DG Safeguards Initiates Review on Phthalic Anhydride (PAN), Three Producers Seek One More Year of 10% Duty to Face Import

[Safeguard Initiation Investigation F.No. D-22011/14/2012 dated 26th October 2012]

Sub: Review of safeguard Duty on imports of Phthalic Anhydride(PAN) into India under provisions of Section 8B(4) of Customs Tariff Act, 1975 read with Rule 16 and Rule 18 of Customs Tariff(Identification and Assessment of Safeguard Duty)Rules, 1997.

An application for review and extension of safeguard duty has been filed before me under Rule 5 of the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 by M/s. Thirumalai Chemicals Ltd., Ranipet, Tamilnadu, M/s. IG Petrochemicals Ltd., Raigad, Maharashtra, M/s. Mysore Petrochemicals Ltd, Raichur, Karnataka for continuation/extension of Safeguard Duty on imports of Phthalic Anhydride(PAN) into India after expiry of the existing safeguard duty to protect the domestic producers of Phthalic Anhydride(PAN) against serious injury caused by the increased imports of Phthalic Anhydride(PAN) into India.

2.    Domestic Industry

The application dated 7th September, 2012 has been filed by M/s Thirumalai Chemicals Ltd., Ranipet, Tamilnadu, M/s. IG Petrochemicals Ltd., Raigad, Maharashtra, M/s. Mysore Petrochemicals Ltd., Raichur, Karnataka for continuation/extension of Safeguard Duty on imports of Phthalic Anhydride(PAN). The application has been made by three of the five domestic producers of Phthalic Anhydride(PAN) in India accounting for 88% of the total production.

3.    Product Involved

The product under consideration is Phthalic Anhydride. It is an anhydride of Phthalic Acid, and is commercially produced by catalytic oxidation of Ortho- xylene or Naphthalene. It is a colourless solid, variously referred as Phthalic Anhydride flakes, Phthalic Anhydride (98% min.), Phthalic Acid Anhydrous, Phthalic Anhydride (99.8% min), etc. The product is produced only in one grade, though, it may be consumed as a solid or liquid in processes it is used. As regards different applications, it does not have distinguishable different types or forms. Further, it is used in production process of various chemicals, which use the same characteristic properties of Phthalic Anhydride. Phthalic Anhydride is used to produce Phthalate esters, which function as plasticizers. It is an important chemical intermediate in plastic industry. Phthalic Anhydride is classified under Customs sub-heading No. 29173500 under the Customs Tariff Act, 1975.

4.   Brief history

An investigation was initiated by the DG (safeguards) earlier on the application filed under Rule 5 of the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 [hereinafter referred to as “Safeguard Rules”] by (1) M/s. Thirumalai Chemicals Ltd, Ranipet Tamilnadu, (2) M/s. IG Petrochemicals Ltd Raigad Maharashtra, (3) M/s. Mysore Petrochemicals Ltd, Raichur Karnataka, seeking imposition of Safeguard Duty on imports of Phthalic Anhydride into India alleging that increased imports of Phthalic Anhydride was causing and/or threatening to cause serious injury to the domestic producers of Phthalic Anhydride in India. Having satisfied that the requirements of Rule 5 of Safeguard Rules ibid were met, safeguard investigation against imports of Phthalic Anhydride was initiated vide notice of initiation dated 10th August, 2011 published in the Gazette of India, Extraordinary on the same day.

4.1  After expeditious conduct of investigation preliminary findings were issued on 23rd September, 2011. Central Government levied provisional safeguard duty for a period of 180 days at the rate of 10% with effect from 17th January 2012 vide customs notification No.1/2012-Cus(SG) dated 17th January 2012 based on the recommendation of DG Safeguard.

4.2  Director General (Safeguard) issued Final Findings G.S.R. 263(E), dated the 29th March, 2012, recommending definitive Safeguard duty for a period of one year, i.e. from 17-01-2012 to 16-01-2013. The Central Government imposed definitive Safeguard duty for one year @ 10% from 17.01.2012 to 16.01.2013 vide customs notification No 3/2012-Cus(SG) dated 29th May, 2012.

4.3  As mentioned above, the safeguard duty is in vogue till 16th January, 2013. However, the instant application has been filed by the domestic industry for continuation/extension of safeguard duty for a further period of one year from the date of expiry of existing duty, with the purpose to enable the domestic industry to improve its competitiveness in order to survive.

5.    Increased Imports

Phthalic Anhydride is imported into India from a number of countries, and primarily from Republic of Korea, Israel, Iran, Taiwan, China and Russia. The imports of Phthalic Anhydride have shown an increasing trend in absolute terms as well as compared to the domestic production. The imports and domestic production of Phthalic Anhydride during 2009-10 to Q1 of 2012-13 remained as under:

Year

Unit of quantity

 

Total Imports

2009-10

MT

 

28098

2010-11

MT

 

61241

2011-12 (Q1)

MT

9752

 

2011-12 (Q2)

MT

12892

 

2011-12 (Q3)

MT

7792

 

2011-12(Q4)

MT

7983

 

2011-12 (Total)

MT

 

38419

2012-13 (Q1)

MT

12907

 

2012-13 (Annualized)

MT

 

51628

(Source : Figures from 2009-10 to Feb 2012 are from DGCIS data received in the Directorate and from March 2012 to June 2012 are from IBIS as provided by the applicant )

The Imports have increased from 7983 MT in Q4 of 2011-12 to 12907 MT in Q1 of 2012-13 which shows an increase of 62% which is phenomenal. Further, imports as a percentage to domestic production have increased from 13.54% in Q4 of 2011-12 to 23.64% in Q1 of 2012-13.

6.    Injury

The applicant have claimed that the increased imports of Phthalic Anhydride have caused and are threatening to cause serious injury to the domestic producers of Phthalic Anhydride as indicated by the following factors:

a)   Production:

YEAR

 

Index

QTY(MT)

2009-10

Q1

100

47985

 

Q2

121

58259

 

Q3

84

40437

 

Q4

110

52853

Total

 

 

199534

2010-11

Q1

116

55503

 

Q2

121

58168

 

Q3

109

52319

 

Q4

107

51271

Total

 

 

217261

2011-12

Q1

104

50124

 

Q2

107

51346

 

Q3

114

54736

 

Q4

123

58918

Total

 

 

215124

2012-13

Q1

114

54576

It is seen that production of domestic industry has fallen to 54576 MT in Q1 of 2012-13 from 58918 MT in Q4 of 2011-12. This shows that domestic production has shown a downward trend in first quarter of 2012-13, despite imposition of safeguard duty on the product wef 17 Jan 2012.

b)   Capacity Utilization:

YEAR

Quarter

Capacity utilized (%)

2009-10

Q1

72

 

Q2

87

 

Q3

60

 

Q4

79

Average for 2009-10

 

75

2010-11

Q1

83

 

Q2

87

 

Q3

78

 

Q4

76

Average for 2010-11

 

81

2011-12

Q1

75

 

Q2

77

 

Q3

82

 

Q4

88

Average for 2011-12

 

81

2012-13

Q1

81

Capacity utilization of the Domestic Industry has fallen to 81% in Q1 of 2012-13 from the preceding quarter Q4 of 2011-12 when it was 88%. Therefore, despite levy of safeguard duty on imports during this period, the capacity utilization has not improved.

c)   Share of domestic producers in domestic consumption:

 

 

Imports (MT)

Domestic Sales by Industry (MT)

Sale of other producers (MT)

Consumption in India (MT)

Market share of DI

2009-10

Q1

7240

35530

5930

48700

73%

 

Q2

5163

41289

5930

52382

79%

 

Q3

8526

39427

5930

53883

73%

 

Q4

7169

40696

5930

53795

76%

TOTAL

 

28098

156942

23720

208760

75%

2010-11

Q1

23615

39817

5938

69370

57%

 

Q2

8611

51007

5938

65556

78%

 

Q3

18082

38941

5938

62961

62%

 

Q4

10933

44553

5938

61424

73%

TOTAL

 

61241

174318

23752

259311

67%

2011-12

Q1

9752

38149

7659

55560

69%

 

Q2

12892

46947

7659

67498

70%

 

Q3

7792

42886

7659

58337

74%

 

Q4

7983

49748

7659

65390

76%

TOTAL

 

38419

177730

30636

246785

72%

2012-13

Q1

12907

46884

7367

67158

70%

From the above table, it is evident that the share of domestic industry in domestic consumption of Phthalic Anhydride has fallen to 67% in 2010-11 from 75% in 2009-10. It has slightly increased to 72% in 2011-12, but still less than the base year 2009-10. Further, it has declined to 70% in Q1 of 2012-13 from 76% in Q4 of 2011-12.

d)   Profit/loss – the profitability of the domestic industry has steeply deteriorated to such a situation that the domestic industry is now suffering financial losses. This is evident from the table below:-

Financial Year

Profitability (Indexed)

2009-10

100

2010-11

-39

2011-12

-177

2012-13 (Q1)

47

Profit of DI have fallen to 47(Indexed) in 2012-13 Q1 from 100(Indexed) in 2009-10. In between, the DI has suffered losses of 39(Indexed) in 2010-11 which mounted to 177(indexed) in 2011-12, which includes a quarter when safeguard duty was leviable.

e)   Inventories

YEAR

 

Index

QTY(MT)

2009-10

Q1

100

1604

 

Q2

380

6101

 

Q3

30

487

 

Q4

282

4530

2010-11

Q1

279

4468

 

Q2

155

2484

 

Q3

576

9232

 

Q4

356

5718

2011-12

Q1

507

8131

 

Q2

235

3774

 

Q3

58

932

 

Q4

223

3579

2012-13

Q1

273

4381

From the table above, it is evident that inventories have increased to 4381 MT in Q1 of 2012-13 from 932 MT in Q3 of 2011-12.

7.   The application has been examined and it has been found that prima facie increased imports of PAN (Phthalic Anhydride) have caused and are threatening to cause serious injury to the domestic producers of PAN despite levy of safeguard duty to the extent of 10% wef 17 January 2012 and such increase in imports has caused irreparable damage to the domestic industry. Accordingly, it has been decided to initiate a review investigation through this notice, for continuation/extension of safeguard duty on Phthalic Anhydride.

8.   All interested parties may make their views known within a period of 30 days from the date of this notice to:

The Director General (Safeguards)

Bhai Vir Singh Sahitya Sadan: 2nd Floor,

Bhai Vir Singh Marg,

Gole Market, New Delhi-110 001, INDIA.

Telefax: 011-23741542/ 23741537

E-mail: dgsafeguards@nic.in

9.   All known interested parties are also being addressed separately.

10.  Any other party to the investigation who wishes to be considered as an interested party may submit its request so as to reach the Director General (Safeguards) on the aforementioned address within 21 days from the date of this notice.