Safeguard duty sought on HDPE, LLDPE imports

Published September 9, 2020, 6:00 AM

by Bernie Cahiles-Magkilat

The Philippines has launched safeguard investigation on high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE) pellets and granules saying import surges have caused serious injury to the domestic industry.

 In a notification to the World Trade Organization’s (WTO) Committee on Safeguards, the Philippines said it initiated on September 4, 2020 a “preliminary safeguard investigation” on HDPE and LLDPE pellets and granules.

The investigation was initiated on the basis of the petition submitted by the domestic petrochemical industry represented by the country’s biggest petrochemical firm JG Summit Petrochemical Corporation (JGSPC) which claimed that increased imports of HDPE and LLDPE pellets and granules caused serious injury to the domestic industry in terms of declining domestic sales, production, utilization rate, reduction in labor productivity, incurred losses, suppression, depression and increase inventory.

In its petition, JGSPC has sought for safeguard duty of P15,000 per metric ton.

Based on the preliminary investigation by the Department of Trade and Industry, HDPE imports rose by 9 percent in 2018 and 26 percent in 2019.

Imported HDPE recorded a 274 percent growth rate over the five-year period. Imports in 2020 (Jan– April) increased by 9 percent from 2019 (Jan – April) level.

Thailand, Singapore, Malaysia, and Saudi Arabia are the major suppliers during the period of investigation.

As a result, the share of imports to domestic production increased from 17 percent in 2015 to 45 percent in 2016. As of 2019, the share of imports went up to 69 percent.

In terms of capacity utilization rate of local manufacturer, it declined to its lowest in 2019 at 67 percent.

In addition, the DTI noted that local producer JGSPC is currently undertaking the  construction of an additional 250 kTA PE plant that will be able to produce both HDPE and LLDPE that will bring JGSPC’s combined PE production capacity to 570 kTA, in an effort to match projected local market demand in the short to medium term.

As the petrochemical complex itself already exists and has many of its utilities outside battery limits available or requiring minimal modification to accommodate increase in capacity, the production economies of scale are improved as well as overall costs to produce and sell.

For LDPE, the DTI said that evidence showed that serious injury to the domestic industry was caused by significant increase in the volume of imported LLDPE in 2016 (5%), 2018 (38%) and 2019 (9%).

As such, the domestic industry suffered a loss of market share, declining domestic sales, production, utilization rate, reduction in labor productivity, cost of production, incurred losses and increase inventory.

 The condition of competition showed that the market share of domestic products decreased during the period of investigation from 46 percent in 2017 to 21 percent in 2019, as the share of imports in the domestic market significantly increased.

The Philippines also noted that the US and Middle East petrochemical plants are heavily cost-advantaged versus Asian petrochemical plants.

The US shale gas boom has led to an oversupply of PE, which is primarily intended for export and is expected to flood Asian markets, it said.

In addition, the US-China trade war has caused the displacement of usual trade flows, giving rise to increased exports into the Philippines.

 
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