463 - industry visit report - australian paper (draft) · as well as the 80 gsm weight which...

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A4 Copy Paper – Australian Industry Visit Report – Paper Australia Pty Ltd

INVESTIGATION 463

ALLEGED DUMPING OF A4 COPY PAPER

EXPORTED FROM

AUSTRIA, FINLAND, THE REPUBLIC OF KOREA, THE RUSSIAN FEDERATION AND THE SLOVAK REPUBLIC

VISIT REPORT - AUSTRALIAN INDUSTRY

PAPER AUSTRALIA PTY LTD

THIS REPORT AND THE VIEWS OR RECOMMENDATIONS CONTAINED THEREIN WILL BE REVIEWED BY THE CASE MANAGEMENT TEAM AND MAY NOT REFLECT THE FINAL POSITION OF ANTI-DUMPING COMMISSION

March 2018

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CONTENTS

CONTENTS ................................................................................................................................................................. 2

1 BACKGROUND .................................................................................................................................................. 3

2 THE GOODS ...................................................................................................................................................... 4

2.1 THE GOODS ............................................................................................................................................................ 4

3 THE AUSTRALIAN INDUSTRY ............................................................................................................................ 5

3.1 MANUFACTURING IN AUSTRALIA ................................................................................................................................. 53.2 LIKE GOODS ............................................................................................................................................................ 53.3 CONCLUSION .......................................................................................................................................................... 6

4 AUSTRALIAN MARKET ...................................................................................................................................... 8

4.1 BACKGROUND ......................................................................................................................................................... 84.2 MARKET STRUCTURE................................................................................................................................................. 84.3 MARKET SIZE........................................................................................................................................................... 9

5 VERIFICATION OF SALES ................................................................................................................................. 11

5.1 VERIFICATION OF SALES DATA TO AUDITED FINANCIAL STATEMENTS .................................................................................. 115.2 VERIFICATION OF SALES DATA TO SOURCE DOCUMENTS .................................................................................................. 115.3 RELATED PARTY CUSTOMERS .................................................................................................................................... 125.4 IMPORTS BY APPLICANT ........................................................................................................................................... 125.5 EXPORT SALES ....................................................................................................................................................... 125.6 SALES – CONCLUSION.............................................................................................................................................. 12

6 VERIFICATION OF COST TO MAKE AND SELL ................................................................................................... 13

6.1 VERIFICATION OF COSTS TO AUDITED FINANCIAL STATEMENTS ......................................................................................... 136.2 VERIFICATION OF COSTS TO SOURCE DOCUMENTS ......................................................................................................... 136.3 COSTS TO MAKE AND SELL – CONCLUSION ................................................................................................................... 13

7 ECONOMIC CONDITION OF THE AUSTRALIAN INDUSTRY ............................................................................... 14

7.1 APPLICANT’S INJURY CLAIMS..................................................................................................................................... 147.2 COMMENCEMENT OF INJURY AND ANALYSIS PERIOD ...................................................................................................... 147.3 FORM OF INJURY EXPERIENCED ................................................................................................................................. 147.4 VOLUME TRENDS ................................................................................................................................................... 147.5 PRICE SUPPRESSION AND DEPRESSION ........................................................................................................................ 167.6 PRICE UNDERCUTTING ............................................................................................................................................. 187.7 REVENUE.............................................................................................................................................................. 197.8 PROFITS AND PROFITABILITY ..................................................................................................................................... 207.9 OTHER ECONOMIC FACTORS ..................................................................................................................................... 217.10 FACTORS OTHER THAN DUMPING .............................................................................................................................. 237.11 CONCLUSION ........................................................................................................................................................ 23

8 UNSUPPRESSED SELLING PRICE ...................................................................................................................... 24

9 APPENDICES AND ATTACHMENTS .................................................................................................................. 25

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1 BACKGROUND

On 19 March 2018 the Commissioner of the Anti-Dumping Commission (the Commissioner) initiated an investigation into the alleged dumping of A4 copy paper exported to Australia from Austria, Finland, the Republic of Korea (Korea), the Russian Federation (Russia) and the Slovak Republic (Slovakia). Public notification of the initiation of the investigation was published on the website of the Anti-Dumping Commission (the Commission). The background relating to the initiation of this investigation is contained in Consideration Report No. 463 (CON 463) and Anti-Dumping Notice (ADN) No. 2018/39.

The application was lodged by Paper Australia Pty Ltd (‘Australian Paper’ or ‘AP’) requesting that the Assistant Minister for Science, Jobs and Innovation and Parliamentary Secretary to the Minister for Jobs and Innovation (Parliamentary Secretary) publish a dumping duty notice in respect of A4 copy paper exported from Austria, Finland, Korea, Russia and Slovakia.

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2 THE GOODS

2.1 The goods

The goods the subject of the application (the goods) are:

uncoated white paper of a type used for writing, printing or other graphic purposes, in the nominal basis weight range of 70 to 100 gsm and cut to sheets of metric size A4 (210mm x 297mm) (also commonly referred to as cut sheet paper, copy paper, office paper or laser paper).

The applicant provided further details as follows:

The paper is not coated, watermarked or embossed and is subjectively white. It is made mainly from bleached chemical pulp and/or from pulp obtained by a mechanical or chemi-mechanical process and/or from recycled pulp.

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3 THE AUSTRALIAN INDUSTRY

3.1 Manufacturing in Australia

AP’s manufacturing facilities relevant to A4 copy paper production are situated at its Maryvale mill. The Maryvale mill is located in the Gippsland region of Victoria and commenced operations in 1937.

AP explained its production process for copy paper, its production facilities and financial systems. The verification team is satisfied that at least one substantial process in the manufacture of the goods is carried out in Australia.

3.2 Like goods

Like goods are defined under section 269T(1) of the Customs Act 1901 (the Act)1 as:

goods that are identical in all respects to the goods under consideration or that, although not alike in all respects to the goods under consideration, have characteristics closely resembling those of the goods under consideration.

AP provided information on the physical, commercial, functional and production likenesses between imported A4 copy paper and A4 copy paper manufactured by the Australian industry. This is detailed below.

3.2.1 Physical likeness

AP submitted in its application that “…Both the imported goods and the goods produced by the Australian industry are white paper cut in rectangular sheets and generally wrapped in reams of 500 sheets, but also sold in packs containing different numbers of sheets. Both are what the Australian consumer would recognise as white copy paper. Unless placed side by side, the average consumer would be unlikely to notice any difference between them.

In the Australian market, the predominant sheet size and basis weight is A4, 80 gsm. The old imperial sheet sizes have fallen out of use. As well as the 80 gsm weight which dominates the Australian market, some 70 gsm, 75 gsm, 90 gsm and 100 gsm is used together with small amounts of heavier weights used for special purposes.

The imported goods and the goods produced by the Australian industry are physically alike in all practical aspects.”

3.2.2 Commercial likeness

AP submitted in its application that “…The imported goods and the goods produced by the Australian industry compete for the same market. In particular, a significant portion of the Australian market is goods wrapped and sold as the purchaser’s own brand (‘Private Label’). In this portion of the market, together with the ‘plain wrap’ and generic products,

1 All legislative references in this report are to the Customs Act 1901, unless otherwise specified.

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there is direct head-to-head competition between imported goods and the goods produced by the Australian industry. At different times in the past, Australian Paper has previously supplied several of the purchaser’s brand products now sourced from imports, due to the high degree of interchangeability of the Australian produced and imported products.

Where the goods are wrapped and sold in the manufacturer’s brand and are heavily promoted, e.g. Australian Paper’s ‘REFLEX®’ brand, there is some short term decoupling of price, but ultimately the end consumer will switch based on the trade-off between price, service and reputation. Low import pricing has in recent years been the limiting factor of price growth for all market segments, given that private label and branded products compete in the same market channels…”

3.2.3 Functional likeness

AP submitted in its application that “…Both the imported goods and the goods produced by the Australian industry are used in the same range of applications, including high speed and low speed copying, printing (both on computer printers and small offset printers), and general use in business, education and home offices as well as in small offset printers.

The imported goods and the goods produced by the Australian industry are functionally alike in all practical aspects.

In the domestic markets of the exporting countries, the goods produced by the exporters in the nominated countries which are generally comparable with the goods sold in the Australian domestic market. There are also lower priced goods which have significantly inferior appearance (e.g. lower brightness, lower whiteness, poor surface finish, specks, inconsistency etc.) and, at times, functionality (e.g. unsuited to high speed duplex copying or printing) when compared with the ‘export grade’ goods.”

3.2.4 Production likeness

AP submitted in its application that “…The paper production and finishing processes are substantially identical across the large scale industry. Whilst some ‘non-integrated’ mills, use pulp purchased from bleached pulp mills located elsewhere, other ‘integrated’ mills, such as Australian Paper mill in Maryvale Victoria, have their own bleached pulp mills on site.

The imported goods and the goods produced by the Australian industry are manufactured using equipment and processes which are alike in all significant practical aspects and which are as described in [the application]…”

3.3 Conclusion

While the locally produced goods are not necessarily identical to the goods the subject of the application, the verification team is satisfied that the locally produced goods closely resemble the goods the subject of the application and are like goods given that:

• the primary physical characteristics of imported and locally produced goods are similar;

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• the imported and locally produced goods are commercially alike as they are sold to common end users;

• the imported and locally produced goods are functionally alike as they have the same end-uses; and

• the imported and locally produced goods are manufactured in a similar manner.

The verification visit team is satisfied that:

• A4 copy paper manufactured by AP is like to the goods;2

• at least one substantial process of the manufacture of A4 copy paper by AP is carried out in Australia;3

• the like goods were, therefore, wholly or partly manufactured in Australia by AP;4

• there is an Australian industry, consisting of AP, which produces like goods in Australia.5

2 Subsection 269T(1) 3 Subsection 269T(3) 4 Subsection 269T(2) 5 Subsection 269T(4)

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4 AUSTRALIAN MARKET

4.1 Background

AP advised that in Australia, cut sheet paper (copy paper, office paper or laser paper) is predominantly A4 (210 x 297 mm) in size and 80 gsm in weight with a much smaller quantity sold in other sizes (i.e. A3 and A5). AP also advised that small quantities of A4 copy paper is sold in other sheet weights of 70, 75, 85, 90 and 100 gsm.

4.2 Market structure

AP submitted that the Australian market is supplied by itself (as the sole Australian manufacturer) and imports from a number of countries.

4.2.1 Marketing

The Commission identified three broad categories of A4 copy paper in the Australian market during Investigation 341. AP confirmed these categories, being:

• manufacturer brands;

• private label/customer brands; and

• plain or generic labelled brands.

Notwithstanding these brand categories, AP claims that end users are unlikely to discern significant physical or functional differences between brands, other than brand recognition and price, particularly where promotions are in place.

4.2.2 Distribution, supply and competition

AP confirmed the key supply channels for A4 copy paper in Australia. These are the retail, corporate stationery, resellers and the original equipment manufacturer (OEM) sectors. These key supply channels sold to three categories of end-user:6

• home and home office/small office;

• medium and large business, government and education; and

• industrial users including instant print and in-plant printing operations.

AP stated in its application that copy paper supply channels are concentrated through a limited number of national resellers and retailers. AP provided information (in its application and at the verification visit) on proportions of the channels it supplied and its understanding of the key competitors operating within each of the key supply channels.

6 AP confirmed that these end-user categories and supply channels had not changed since Investigation 341.

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As there are no significant product substitutes in the market, both AP goods and imported A4 copy paper products are sold to the same key end users, via the same supply channels, resulting in direct competition.

4.2.3 Demand

As discussed in detail at section 4.3 below, AP claimed that stockpiling cessation by a particular importer has caused a market correction and therefore overall decline in the size of the Australian market. AP claimed that whilst this “de-stocking” was occurring, there was decreased demand for new imports and local production alike.

Removing the temporary effects of this de-stocking and accounting for the corrected market, AP estimates that domestic copy paper consumption is decreasing at a rate of approximately 3 per cent per annum. AP advised that a declining market creates a situation for increased competition for market share through the concentration of resellers and retailers driven by decreasing prices.

4.2.4 Market consolidation

AP provided a summary of its understanding of the key office paper supply channels in the Australian market. The verification team identified that there appeared to be some market consolidation occurring with:

• AP’s acquisition of BJ Ball’s Edward Dunlop Office Products (EDOP) division in 2016;

• paper merchants - K.W. Doggett Fine Paper and BJ Ball merging to Ball & Doggett in 2017;

• stationers – Officemax acquisition by Winc in 2018; and

• stationers – Lyreco acquisition by COS in 2018.

The potential sale of Officeworks (touted in 2017) and the entry of Amazon into the Australian market were also identified as possible sources of retail distribution change for cut paper.

4.3 Market size

In its application AP provided an estimate of the size of the Australian A4 copy paper market, which demonstrated a contracting market after the 2015 calendar year. AP claimed that the overall contraction of the market from 2016 is a result of an importer ceasing to stockpile the goods, which subsequently “corrected” the market to a typical size. AP provided a copy of the [confidential source] Report7 and examination by the verification team confirms that this was one of the possible contributing scenarios to explain the decline in market size, however [confidential source] analysis relies on certain assumptions without the presentation of data and information sources. Further,

7 The Report referenced is marked Commercial in Confidence as it uses confidential Australian Paper data as well as other data sources.

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[confidential source] drew other conclusions on the reasons for the decline in market size for cut paper, including process automation and content digitisation.

Figure 1: The verification team’s estimate of the total Australian A4 copy paper market (MT)8

The verification team has utilised the analysis performed by the Commission in CON 463 and observes that AP’s estimate of the size of the Australian market follows the same annual contraction between the 2014 to 2016 calendar years, with a small increase in 2017.

Figure 1 also supports AP’s claim that it increased domestic sales volumes during the investigation period.

The verification team’s assessment of the Australian A4 copy paper market is at Confidential Appendix 1 – Market and Economic Performance.

8 In Investigation 341, PT. Pabrik Kertas TJIWI Kimia TBK (an exporter of A4 copy paper from Indonesia) was found not to be dumping. For the purposes of this analysis and subsequent analysis in Chapter 7 of this report, the volume of exports from this exporter for 2014 to 2017 have been subtracted from the segment representing the volume of A4 copy paper exporter from countries subject to measures, and added to the segment for “Other countries (non-subject)”.

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5 VERIFICATION OF SALES

5.1 Verification of sales data to audited financial statements

The verification team verified the completeness and relevance of AP’s sales listing by reconciling it to audited financial statements in accordance with ADN. No 2016/30.

Details of this verification process are contained in the verification work program at Confidential Attachment 1.

The verification team did not find any issues with the verification of the sales listing to audited financial statements.

5.2 Verification of sales data to source documents

The verification team verified the accuracy of AP’s sales listing by reconciling it to source documents in accordance with ADN. No 2016/30.


With the following exceptions, the verification team did not find any issues with the verification of the sales listing to source documents:

5.2.1 Exception 1

For one of the selected sales transactions, there was a discrepancy between the customer name and the customer identification number in the sales listing.

This was substantiated by AP: the discrepancy represented a distinction between the buying group and customer. Evidence regarding this is contained in Confidential Attachment 1.

5.2.2 Exception 2

Two sales transactions showed a sales quantity of 0kg and a sales revenue of $0, and their invoice dates did not match those of the source documents provided.

This was substantiated by AP: one of the two transactions was a rebate that was finalised at a date subsequent to the original sale, which also accounted for the discrepancy in dates; the other transaction was a time-stamp that had been captured by the system when the original transaction was opened at a subsequent date, which also accounted for the discrepancy in dates. Evidence regarding this is contained in Confidential Attachment 1.

5.2.3 Exception 3

Some documents provided by Australian Paper did not show the sales quantity (kg) of select transactions.

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This was substantiated by AP: material weight conversion comes from the master data setup when the product is created, automatically converting sales to kg. Evidence regarding this is contained in Confidential Attachment 1.

5.2.4 Exception 4

Rebates had been applied to all but one of the selected transactions without any documentation being provided explaining how and why these were applied.

This was substantiated by AP: [confidential information regarding rebate calculation]. AP provided documentation to verify the applicable rebate for selected transactions.

5.2.5 Exception 5

Each sales transaction had a delivery expense of $0, despite AP advising that few (if any) transactions were ex-works (or equivalent) sales.

This was substantiated by AP: [confidential information regarding delivery arrangements and cost allocation].

5.3 Related party customers

AP advised that it did not make sales to related parties during the investigation period.

5.4 Imports by applicant

AP advised that it imports small volumes of cut sheet paper from Europe. AP explained that this paper has a range of grammages, with the higher part of the gsm range being outside the goods description. AP explained that the lower part of the gsm range for these goods are like goods. The verification team confirmed through analysis of data from the Australian Border Force (ABF) that this paper was imported from Austria during the investigation period.

5.5 Export sales

During the investigation period, AP made export sales of A4 copy paper. Export sales formed approximately [confidential information regarding percentage] of overall sales of like goods by AP.

5.6 Sales – conclusion

The verification team considers that AP’s sales in Appendix A4 is a reasonably complete, relevant and accurate reflection of the sales of A4 copy paper during the period from 1 January 2017 to 31 December 2017.

Accordingly, the verification team considers AP’s sales data in Appendix A4 are suitable for analysing the economic performance of its A4 copy paper operations from 1 January 2017 to 31 December 2017.

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6 VERIFICATION OF COST TO MAKE AND SELL

6.1 Verification of costs to audited financial statements

The verification team verified the completeness and relevance of AP’s cost data by reconciling it to audited financial statements in accordance with ADN. No 2016/30.


With the following exceptions, the verification team did not find any issues with the verification of the cost data to audited financial statements

6.1.1 Administration expenses

All costs, including selling, general and administrative (SG&A) expenses, were provided on a quarterly basis. The amount for AP’s administration and corporate expenses was negative for one quarter of the injury analysis period. AP advised this was due to a reversal of an accrual at the end of the year. The verification team has therefore allocated the administration and corporate expenses on an annual basis for each year of the injury analysis period.

6.1.2 Stock revaluation

AP included amounts for stock revaluation in its SG&A expenses, which fluctuated between positive and negative amounts on a quarterly basis. The verification team notes that AP’s cost to make and sell (CTMS) already comprises the actual cost to make like goods in each quarter, whereas the stock revaluation reflects changes in costs from the previous quarter. The verification team has therefore has excluded these amounts from AP’s CTMS.

6.2 Verification of costs to source documents

The verification team verified the accuracy of AP’s cost data by reconciling it to source documents in accordance with ADN. No 2016/30.


The verification team did not find any issues with the verification of the costs data to source documents.

6.3 Costs to make and sell – conclusion

The verification team considers that AP’s CTMS data in Appendix A6 is a reasonably complete, relevant and accurate reflection of the actual costs to manufacture and sell A4 copy paper during the period from 1 January 2014 to 31 December 2017.

Accordingly, the verification team considers AP’s CTMS data in Appendix A6 (as amended as described in 6.1.1 and 6.1.2) is suitable for analysing the economic performance of its A4 copy paper operations from 1 January 2014 to 31 December 2017.

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7 ECONOMIC CONDITION OF THE AUSTRALIAN INDUSTRY

7.1 Applicant’s injury claims

AP claimed in its application that it suffered injury from allegedly dumped A4 copy paper imports in the form of:

• price suppression;

• price depression;

• reduced profits and profitability;

• reinvestment unattractiveness;

• reduced return on investment / sales.

The verification team’s analysis of the economic condition of the Australian industry is at Confidential Appendix 1 – Market and Economic Performance.

7.2 Commencement of injury and analysis period

AP claimed that injury from allegedly dumped imports from subject countries commenced in the 2017 calendar year as a result of importers changing supply source subsequent to imposed measures from Investigation 341.

7.3 Form of injury experienced

The verification team discussed with AP the form of injury it experienced and whether it had considered if threat of material injury from allegedly dumped imports was a form of injury in this case.

AP advised it would consider threat as a form of injury and may provide a submission to address this.

7.4 Volume trends

The verification team used the verified data submitted in AP’s application and data obtained from the ABF import database to perform the following volume analysis for the injury analysis and investigation periods.

7.4.1 Market share

Notwithstanding an overall decline in market size, as discussed in section 4.3 above, the verification team notes from figure 2 below that AP has increased its market share during the investigation period. This increase in market share is driven by AP’s increase in overall sales volume as shown in figure 3 at section 7.4.2.

The verification team notes that whilst AP has not directly applied to the Commission for an examination of unrealised market share as a result of imports from the subject countries, it has indirectly made this claim at section A-9 of its application with the claim that a portion of imports previously from Brazil, China, Indonesia and Thailand is now

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supplied by the countries subject to this investigation, due to these imports being allegedly dumped.

The verification team notes that:

• prior to the investigation period, imports of A4 copy paper from the subject countries was immaterial;

• prior to final measures from Investigation 341, AP was able to increase market share in 2016, in a declining market and these 2016 volumes were a direct replacement for a portion of imports from Brazil, China, Indonesia and Thailand, as import volumes from other countries (including subject to this investigation) had not changed; and

• in 2017 (the investigation period) AP and imports from subject countries claimed a further portion of imports from Brazil, China, Indonesia and Thailand, with AP claiming the greater share.

Figure 2: The verification team’s estimate of market share (MT)

7.4.2 Sales volume

AP claimed in its application that it expected to experience increased sales volumes as a result of the provisional measures (applied in late 2016) and final measures from Investigation 341 (applied in April 2017) to the dumped imports of A4 copy paper from Brazil, China, Indonesia and Thailand.

Figure 3 below shows that AP did increase its sales volume overall from the prior 2016 calendar year period.

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Figure 3: AP’s sales of A4 copy paper – all grades

The verification team also notes that AP acquired EDOP in mid-2016, which had a significant impact on AP’s ability to increase sales volumes as it sought to maintain EDOP’s existing customer base and replace EDOP’s imported product with its own.9

7.4.3 Conclusion

The verification team concludes that AP has increased its market share via a relatively sharper increase in sales volumes with respect to a declining market overall and a decline in import volumes from all countries.

The verification team considers that in the absence of the allegedly dumped imports, AP may have been able to obtain greater sales volumes and market share, particularly with the assistance of the EDOP acquisition and its existing customer base.

7.5 Price suppression and depression

Price depression occurs when a company, for some reason, lowers its prices. Price suppression occurs when prices increases, which otherwise might have occurred, have been prevented. An indicator of price suppression may be the margin between prices and costs.

AP claimed in its application that it expected to experience recovery from depressed and suppressed prices in the Australian market as a result of the provisional measures (applied in late 2016) and final measures from Investigation 341 (applied in April 2017) to the dumped imports of A4 copy paper from Brazil, China, Indonesia and Thailand. Instead, it claims that prices from the subject countries are below that of the prices from countries currently subject to measures and accordingly, these prices have:

9 See Print21.com.au, Aust Paper buys BJ Ball’s EDOP, 29 July 2016, http://print21.com.au/aust-paper-buys-bj-balls-edop/111867

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• enabled an increase in absolute import volumes from subject countries and an increase in Australian market share;

• contributed to the ongoing price suppression and price depression experienced by AP;

• prevented the anticipated recovery from the injury experienced by previously dumped imports from Brazil, China, Indonesia and Thailand.

The verification team conducted an analysis of AP’s unit CTMS and unit selling prices (revenue) over the injury analysis and investigation periods – refer to figure 4 below.

Figure 4: The verification team’s analysis of AP’s CTMS and selling prices

7.5.1 Price suppression

The verification team notes that AP’s CTMS (weighted average over all grades) has had some year-on-year fluctuation throughout the injury analysis and investigation periods and its selling prices (weighted average over all grades) have steadily declined over the same period.

The verification team considers that AP’s verified data supports its claim that it experienced price suppression from 2016 through the investigation period in 2017, as it has not raised prices to recover its costs to manufacture and sell A4 copy in the Australian market.

7.5.2 Price depression

The verification team also considers that the declining selling prices in figure 4 demonstrates that AP has experienced price depression over the course of the injury analysis and investigation periods. The verification team considers that AP’s claim that it has not experienced its expected recovery after Investigation 341 by raising its unit selling prices in the investigation period is supported by the verified data.

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7.5.3 Conclusion

Based on the above analysis, the verification team considers that AP’s suppressed and depressed selling prices in the Australian market during the investigation period correlate with the presence of the allegedly dumped imports of A4 copy paper from Austria, Finland, Korea, Russia and Slovakia.

7.6 Price undercutting

AP claimed in its application that subject countries undercut AP’s selling prices which enabled an increase in imports volumes from these countries. AP claim that it is these undercut prices that have caused the price depression and price suppression it has experienced in the investigation period. The verification team performed this comparative analysis by calculating a Free In Store (FIS) price, using:

• AP’s verified selling prices in the market (weighted average across all grades) and inclusive of freight;

• ABF import data for each subject country at a weighted average landed price in Australia (inclusive of ocean freight, insurance and duties);

• verified average cost for Australian port and handling and inland transport paid by a participating importer in Investigation 341.

The verification team’s estimate of price undercutting in the Australian market is at figure 5 below. The verification team notes that this analysis will evolve as verified data becomes available from cooperating exporters and participating importers.

Figure 5: The verification team’s estimate of price undercutting during the investigation period

The verification team notes that figure 5 demonstrates that:

• prices of imports from Finland, Korea and Russia undercut AP for the duration of the investigation period;

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• prices of imports from Slovakia undercut AP for the first nine months of the investigation period and rose sharply in the last quarter and were consistent with prices from Austria in the same period; however,

• despite the sudden price increase from Slovakian imports in the last quarter of the investigation period, the weighted average price over the full year was below the weighted average price for AP over the full period; and

• prices from Austria appear to not undercut AP over the full investigation period.

Notwithstanding that available information at this time shows that prices from Austria do not undercut AP’s prices during the investigation period, the verification team considers that AP’s claim of price undercutting by the allegedly dumped goods is supported.

7.7 Revenue

The verification team notes that whilst AP has not directly applied to the Commission for an examination of unrealised revenue gain as a result of allegedly dumped imports from the subject countries, it has indirectly made this claim at section A-9 of its application with the claim that a portion of imports previously from Brazil, China, Indonesia and Thailand is now supplied by the countries subject to this investigation, due to these imports being allegedly dumped.

The verification team notes that AP did not claim injury for total revenue as part of its application in Appendix A7 – other economic factors.

The verification team analysed AP’s total revenue for all grades of A4 copy paper sold with respect to the total volumes over the injury analysis and investigation periods. Figure 6 below demonstrates that AP’s total revenue did not increase at the same rate as sales volume increases. This, along with the verification team’s price analysis at sections 7.5 and 7.6 above suggests to the verification team that as AP experienced price depression over the investigation period, it did not raise its selling prices and hence has unrealised revenue gains.

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Figure 6: AP’s total revenue (all grades) comparison with total sales volume*

*Sales volume on a secondary axis

7.8 Profits and profitability

AP claimed in its application that its inability to raise unit selling prices in the investigation period has resulted in further erosion of its profits. The verification team analysed AP’s verified data and found in figure 7 that whilst AP has been able to generate a small unit profit during the investigation period, the improvement has not been significant. The verification team considers that as AP’s prices did not increase, it was not able to achieve a greater profit and therefore it is not an erosion of profits that occur in the investigation period, but unrealised profits resulting from unrealised revenue.

The verification team also observes from figure 7, that AP has improved its profitability for the production of A4 copy paper in the investigation period and whilst the profitability levels at the beginning of the injury analysis period in 2014 have not been achieved, AP appears to demonstrate some recovery.

The verification team concludes that if AP had raised selling prices, it would have generated more revenue, increased profits and therefore improved its profitability position. Therefore the verification team considers that AP has not been able to fully recover to realise healthy profitability and on the basis of this metric, it appears that AP’s production of A4 copy paper is not attractive for reinvestment.

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Figure 7: AP’s profits and profitability*

*Profitability plotted on secondary axis

7.9 Other economic factors

AP has not claimed injury to capacity, capacity utilisation, employment, wages or cashflow and noted that there have been improvements across these economic factors since 2015. The verification team examined AP’s claim and considers that the verified data supports improvements in these areas as a result of increased production and sales volumes and subsequent revenues.

7.9.1 Return on fixed assets and attractiveness to reinvest

AP claimed that the reduction in unit selling prices for A4 copy paper caused further reductions in its return on fixed assets from 2015 figures in 2016 and 2017. The verification team verified AP’s data and makes the following observations:

• AP’s return on fixed assets was calculated across all fixed assets owned by AP, including those used in the production of goods that are not like goods to the goods subject to this investigation;

• there was an improved return on those assets over the injury analysis period between 2014 and 2016, with a slight reduction on return in the investigation period; and

• the return on fixed assets calculation cannot be linked to unit selling prices for A4 copy paper as the calculation demonstrates the relationship between assets and earnings but not assets and sales.

The verification team considers that the fixed-asset turnover ratio would instead provide the link between fixed-asset utilisation, sales and reinvestment, and hence allow an examination of AP’s claims.

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The fixed-asset turnover ratio is a metric used in manufacturing to assess the effectiveness of a firm’s investment in fixed assets (Plant, Property and Equipment or PPE) to generate revenue.

The verification team used the following ratio to generate figure 8 below:

Figure 8: Fixed-asset turnover ratio for AP’s production and sales of like goods

The verification team observes from figure 8 that whilst overall, AP’s ability to generate revenue from its investment in PPE has declined, this reduction is not driven by sales and production of A4 copy paper. The fixed-asset turnover ratio demonstrates that AP has effectively used its investment in its assets to generate sales (total net revenue) in A4 copy paper during the investigation period and that if unit selling prices had been higher, so too would the fixed-asset turnover ratio.

The verification team considers that the fixed-asset turnover ratio is also useful for assessing AP’s claim that reinvestment in A4 copy paper production is not attractive. Based on figure 8, the verification team concludes that A4 copy paper production appears to be the better performing investment (based on the relationship between PPE and total net revenue) and therefore the more attractive production sector for reinvestment.

However, the verification team considers that profitability of A4 copy paper production would ultimately be the better assessment of attractiveness to reinvest as opposed to the effectiveness of asset utilisation, given that AP are looking to recover from the period of dumping in 2015 by primarily raising unit selling prices. Whilst effective asset utilisation demonstrates AP’s ability to manage its PPE investments, the lack of profits and profitability (which is inclusive of PPE utilisation) demonstrates wider concerns for earnings and therefore reinvestment in AP’s A4 copy paper business.

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7.10 Factors other than dumping

The verification team discussed with AP factors other than dumping which may have contributed to its economic performance. The following was discussed:

• business transformation costs;

• AP’s imports of A4 copy paper; and

• AP’s imports of bleached long fibre.

The verification team noted AP’s assessment that any injurious effects caused by these other factors are limited in nature and do not appear to be material to AP’s performance. Further analysis of these factors, and other factors that may arise, will be considered in the Statement of Essential Facts (SEF).

7.11 Conclusion

Based on an analysis of the information contained in the application and subsequently verified during the verification visit with AP, the verification team considers that AP has experienced injury in the form of:

• price suppression;

• price depression;

• decreased profits and profitability;

• reinvestment unattractiveness;

• reduced return on investment/sales;

• unrealised sales volumes;

• unrealised market share;

• unrealised revenue; and

• unrealised profits and profitability

A conclusion on market share will be made following analysis of verified data from importers and exporters of the goods.

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8 UNSUPPRESSED SELLING PRICE

During the verification visit, the verification team outlined the Commission’s approach to establishing an unsuppressed selling price (USP), through the following hierarchy:

• market approach: industry selling price at a time when the Australian market was unaffected by dumping;

• construction approach: the Australian industry’s CTMS, plus a reasonable rate of profit; or

• selling prices of undumped imports in the Australian market.

Having calculated the USP, the Commission then calculates the non-injurious price (NIP) by deducting costs incurred in getting the goods to the FOB point at export (or another point if appropriate). The deductions normally include overseas freight, duty, insurance, into store costs and amounts for other importer expenses and profit.

AP advised at the visit that it would make a submission on its view on the most appropriate method to calculate the USP. The Commission received a submission from AP, dated 17 April 2018, where AP recommended a methodology for calculating the USP and the form of measures to be applied.10

10 Refer to document No. 6 on the public record for investigation 463.

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9 APPENDICES AND ATTACHMENTS

Confidential Attachment 1 Verification work program

Confidential Appendix 1 Market and economic performance

463 - industry visit report - australian paper (draft) · as well as the 80 gsm weight which...

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