EU Commission fines in first purchasing cartel in the chemical sector

On 22 January 2021, the European Commission published a non-confidential version of its decision to fine ethylene purchasers Orbia, Clariant and Celanese a total of EUR 260 million for participating in a cartel aimed at purchasing ethylene at the lowest possible price, to the detriment of ethylene sellers. Westlake, a fourth participant, applied for and received full immunity having disclosed the existence of the cartel.

This case is the first purchasing cartel in the chemical industry in Europe to be sanctioned under the Commission’s 2006 Guidelines on fines. Unlike most cartels where companies collude to increase their own sale prices, in purchasing cartels a group of competitors collude to coordinate their purchasing strategies with the objective of reducing the purchase prices associated with certain key inputs or otherwise controlling supplier conduct (e.g. by limiting supplier output).

In the present case, the Commission found that from December 2011 to March 2017, the four ethylene purchasers – Westlake, Orbia, Clariant and Celanese – coordinated their future behaviour through bilateral contacts to influence price negotiations with ethylene sellers to obtain the lowest possible price for ethylene. The cartel participants also exchanged competitively sensitive information on the status of those negotiations and other general market trends relating to important elements of the price of ethylene (e.g. prices of raw materials).

Since the cartel related to collusion on purchase prices, the Commission used the value of purchases (instead of the value of sales) to set the level of fines under the 2006 Guidelines on fines. The Commission also took into account the potential short term liquidity issues of companies due to the impact of the coronavirus outbreak and extended the due date for the payment of the fines from three months to six months, consistent with the practices established by Commission Decision C(2020) 4584 of 10 July 2020.

Purchasing cartels are comparatively rare but this case underlines the Commission’s determination to maintain the integrity of supply chains and take robust enforcement action against buyers who seek to cooperate and suppress supply prices to their own advantage. Prior to this case, in 2017, the Commission had imposed fines of EUR 68 million on three recycling companies for colluding to reduce the purchase price paid to scrap dealers and collectors for used car batteries in the Car Battery Recycling case (AT.40018). In the Spanish (AT.38238) and Italian raw tobacco (AT.38281) cases of 2004 and 2005, the Commission imposed fines of EUR 20 million and EUR 56 million, respectively, on companies that had colluded in respect of purchases made from tobacco growers.

The Commission investigation and the price of ethylene

The Commission started its investigation in June 2016 following an application for immunity by ethylene purchaser Westlake. In May 2017, the Commission carried out unannounced inspections at the premises of Celanese, Clariant and Orbia in Germany and the Netherlands. Soon thereafter, all these companies also applied for immunity or alternatively a fine reduction.

Ethylene is a colourless flammable gas widely used in a range of industries and applications such as the production of plastics, anaesthetics or specialty glass for the automotive industry. Ethylene purchasers usually buy ethylene under supply agreements. The purchase price of ethylene is very volatile (e.g. due to fluctuating raw material prices) and in order to reduce the risk of price volatility, ethylene supply agreements apply pricing formulas such as the Monthly Contract Price (the ‘MCP’), an industry price reference resulting from individual negotiations between ethylene buyers and sellers.

In order to establish an ethylene MCP for a given month, two separate but identical bilateral agreements (so-called ‘settlements’) between two different pairs of suppliers have to be reached. After one pair of a supplier and a buyer have reached an agreement on the price for the following month, they communicate that price to private and independent reporting agencies. These agencies publish this agreement to the market (the ‘initial settlement’) and once another pair of buyer and supplier settles at an identical price, this becomes the MCP for the following month which is published by those agencies.

The Commission investigation revealed that from December 2011 to March 2017, the four ethylene purchasers – Westlake of the US, Orbia of Mexico, Clariant of Switzerland and Celanese of the US – coordinated their future behaviour through bilateral contacts to influence the MCP ‘settlement’ negotiations with ethylene sellers to their advantage and thus purchase ethylene at the lowest price possible.

The parties also exchanged competitively sensitive information on the status and future outlook of MCP ‘settlement’ negotiations with ethylene sellers, actual pending offers received and their readiness to accept those offers, as well as general market trends relating to important elements of the price of ethylene.

The practices covered the territory of Belgium, France, Germany and the Netherlands. Even though the companies were based outside the EU, the Commission still had jurisdiction over the cartel since their anticompetitive behaviour directly impacted ethylene prices in the EU.

Fines, leniency and settlements

On 14 July 2020, the Commission imposed fines totalling EUR 260 million on Orbia, Clariant and Celanese for breaching EU antitrust rules. Westlake was not fined as it revealed the cartel. By doing so it avoided a fine of EUR 190 million. All four companies admitted their involvement in the cartel and agreed to settle the case.  This case is the 33rd cartel settlement decision since the adoption of the 2008 Settlement Notice (the latest settlement decision – number 34 – was adopted on 29 September 2020 in the Closure Systems cartel, AT.40299).

The fines were calculated on the basis of the Commission’s 2006 Guidelines on fines. However, since the cartel related to price-fixing among buyers, the Commission did not refer, as usual, to the value of annual sales when determining the fine amount.  Instead, it based its assessment on the annual value of purchases of ethylene in the EU supplied pursuant to arrangements using MCP-related pricing formulas (judging that ethylene purchases made without reference to MCP pricing formulas were unrelated to the infringement).

This departure by the Commission from conventional fining principles is in line with its treatment of prior purchasing cartels, including in the Car battery recycling case (AT.40018), with the Commission’s approach to fines confirmed by the General Court in T-222/17, Recylex v Commission.  Consistent with the General Court’s findings, the Commission in this case held (at paragraphs 143 and 144) that “[t]he inherent objective of purchasing cartels is not to increase the (purchase) price but, on the contrary, to reduce it or to prevent its increase.” Therefore, “[t]he more successful the cartel members were in reducing the purchase price, the lower the value of purchases on which the fine is calculated would be”. Consequently, the Commission concluded that “the value of purchases itself is unlikely to be an appropriate proxy for reflecting the economic importance of the present infringement”.

Since the very object of the cartel was to artificially lower the purchase price of ethylene, the Commission, using its discretion afforded under point 37 of the 2006 Guidelines on fines, decided to increase the amount of the fine for all companies by 10% to achieve a sufficient level of deterrence. In line with previous case law, this increase does not require the Commission to prove that the infringement had any actual effects on the market (case T-240/17, Campine NV and Campine Recycling NV v Commission).

In setting the amount of the fine, the Commission took into account the duration of the infringement, the individual weight of the companies in the infringement, their overall size and the fact that Clariant had previously been sanctioned for a similar infringement.

In addition, the Commission applied its 2006 Leniency Notice, granting full immunity to Westlake for revealing the cartel. Orbia, Clariant and Celanese benefited from reductions of their fines for actively cooperating with the Commission during the investigation. The reductions were proportionate to the duration of each party's participation in the cartel and the extent to which the evidence provided helped the Commission to prove the existence of the cartel. On this basis, Orbia was granted a reduction of 45%, Clariant 30% and Celanese 20%.

Orbia, Clariant and Celanese each received an additional 10% discount on the fines for admitting their involvement in the cartel and for reaching a settlement with the Commission under the 2008 Settlement Notice. The final amounts imposed were EUR 22 million on Orbia, approximately EUR 156 million on Clariant (which includes a 50% increase for recidivism for a cartel in 2005 in the market for monochloroacetic acid – case AT.37773, MCAA) and approximately EUR 82 million on Celanese.

On 25 September 2020, Clariant brought an action before the General Court seeking the annulment or alternatively a reduction of the fine of approximately EUR 156 million, despite having reached a settlement with the Commission (case T-590/20, Clariant and Clariant International v Commission). Clariant claims that the Commission breached the principle of proportionality and sound administration by failing to exercise discretion, in so far as the Commission mechanically applied a fine increase (of approximately EUR 94 million) on the grounds of recidivism without appropriately considering the specific circumstances of the case. The appeal is currently pending before the Court.