eastman€¦ · home depot says it will phase out chemical used in vinyl flooring by rachel abrams...

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


I. "hreshold Issues Like Product: chemical structure is not the same

Eastman 168™ Q i ^ p

Source: https://www.youtube.com/watch?v=pSltKhdCon4


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.



• 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.

© 2 0 1 7 Baker & McKenzie LLP 7


• 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.


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.

© 2 0 1 7 Baker & McKenzie LLP id

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.


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


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.


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.

© 2017 Baker & McKenzie LLP 1A

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.



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



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


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.


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

© 2017 Baker & McKenzie LLP

Eastman Experienced a Cost-Price Squeeze

2014 2015 2016

• COGS per unit Gross Profit per unit


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.


eastman€¦ · home depot says it will phase out chemical used in vinyl flooring by rachel abrams...

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