in the supply of HRSSP products for the last five years, split
between all relevant product categories.

We do not have detailed information in this respect.

12. (a) Please outline the production facilities at each of your mills producing heavy- and
medium-section mill products and explain any limitations these impose on each mill’s
ability to produce HRSSP products.

The HRSSP products can be produced only in heavy section mill.

Heavy section mill facilities are as follows:

MDS 5-stand BD heavy section 5 stands BD dia 1,050 x 2,500mm, Z1 dia 950 x
2,600mm, Z2 dia 850 x 2,400mm, U1 dia 1,300 x 160-600mm horizontal and dia 900 x
350 vertical, St edger dia 600-850 x 900mm, U2 dia 1,300 x 160-600mm horizontal and
dia 900 x 350mm vertical, 2-stands D1 dia 850 x 2,000mm, D2 dia 850 x 2,000mm (1.2m
tonnes);
MDS rail; rail and heavy section finishing shops (1.2m tonnes);

(b) Do you at present have any spare capacity at any of these mills that could potentially
be used to manufacture HRSSP, without displacing production of other products?

At present we do not have any spare capacity at heavy section mill that could potentially
be used to manufacture HRSSP, without displacing production of other products?

(c) Do you have any plans to develop these mills within the next three years? If so, what
effect do you expect this development to have on each mill’s capacity to produce HRSSP
products?

No.

(d) Would you consider switching some of your core production from other products to
HRSSP if the price of piling rose relative to other products?

Yes.

F. Barriers to entry, expansion and exit

13. (a) Please describe all barriers to entry and barriers to exit in the supply of HRSSP
products. Provide estimates of the cost involved in overcoming these barriers and relate
these costs to likely future sales from entry/future savings from exit. In your answer,
please explicitly consider issues such as legal or regulatory barriers, patents or know-how,
licences, the importance of economies of scale and/or scope, the minimum efficient scale
for a business and access to sources of supply. Also consider the role of incumbency
advantages in the form of information, reputation and cost as a barrier to entry.

As we stated in reply to question 4a) in our opinion any company having heavy section
mill which currently does not produce HRSSP products but manufacture sections of
heights more than 550 may quite easily switch to, or start up in, the production of
HRSSP. The cost of purchase of special rolls and some fittings cannot be considered a
barrier.

10
 In our opinion any company having heavy section mill which currently produces HRSSP
products may quite exit from the supply of HRSSP products and remain only as producer
of sections.

(b) In the light of this, do you think there will be any entry into the supply of HRSSP
products in the next three years? Explain the reasoning behind your answer. Similarly do
you think there will be any sizeable exit in the next three years? Again, explain the
reasoning behind your answer.

We do not think there will be any entry in the supply of HRSSP products in the next three
years, because there sufficient capacity.

On the other hand it is possible to note sizeable exit in the next three years because it can
be done by the producer having heavy section mill without bearing any substantial costs.

(c) Please list, in order of likelihood, all potential entrants to the supply of HRSSP products.
Please give reasons for each.

14. What effect, if any, has the expansion of the EU in May 2004 had on your answer to
question 12?

The expansion of the EU in May 2004 has had no effect on our answer to question 12.

G. The merger

15. Overall do you have any views about the competitive impact of the merger? Please explain
your answer.

We assess that the total yearly sale in EU 25 of HRSSP products originating from EU25
producers is ca. 900.000 MT, in that originating from Arcelor and Corus ca. 550.000 MT.

Merger of two producers controlling more than 50% of the EU 25 market .

We would like to express our concern with this planned merger since the combined market
share in EU 25 area of the merged unit for HRSSP products will be above 50% and a
number of strong players will be further limited. Merged unit will be Europe’s first biggest
producer of HRSSP products.

16. In your view, are there any features of the market that are conducive to, or that would
inhibit, coordinated effects (e.g. conscious parallelism in pricing or output)?

In our view, formation of a company which controls more than 50% of the EU 25 market is
a feature conducive to coordinated effects, both in conscious parallelism in pricing and
output in all production units belonging to this company.

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