The Competition Council (CC) has concluded its market surveillance of the scrap metal sector, identifying several significant barriers to market entry for new companies and finding that the number of undertakings operating in the sector has almost halved over the past ten years.
The market surveillance was initiated in response to submissions from market participants regarding existing problems in the sector, including regulatory issues, market structure, and access to infrastructure. The aim of the surveillance was to assess the competitive situation in the market and analyse the structure of the specific market in Latvia, identifying the companies operating in the scrap metal procurement market (primarily ferrous and non-ferrous scrap metal) and the impact of existing market participants on competition.
The CC concluded that, although a relatively large number of companies still operate in Latvia’s ferrous and non-ferrous scrap metal market, this number has declined by almost half in the last decade, potentially reducing competition in the long term. It was also established that companies belonging to TOLMETS group own nearly half of all active scrap collection sites, and in 2023 they controlled 57.8% of the total sector turnover. Such market power, enhanced by the advantages created by the scale of TOLMETS group companies' operations and pronounced vertical integration, with TOLMETS management controlling the entire operational chain from scrap metal collection in group companies to its realization, significantly hinders the ability of smaller market participants to compete on equal terms.
The surveillance also identified barriers to entry for new undertakings in the scrap metal procurement market. Regulatory requirements, including the process for obtaining permits and the level of financial security required, are time-consuming and financially burdensome, while the establishment of collection sites often encounters both regulatory challenges and public opposition. In addition, substantial initial investments are needed, with long payback periods, alongside the necessity to acquire specific equipment. New market entrants are further discouraged by the fact that the market is dominated by a company able to benefit from economies of scale in processing scrap metal. This reduces the ability of smaller market participants to compete effectively, which may influence market dynamics.
After evaluating the results of the market surveillance, the CC has asked the Ministry of Climate and Energy to review the regulations that set financial security requirements for scrap metal management companies. The CC has proposed assessing the possibility of linking the amount of financial security to the number of collection sites owned by a market participant, thereby ensuring proportionality between a company’s operational scale and its financial burden. The CC notes that the current financial security system imposes a proportionally greater burden on small market participants than on large ones and does not promote fair competitive conditions. At the same time, the CC reminds that it has previously asked the Ministry of Smart Administration and Regional Development to periodically, at least once every three to five years, to review the regulatory requirements for all categories of activities subject to financial security, to ensure that they reflect the current situation in the sector.