eastman€¦ · home depot says it will phase out chemical used in vinyl flooring by rachel abrams...
TRANSCRIPT
EASTMAN
Dioctyl Terephthalate from Korea USITC Public Hearing
June 13, 2017
Baker McKenzie.
Eastman 168" non-pkhaUte plastkizer
Overview 1. Threshold Issues
II. Conditions of Competition
III. Volume
IV. Subject Imports Are Having Adverse Price Effects
y The Domestic Industry Is Materially Injured by Reason of Subject Imports
VI. Threat of Material Injury
VII. Economic Factors
Vlll. Conclusion
Baker McKenzie.
I. "hreshold Issues Scope:
The scope of this investigation is dioctyl terephthalate ("DOTP") from Korea, which is sold as a colorless viscous liquid. DOTP is a general purpose non-phthalate plasticizer used as an additive in flexible PVC articles. The scope covers all DOTP, regardless of the method of manufacture, in whichever form it is presented, and whether or not blended.
© 2017 Baker & McKenzie LLP 3
I. Threshold Issues • Eastman is the sole U.S. producer of DOTP.
• Like the preliminary determination, the Commission should find a single domestic like product, co-extensive with the scope.
• Like Product: • Physical characteristics: DOTP is a unique chemical with different
physical properties than any other plasticizer
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I. "hreshold Issues Like Product: chemical structure is not the same
Eastman 168™ Q i ^ p
Source: https://www.youtube.com/watch?v=pSltKhdCon4
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I. "hreshold Issues • The Commission should find that Eastman is the domestic industry,
consistent with its definition of the domestic like product.
• No party has contested the Commission's preliminary domestic like product and domestic industry definitions.
• Imports from Korea exceed negligible levels.
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II. Conditions of Competition
• Demand has increased over the period of investigation, based, in part, on consumers and regulatory authorities' perception of phthalates and increased demand for DOTP as an alternative because of its more favorable toxicological profile.
• As a result, demand for DOTP grew in the U.S. market due to a trend favoring more environmentally-friendly compounds.
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II. Conditions of Competition
• Korea represents the largest - and growing - source of DOTP imports into the U.S. market.
• Two of the three highest volume import months occurred in 2016.
• During this period of increased demand, the domestic industry has lost market share to Korean imports of DOTP.
• Subject imports have caused lost sales, lost volumes, depressed and suppressed U.S. prices, entered the market at increasing volumes and significantly decreasing prices, and adversely affected the domestic industry's financial condition.
© 2017 Baker & McKenzie LLP
II. Conditions of Competition • Domestic DOTP and subject imports have the same chemical formula and applications.
• Both are comparable in quality, and customers use domestic and imported DOTP interchangeably.
In fact, the record contains evidence of the same U.S. purchasers switching between domestic and Korean DOTP on the basis of price.
• Both use the same channels of distribution: Distributors End Users
• The DOTP market is price-sensitive
• As a commodity product, DOTP competes primarily on the basis of price.
• When import prices for DOTP change, the domestic industry is forced to respond with similar changes to compete.
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I. Volume
• The increase in subject imports was significant in absolute terms and year-on-year.
• Subject imports increased relative to both consumption and domestic production, at the expense of domestic producers.
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IV. Price Effects
• Subject imports have pervasively undersold domestic producers across all products and channels.
• Though sales quantities increased, average unit values of these sales have declined dramatically.
• Korean product undersold U.S. product in 20 of 24 quarterly comparisons - and by significant underselling margins.
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V. Material Injury
• Eastman has experienced material injury in the form of these indicators:
Domestic Indicator
2013-2016
Profits
Net Sales Value (per unit)
Net Cash Flow * Prices
Market Share
Return on Assets
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V. Material Injury
• Increase in the volume of unfairly traded imports of DOTP from Korea that entered the U.S. caused and continues to cause material injury to the domestic industry.
• Korean imports of DOTP have undersold the domestic industry and caused U.S. price suppression and depression.
• Though sales volume increased and raw material costs fell, there was a drop in profitability as a result of the price pressure from low-cost Korean imports.
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VI. Threat • Korean producers have enormous and growing capacity.
• Korean producers are export-oriented.
• They manufacture far more DOTP than can be consumed domestically.
• Korean producers have substantially increased export volume and market penetration.
• The U.S. is the second largest destination for Korean DOTP.
• Unfair imports from Korea are depressing and suppressing domestic prices and will continue to cause adverse price effects.
• The performance trends show that the domestic industry is vulnerable to injury from unfair imports.
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VI. Threat
• The Commission is missing data on a key producer, Hanwha. • Hanwha refused to cooperate with the investigation, declining to submit a
response.
• Hanwha is a large and sophisticated chemical producer, fully capable of supplying DOTP to the United States.
• The Commission should draw negative inferences from the firm's refusal to cooperate and consider it an additional indication of threat of injury to the domestic industry.
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VII. Economic Factors
DOTP is a Commodity Product That Competes Primarily on the Basis of Price
"We find that there is a high degree of substitutability between domestically produced DOTP and the subject imports. Eastman and respondent agree that DOTP is a commodity product, and a majority of importers reported that the domestic like product and subject imports are always interchangeable."
"We also find that price is an important factor in purchasing decisions in the U.S. DOTP market. When asked about the significance of differences other than price between the domestic like product and subject imports, Eastman and a majority of importers reported that factors other than price were sometimes or never important." - Commission Opinion (Preliminary) at 26
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VII. Economic Factors
Domestic and Subject DOTP Are Highly Interchangeable • Questionnaire responses in the Final phase confirm that
domestically produced DOTP and the subject imports are highly interchangeable.
• 14 of 15 importers, and 14 of 16 purchasers reported that domestic and subject DOTP are "always" or "frequently" interchangeable.
• The Staff estimates an elasticity of substitution between domestic and subject DOTP in the range of 4-8.
© 2017 Baker & McKenzie LLP Source: Public Prehearing Report at 11-22-26.
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Major Retailers are Phasing out DINP B U S I N E S S DAY
Home Depot Says It Will Phase Out Chemical Used in Vinyl Flooring
By RACHEL ABRAMS APRIL:" 2015
L o w e ' s , t h e s e c o n d b i g g e s t h o m e i m p r o v e m e n t r e t a i l e r i n t h e U.S. b e h i n d H o m e D e p o t , h a d f a c e d s c r u t i n y a b o u t s e l l i n g v i n y l f l o o r i n g p r o d u c t s t h a t c o n t a i n c h e m i c a l s c a l l e d p h t h a l a t e s a f t e i c o n s u m e r g r o u p s r a i s e d s a f e t y c o n c e i n s a b o u t t h e m . D a v i d T . F o s t e r , I I I - d t f o s t e i ?R>chai l o t t e o b s e r v e i . c o m
BUSINESS MAY 07.201510i43 AM
Lowe's to halt sale of flooring containing phthalates by end of 2015
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DINP Prices Do Not Affect DOTP Prices
• The consensus among purchasers is that prices of DINP and other plasticizers do not affect DOTP prices.
• 15 of 19 responding purchasers reported that DINP prices do not affect DOTP prices.
• The remaining purchasers' narrative responses confirmed that DOTP and DINP are not viable substitutes in many end uses.
© 2017 Baker & McKenzie LLP Source: Aggregation of responses to U.S. Purchaser Questionnaires at III-6. 20
Conditions of Competition: Conclusion
DOTP:
• is a commodity product.
• is highly interchangeable between sources.
• has no effective economic substitutes.
• has inelastic demand with respect to price.
• These conditions, individually and taken as a whole, indicate a market where the lowest price makes the sale and reduced prices come directly out of the producer's bottom line.
• These conditions strongly support a finding of injury due to the low prices and large and increasing volumes of dumped subject imports during a period of growing demand.
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Subject AUVs were Low and Decreasing over the POI
• Subject imports undersold the domestic product in 20 of 24 quarterly comparisons.
• Average underselling margin was 8.2 percent and ranged up to 14.9 percent.
• Margins of underselling declined over the POI as U.S. producers dropped prices to match offers of the dumped subject imports.
© 2017 Baker & McKenzie LLP Source: Prehearing Report at V-12. 22
Raw Material Prices Do Not Explain Domestic Price Declines
• Raw material prices are important but do not fully explain the decline in U.S producer's prices.
• The U.S. producer experienced a cost-price squeeze, which is not consistent with declining raw material costs being the sole factor affecting domestic DOTP prices.
© 2017 Baker & McKenzie LLP Source: Prehearing Report Table VI-1. 23
Domestic AUVs Declined More than Raw Materials
Net Sales AUV Raw Materials per Unit
• 2014 2016
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Eastman Experienced a Cost-Price Squeeze
2014 2015 2016
• COGS per unit Gross Profit per unit
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U.S. Producer's DOTP Profits Declined
Subject Inventories Increased
VI I. Conclusion
• DOTP is a commodity product and competition is primarily based on price.
• Subject imports consistently undersold the domestic product and the U.S. producer was forced to lower prices to match subject offers at dumped prices.
• Subject import volumes increased significantly.
• Based on market conditions, the POI should have been a period of high profitability for the domestic industry. Instead, domestic profitability declined throughout the POI despite increasing demand, declining raw material costs, and greater productivity.
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