A financial crisis sweeping over the world exacerbates market players' anxieties. Global polyolefin industry suffers from slackening demand. China, as the market with huge potentials, attracts numerous players' attentions. Producers in Korea, the US, the Middle East and other places are looking more at the Chinese market for export orders. In the last month of 2008 and first two months of 2009, Chinese polyolefin imports increased sharply, domestic prices remained on a losing streak and producers suffered from decreasing profits. Besides, rumours are flying that anti-dumping investigation will be launched on PP/PE imports. If this is true, imports from which countries will be included? How about the process and impact on domestic market? In this context, CBI China provides the Given Anti-dumping Investigation on Imported PP/PE----Series Reports and probes into the issue with you together!

Firstly, what is anti-dumping?
Anti-dumping means taking measures with intentions to discourage importation and sale of foreign-made goods at prices substantially below domestic prices for the same items. But before the measures taken, three conditions must be confirmed: first, dumping exists actually; second, dumping does damages or has damaging threat to domestic industries, or hampers development of relevant industries; third, cause and effect relationship between dumping and damages must be confirmed.

The first condition: dumping exists actually:
A product is considered as being dumped given export prices lower than its normal values. The normal values refer to the comparable prices of the like products in the exporting countries in the ordinary course of trade. Given unavailability of equitable prices in the exporting countries, the normal values shall be export prices of the like products from the exporting country to the third country.

The second condition: damages and treats by dumping:
Damages and threats by dumping are mainly assessed from output, operating rates, sales volume, market shares, profits, sales revenue and other aspects. With a purpose to know whether Chinese polyolefin industry is influenced or not, CBI China analyses the industry in terms of selling prices, profits, output, operating rates, import volume and market shares.

Selling prices and profits
Usually, import prices are higher than domestic prices, but the situation changed in the second half of 2008. According to CBI statistics, CFR offers were far lower than domestic prices during September 2008 to February 2009. Taking imported HDPE film as an example, in June, CFR converted prices were CNY1,000/tonne lower than domestic prices and the gap was widened to CNY2,500/tonne in middle November. As a result, imports poured into China.

The calculation method to convert CFR prices into CNY prices is as follows:
CFR converted prices= (CFR prices*(1+tarrif rate)*(1+VAT)+charges)* exchange rate
Tariff rate=0.065; VAT=0.17; Charges=19.4; exchange rates vary on a daily basis.

Sources: CBI China

Plummeting import prices and increasing volumes made the Chinese market oversupplied, which pushed domestic prices down. Consequently, domestic petrochemical producers' profit was squeezed. In October, domestic prices almost fell below their cost but imports prices were CNY1,000/tonne lower, said domestic producers.

In the context, domestic petrochemical producers cut production so as to minimize deficits and ease inventory pressure, which arrested the continual price fall in late 2008.

Output and Operating Rates

According to CBI statistics, during August-September and November-December 2008, many producers, such as Shanghai Petrochemical, Yangzi Petrochemical, Maoming Petrochemical, Qilu Petrochemical, Yanshan Petrochemical, Daqing Petrochemical, Tianjin Petrochemical, either shut down production or ran at low rates, resulting in a decrease of 600,000 tonnes in outputs.

In 2008, Chinese PP output totaled to 7.38 million tonnes, up by 220,000 tonnes or 3.1% Y-o-Y. In early 2008, new granule PP units with a total capacity of 700,000 tonnes came on stream, leading to an increase of 400,000 tonnes in output given normal operation. But according to CBI statistics, the 220,000 tonnes increase from 2007 to 2008 national output was mainly from powder PP producers, reflecting low operating rates at domestic granule PP producers and nearly 400,000 tonnes idle capacity.

The PE output was 7.11 million tonnes, down by 10,000 tonnes from 2007. Maoming Petrochemical's expanded PE units with a total capacity around 300,000 tonnes/year were put into production in March 2007, leading to an increase in 2008 of 100,000 tonnes in output given normal operation, but 2008 output decreased by 10,000 tonnes from 2007 according to CBI statistics, which reflected that PE producers also ran at low rates with over 100,000 tonnes capacity idled.

Zhenhai Refinery, Tianjin Petrochemical and Dushanzi Petrochemical may postpone starting their new units (including PP/PE) with a total capacity of 3 million tonnes/year from 2009 to 2010 given unchanged bearish polyolefin market in the near future.

Import
Amid production cut at domestic petrochemical producers, import volumes saw a significant increase. In 2008, monthly PE import volume was around 350,000 tonnes on average. The volume approached 500,000 tonnes in July, December of 2008 and January 2009. Moreover, the volume is estimated to be around 500,000 tonnes in February and March of 2009.

Market Shares
Imports' shares in the Chinese market continued to shrink due to enlarged domestic capacity. In 2003, about 54% of domestic demand was met by imported PE and the proportion fell to 39% in 2007. However, the situation remained unchanged in 2007 and 2008, making it difficult to evidence existence of dumping in terms of market shares.

Sources: CBI China

Generally speaking, massive influx of imports did harm to domestic PP/PE industries, such as low operating rates at producers, shrinking profits, possible delayed start-up of new/expanded units in China. However, imports brought limited onslaught in 2008 and major reason for the bearish industries in the year was the global financial crisis. Besides, whether dumping exists shall be confirmed according to comparison between export prices and normal values in various exporting countries.

Given existence of dumping, the affair shall be analyzed carefully as imports in China are from various countries and regions.

Rumours are heard that China and Korea will have a negotiation over current situation. Whether Korean PP/PE will be under anti-dumping investigation? And how about imports from other export origins? CBI China will provide you more details in follow-up reports.