The downstream plastics manufacturing industry has strongly opposed plans of the Department of Trade and Industry (DTI) to impose safeguard duty on imported high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE) pellets and granules stressing such move will only benefit a single entity the Gokongwei-owned JG Summit Petrochemical Corp. (JGSPC), which they blamed for the influx of imports as it cannot meet local demand.
“The Safeguard duty being sought for HDPE and LLDPE will only benefit a single entity in JGSPC with the National Petrochemical Co reportedly not in operation since 2016,” said the Philippine Plastics Industry Association (PPIA) in its letter to DTI Secretary Ramon M. Lopez.
PPIA blamed JGSPC for its failure to deliver and caused the influx of imports into the country because it could not meet the local demand requirements for their raw materials HDPE and LLDPE. JGSPC has petitioned for a safeguard duty of P15,000 per metric ton of imported HDPE and LLDPE.
HDPE is the material used to make plastic bottles for alcohol, disinfectants, soaps and detergents. It is also used to make plastic bags and packaging materials. LLDPE is mostly used for the packaging of food.
In 2018, PPIA said major industry players were prompted to secure their raw material requirements from dependable sources, and in this case, imports. The group noted that JGSPC presentation also showed a sharp 22 percent decline in production outputs to 72 percent of plant capacity and this may be attributed to the cracker monitored to run only 70 percent capacity for the months covering May to June of the said year, along with other commercial or operational concerns.
It added that the October to November 2019 cracker shutdown attributed to the increase of 18 percent imports for the year based on its record.
“Major downstream players had no choice but to divert and commit volumes that used to be allocated to domestic resin producers to foreign suppliers to ensure a steady supply,” said PPIA Incoming President Danny Ngo.
“The current 320,000 MT capacity of JGSPC is not enough to fill the demand of the local downstream industry and import is needed to fill the gap. Supply shortage is also aggravated by frequent stoppage of JGSPC’s production. These are the factors that contribute to increased import of PE raw materials,” the group pointed out.
According to the group, the domestic PE (HDPE and LLDPE) domestic and export demand ranges from 400,000MT to 450,000MT per year (2015-2019 data).
“JGSPCs plan to expand and increase its production capacity to 520,000MT per year in 2021 will need to have a secured domestic or export market to be viable,” the PPIA added.
Furthermore, following the principle of multi-supplier to ensure continuity of operation of the domestic downstream industry, the downstream industry said they should not be expected or mandated to procure 100 percent of its raw material requirement from a single source.
“The local plastics downstream industry can no longer afford to make sacrifices (over twenty long years is more than enough) in favor of the midstream sector which in the current state can be considered as a monopoly with a sole operating entity in the market,” they added.
The group also belied the claims of net losses as presented by JGSPC as the reason for its application for safeguard duty. On the contrary, PPIA said that JGSPC is earning billions every year as shown in the audited consolidated financial statements submitted to Securities and Exchange Commission on April 14, 2020.
It added that JGSPC did not lose money during the 5-year period in review in spite of the huge depreciation expenses attributed to its expansion.
PPIA further pointed out that the P15,000 per metric ton safeguard measure sought by JGSPC is equivalent to 30 percent tariff imposed on the raw materials and will translate to a 15-20 percent additional cost for packaging material and finished goods. This will put the local downstream manufacturing and converting industry at a gross disadvantage and drive markets to cheaper imports. Not only will the imports be in the form of plastic products or packaging, but this will result in the importation of finished consumer goods products.
As it is, PPIA said a big majority of consumer goods like personal care and food products are already imported, especially those where the volumes are high and this can be attributed in high cost of production and raw materials in the Philippines. Adding a safeguard tariff on HDPE and LLDPE raw materials will result to further losses of market to local businesses. This will result in an import surge of Plastic Finished Products and Finished Goods.
“The PPIA, speaking for and on behalf of the downstream plastics industry along with the thousands of local MSME manufacturers and its allied industries that had invested billions of pesos in plant and equipment, and provides employment to hundreds of thousands of Filipinos, strongly opposes the Safeguard Duty (P15,000.00 or $300.00 per ton in the application or any amount),” it added.
“Granting the request for a safeguard duty that will benefit a large conglomerate at the expense and demise of thousands of small businesses does not make good policy sense and is not aligned with the vision and objectives of the current administration that is mindful of the plight of the majority. The Filipino people should not be made to pay for the failures of big investment as this will set a very bad precedent.”
On September 4, 2020, the Philippines has launched a preliminary safeguard investigation on HDPE and linear low-density polyethylene LLDPE pellets and granules saying import surges have caused serious injury to the domestic industry.
The investigation and subsequent notification to the World Trade Organization was initiated on the basis of the petition submitted by the domestic petrochemical industry represented by the country’s biggest petrochemical firm 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.