08 Sep Commission recommends continued imposition of safeguard duty on HDPEs
THE TARIFF COMMISSION (TC) has recommended that the Trade department maintain or consider modification of the safeguard measure on imported high-density polyethylene (HDPE) pellets and granules as it is seen to help the domestic industry become more competitive.
“It can be concluded that the intervention was timely and proper, as it has provided breathing space for the domestic industry and has mainly contributed to its increasing competitiveness,” the Tariff Commission said in a report dated Sept. 5.
Based on the results of its monitoring, the Commission said the Trade secretary may “opt to maintain the imposition of the safeguard measure as previously determined or consider modification.”
The TC said that the modifications should reflect the efforts undertaken by the domestic industry, changes in economic circumstances, competitive discipline, and public interest, among others.
In 2022, the Department of Trade and Industry (DTI) imposed three years of safeguard duties on imports of HDPE pellets and granules to protect the domestic industry.
A safeguard duty of P1,271 is being imposed on each metric ton (MT) of imported HDPE pellets and granules. The current most favored nation rate on HDPEs is 10%.
HDPE resins are used in consumer and industrial packaging.
Under the Safeguard Measure Act, a review and monitoring of the developments in the industry must be done after more than a year of implementation of a general safeguard measure.
Based on the TC’s monitoring, import volumes dropped 14% to 110,622 MT last year from 129,083 MT in 2022, while JG Summit Olefins Corp.’s market share recovered to 49%.
JG Summit Olefins, the sole producer of HDPE pellets and granules in the country, saw a 15% year-on-year rise in sales to the domestic market in 2023, which the TC saw as “indicative of the [measure’s] effectiveness in discouraging imports.”
JG Summit Olefins previously cited oversupply of petrochemical products as one of the reasons there is depressed demand for HDPEs.
In its report, the Tariff Commission said the finished goods inventory’s share to the company’s production was trimmed to 17% last year, after the 28% high in 2022.
The Commission also found a 24% decrease in direct material costs, which allowed the company to expand its naphtha cracker plant, bringing the total capacity for ethylene production to 480,000 MT a year.
Despite the 12.58% increase in labor costs last year, JG Summit Olefins’ manufacturing and operating expenses fell 18.9% and 21.3%, respectively. These resulted in a 22.8% decline in total cost to produce and sell in 2023.
Findings in the report also showed that the safeguard measure was effective in making local HDPE pricing at par with imported products.
“In 2023, the safeguard measure increased the cost of importing HDPE. As of the first semester of 2024, the price difference between local and imported HDPE averaged P3,098 per MT, the highest since 2021,” the Commission said.
In terms of income, the Tariff Commission said that the safeguard measure along with JG Summit Olefin’s adoption of cost-minimization projects resulted in a contraction in operation losses.
The safeguard measure also helped in increasing the number of employees involved in HDPE production by 6% in 2023.
However, due to “adverse business conditions,” the domestic industry was forced to control production, resulting in a 37% decline in labor productivity to 162 MT per employee.
“Based on the foregoing, the Commission finds that the imposition of safeguard measures in 2023, which increased the price competitiveness of locally produced HDPE vis-à-vis imported HDPE, led to higher sales and an increased share of the market,” the Commission said.
“As cost of production and sales fell and production responded to business conditions, inventory pile-up was avoided, capacity utilization rates were maintained, and operating losses were cut. Labor productivity is expected to increase once production volumes normalize,” it added. — Justine Irish D. Tabile