(1)

On 4 January 2010, the Commission received a complaint concerning imports of melamine originating in the People’s Republic of China lodged pursuant to Article 5 of the basic Regulation by Borealis Agrolinz Melamine GmbH, DSM Melamine BV and Zakłady Azotowe Puławy (‘the complainants’), representing a major proportion, in this case more than 50 %, of the total Union production of melamine.

(2)

This complaint contained prima facie evidence of dumping and of material injury resulting there from, which was considered sufficient to justify the opening of a proceeding.

(3)

On 17 February 2010, the Commission announced, by a notice published in the Official Journal of the European Union (2) (‘the notice of initiation’), the initiation of an anti-dumping proceeding with regard to imports into the Union of melamine originating in the People’s Republic of China (‘the country concerned’ or ‘the PRC’).

(4)

The Commission officially advised the complainants, exporting producers in the PRC, importers, traders, users, suppliers and associations known to be concerned, and the representatives of the PRC of the initiation of the proceeding. Interested parties were given the opportunity to make their views known in writing and to request a hearing within the time limit set in the notice of initiation.

(5)

In view of the apparent high number of exporting producers in the PRC sampling was envisaged in the notice of initiation for the determination of dumping and injury in accordance with Article 17 of the basic Regulation. In order to enable the Commission to decide whether sampling would be necessary and if so, to select a sample, all exporting producers in the PRC were asked to make themselves known to the Commission and to provide, as specified in the notice of initiation, basic information on their activities related to the product concerned during the investigation period (1 January 2009-31 December 2009).

(6)

Seven replies were received to the sampling exercise from exporting producers or groups of exporting producers in the PRC. However two companies withdrew from further cooperation with the investigation at an early stage. Sampling was therefore no longer necessary and all parties were informed that a sample would not be selected.

(7)

In order to allow exporting producers in the PRC to submit a claim for market economy treatment (MET) or individual treatment (IT), if they so wished, the Commission sent claim forms to the Chinese exporting producers known to be concerned, the Chinese authorities and to other Chinese exporting producers that made themselves known within the deadlines set out in the notice of initiation. Three Chinese exporting producer groups and one individual company requested MET pursuant to Article 2(7) of the basic Regulation, or IT should the investigation establish that they did not meet the conditions for MET. One further group requested IT only.

(8)

Questionnaires were sent to all parties known to be concerned and to all other companies that made themselves known within the deadlines set out in the notice of initiation. Replies were received from five exporting producers and related companies in the PRC, one producer in the United States of America which was the proposed analogue country as mentioned in the notice of initiation, and one producer in another possible analogue country, Indonesia. Questionnaire replies were also received from three Union producers and seven users cooperated by submitting a questionnaire reply. None of the importers supplied the Commission with any information or made themselves known in the course of this investigation.

(9)

The Commission sought and verified all the information deemed necessary for a provisional determination of dumping, resulting injury and Union interest and carried out verifications at the premises of the following companies:

(10)

In view of the need to establish a normal value for the exporting producer that requested only IT and exporting producers to which MET might not be granted, a verification to establish normal value on the basis of data from Indonesia as analogue country took place at the premises of the following company:

(11)

The investigation of dumping and injury covered the period from 1 January 2009 to 31 December 2009 (‘investigation period’ or ‘IP’). The examination of the trends relevant for the assessment of injury covered the period from 1 January 2006 to the end of the investigation period (period considered).

(12)

The product concerned is melamine, currently falling within CN code 2933 61 00 and originating in the People’s Republic of China.

(13)

Melamine is a white crystalline powder obtained from urea. Melamine is mainly used in laminates, moulding powders, wood based panels and coating resins.

(14)

The investigation has shown that melamine produced and sold by the Union industry in the Union, melamine produced and sold on the domestic market of the PRC and melamine imported into the Union from the PRC, as well as that produced and sold in Indonesia, which served as an analogue country, has essentially the same basic physical and chemical characteristics and the same basic end uses.

(15)

Therefore these products are provisionally considered to be alike within the meaning of Article 1(4) of the basic Regulation.

(16)

Pursuant to Article 2(7)(b) of the basic Regulation, in anti-dumping investigations concerning imports originating in the PRC, normal value shall be determined in accordance with paragraphs 1 to 6 of the said Article for those producers which were found to meet the criteria laid down in Article 2(7)(c) of the basic Regulation. Briefly and for ease of reference only, these criteria are set out in summarised form below:

(17)

Three exporting producer groups and one exporting producer from the PRC requested MET and replied to the MET claim form within the given deadline.

(18)

For all these cooperating companies in the PRC, the Commission sought all information deemed necessary and verified information submitted in the MET claim at the premises of the companies in question.

(19)

All of the cooperating exporting producers and groups in the PRC were found not to meet criteria to be granted MET. All companies involved in the production or commercialisation of melamine located in the PRC were invited to claim MET. Should one company in a group be denied MET then the group as a whole is also denied.

(20)

For those companies producing urea from natural gas to manufacture melamine this denial was based on the grounds that the costs of the major input, natural gas, did not substantially reflect market values, as required by Article 2(7)(c) of the basic Regulation. The MET investigation determined that this was due to State interference in the natural gas market in the PRC.

(21)

The natural gas market in the PRC is dominated by three State-owned companies. Companies that produce urea, which is then used by them to produce melamine, benefit from a low government fixed gas price for the production of urea. A company producing urea, which is a fertiliser and important for the Chinese agricultural and food industry, pays a significantly lower price for its gas compared to companies which need gas for other industrial uses. In addition to this dual-pricing mechanism, the price of natural gas for industrial use is itself distorted by State interference and is itself considerably lower than the world market price for gas.

(22)

This low gas price allows these melamine producers to produce it at unnaturally reduced prices, taking advantage of the distorted low price of natural gas. Since natural gas forms a major part of the cost of urea (around 80 %) and that urea represents between 50 and 60 % of the cost of production of melamine, criterion 1 cannot be considered to be met for those companies in the PRC that produce urea from natural gas.

(23)

Some companies do not produce urea themselves but purchase it from unrelated suppliers. However the urea market itself is also distorted by three main types of State interference. Firstly the existence of strict import quotas for urea and export taxes of 110 % during mid-season and 10 % during off-season in the IP. Secondly the Chinese government has exempted the domestic sale of urea from VAT since 1 July 2005. Thirdly the Chinese government is directly involved in the market through the State Fertilizer System, operating since 2004, whereby the State purchases urea directly from producers to keep in a strategic reserve and can also release quantities of urea in the domestic market. Urea producers also benefit from preferential electricity rates, preferential railway freight rates and, as mentioned above, preferential natural gas prices.

(24)

The restraints on exports, in combination with the benefits in the case of domestic sales, have the effect of reducing export volumes of urea, thereby diverting supplies to the domestic market and creating a downward pressure on the domestic price. This low domestic price is directly caused by State interference in the urea market in the PRC. Accordingly, criterion 1 cannot be considered to be met for those companies in the PRC that do not produce urea but purchase it from third parties.

(25)

In addition to the general situation described above, one group of companies did not meet the other requirements of criterion 1 as the holding company is fully State-owned and the individual companies within the group are majority State-owned. Accordingly, this group is subject to significant State interference in relation to important business decisions.

(26)

Two companies did not meet either criterion 2 or criterion 3. One of them was not able to show complete accounting records and received office space from a public body for free. The other company did not keep its accounts in line with international accounting standards and was not able to demonstrate that their take over of a State-owned company was done at a fair value.

(27)

One company did not demonstrate that it met criterion 3 as no interest was paid on the debt regarding the sale of its shares emanating from the privatisation process. More specifically, at the beginning of the privatisation process a shareholder was loaned back the capital it had invested. At subsequent transfers of the shares, the liability of the debt was used as a payment. Only after 10 years was the loan repaid by the then privately-owned holder of those shares without any interest ever charged or paid on the amount.

(28)

One company was refused MET as its related sales company, dealing with the product concerned as well, failed to complete a MET claim form.

(29)

The Commission officially disclosed the results of the MET findings to the companies concerned in the PRC, the authorities of the PRC and the complainants. They were also given an opportunity to make their views known in writing and to request a hearing if there were particular reasons to be heard.

(30)

Several written submissions were provided and a hearing with some exporting producers took place. The exporting producers argued that in the PRC some 70 % of urea is mainly produced by using coal as the major input and only some 30 % of urea is produced from natural gas. However, as the State also interferes in the urea market, as set out in recitals 23 and 24, it does not change the conclusion that the costs of production of melamine are significantly distorted. The argument is therefore rejected.

(31)

Other arguments brought forward in the written submissions and the hearing following disclosure were not such as to change the proposal to refuse MET to all companies that requested so.

(32)

On the basis of the above, none of the cooperating companies in the PRC that had requested MET could show that they fulfilled the criteria set out in Article 2(7)(c) of the basic Regulation. It was therefore considered that MET should be refused for all these companies. The Advisory Committee was consulted and did not object to these conclusions.

(33)

Pursuant to Article 2(7)(a) of the basic Regulation a countrywide duty, if any, is established for countries falling under Article 2(7) of the basic Regulation, except in those cases where companies are able to demonstrate that they meet the criteria set out in Article 9(5) of the basic Regulation.

(34)

All of those companies and groups which requested MET also claimed IT in the event they would not be granted MET. In addition one group only claimed IT. On the basis of the information available, it was provisionally established that three of the five exporting producer companies or groups in the PRC met all the requirements for IT. One group of companies in the PRC was refused IT on the grounds that the holding is fully State-owned and the individual companies within the group are majority State-owned. Another company was refused IT as a related sales company failed to complete a MET/IT claim form. It was therefore not possible to assess the criteria for IT.

(35)

According to Article 2(7)(a) of the basic Regulation, normal value for exporting producers not granted MET has to be established on the basis of the domestic prices or constructed normal value in an analogue country.

(36)

In the notice of initiation, the Commission indicated its intention to use the United States of America as an appropriate analogue country for the purpose of establishing normal value and interested parties were invited to comment on this.

(37)

The Commission examined whether other countries could be a reasonable choice of analogue country and questionnaires were sent to melamine producers in India, Iran, Indonesia and the United States of America. Only the melamine producers in the USA and Indonesia replied to the questionnaires.

(38)

Following the examination of the replies, Indonesia was chosen as an analogue country which appears to be an open market with a low import duty and with significant imports from several third countries. In addition, it was found that the cost structure of an Indonesian producer was more comparable to a Chinese producer than the cost structure of a US producer and would therefore result in a more realistic normal value. The investigation showed no reason to consider that Indonesia was not adequate for the purpose of establishing normal value.

(39)

Eventually, no interested party, including the complainants, argued that the USA was to be used as an appropriate analogue country for the present investigation.

(40)

The data submitted in the cooperating Indonesian producer’s reply were verified in situ and found to be reliable information on which a normal value could be based.

(41)

It is therefore provisionally concluded that Indonesia is an appropriate and reasonable analogue country in accordance with Article 2(7) of the basic Regulation.

(42)

Pursuant to Article 2(7)(a) of the basic Regulation normal value was established on the basis of verified information received from the producer in the analogue country.

(43)

The product concerned was sold in representative quantities on the Indonesian domestic market.

(44)

As sales on the domestic market to unrelated customers were not profitable during the investigation period, normal value was constructed using the cost of manufacturing of the Indonesian producer plus a reasonable amount for SG&A and for profit on the domestic market.

(45)

SG&A costs and profit were established pursuant to Article 2(6)c on the basis of another reasonable method by comparing the SG&A costs and profit to the Union industry. The amount for SG&A used was considered reasonable as it was in line with the SG&A for the Union industry. The amount for profit was close to that achieved by the Union industry in profitable years. There were no indications that such a profit would exceed the profit normally realised by other exporters or producers on sales of products of the same general category in the domestic market of the country or origin.

(46)

As all cooperating exporting producers granted IT made export sales to the Union directly to independent customers in the Union, the export prices were based on the prices actually paid or payable for the product concerned, in accordance with Article 2(8) of the basic Regulation.

(47)

The normal value and export prices were compared on an ex-works basis. For the purpose of ensuring a fair comparison between the normal value and the export price, due allowance in the form of adjustments was made for differences affecting prices and price comparability in accordance with Article 2(10) of the basic Regulation. Adjustments were made, where appropriate, in respect of transport, insurance, handling and ancillary costs, packing, credit, bank charges and commissions in all cases where they were found to be reasonable, accurate and supported by verified evidence.

(48)

It is noted that normal value and export price were compared at the same level of indirect taxation, i.e. VAT included.

(49)

Pursuant to Articles 2(11) and (12) of the basic Regulation, the dumping margins for the cooperating exporting producers granted IT were established on the basis of a comparison of a weighted average normal value established for the analogue country with each company’s weighted average export price of the product concerned to the Union as established above.

(50)

On this basis, the provisional dumping margins expressed as a percentage of the cif Union frontier price, duty unpaid, are:

(51)

In order to calculate the countrywide dumping margin applicable to all other exporting producers in the PRC, the level of cooperation was first established by comparing the volume of exports to the Union reported by the cooperating exporting producers with the equivalent Eurostat statistics.

(52)

Given that cooperation from the PRC was low, i.e. 30 %, the countrywide dumping margin applicable to all other exporters in the PRC was established by comparing the normal value as established for Indonesia with export price data of the cooperating exporting producers to which neither MET nor IT was granted.

(53)

On this basis the countrywide level of dumping was provisionally established at 65,6 % of the cif Union frontier price, duty unpaid.

(54)

The complaint was lodged by the three main Union producers of melamine, having production facilities in Austria, Germany and Italy (Borealis), The Netherlands (DSM) and Poland (Puławy) which together accounts for over 90 % of total Union production during the IP. Two other producers with limited production did not object to the initiation of the investigation.

(55)

All available information concerning Union producers, including information provided in the complaint and data collected from Union producers before and after the initiation of the investigation, was used in order to establish the total Union production.

(56)

On that basis, the total Union production was estimated to be around 340 000 tonnes during the IP. This amount included the production of all Union producers that made themselves known and the estimated production of other producers which remained silent in the proceeding (‘silent producers’). In the absence of any other information, the data indicated in the complaint in respect of the silent producers was used to establish the total Union production and consumption.

(57)

Consumption was established on the basis of the total imports, derived from Eurostat, the total sales on the Union market of the Union industry, including an estimate of the sales of the producers that did not come forward. The estimate was based on the data provided in the complaint.

Table 1

(58)

Consumption increased by 5 % between 2006 and 2007 and then decreased by 17 % between 2007 and 2008, and by 16 % during the IP. Overall, consumption decreased by 28 % during the period considered.

(59)

The fall in melamine consumption can be attributed to the conjuncture, and in particular to the temporary contraction of the housing and construction markets which are the main markets for the main applications of melamine. Melamine is an important input material in this sector and is not expected to be replaced by any other materials. Hence, melamine demand is expected to resume together with the overall economic recovery.

(60)

The investigation showed that the imports of melamine from the PRC developed as follows:

Table 2

(61)

Chinese imports increased their presence in the Union market between 2006 and 2008. While the total consumption in the EU market has decreased by 12 % over the same period, Chinese exporters have increased the volume of their sales to the Union market by 30 %. As shown in the table below, there was also a gain in market share in that period.

(62)

The situation reversed during the IP: whilst consumption decreased by 18 % the Chinese producers’ volume of exports decreased even more. As with the export volume, the Chinese imports lost market share during the IP.

Table 3

Based on Eurostat, it would appear that the import price from China increased overall by 10 % during the period considered.

Table 4

(63)

However, there was a high level of non-cooperation from Chinese exporters and the investigation showed that the average import price of the cooperating Chinese exporters, which represent around 30 % of total Chinese imports, was much lower than the Eurostat price and lower than the Union industry’s price and was 806 EUR/tonne on average during the IP.

(64)

Hence, at this stage of the investigation, it is considered that the verified price at the premises of the cooperating exporting producers in China should be taken into consideration for the injury and causality analysis.

(65)

During the investigation some parties claimed that the melamine imported from China was of a lower quality than that produced by the Union industry and that it could not be used for certain applications such as surface applications. Given that this claim could not be substantiated it was not taken into consideration at this stage of the investigation.

(66)

For the purposes of analysing price undercutting, the weighted average sales prices of the Union industry to unrelated customers on the Union market, adjusted, in particular for transport and handling costs, to an ex-works level, were compared to the corresponding weighted average prices of the cooperating exporters from the PRC to the first independent customer on the Union market, established on a cif basis.

(67)

The comparison showed that during the IP, the dumped product concerned originating in the PRC sold in the Union undercut the Union industry’s prices by 10,3 %.

(68)

In accordance with Article 3(5) of the basic Regulation, the examination of the impact of the dumped imports on the Union industry included an evaluation of all economic indicators for an assessment of the state of the Union industry from 2006 to the end of the IP.

(69)

As shown in the above table, the production of the Union industry decreased by 20 % during that period. The production capacity of the Union industry decreased by 10 % over the period considered.

(70)

The Union industry decreased its production capacity to around 396 200 tonnes in 2008. However, in view of stagnating sales and decreasing production volumes, the utilisation of the available capacity decreased from 86 % in 2006 to 77 % in the IP. The main decrease occurred between 2008 and the IP.

(71)

The sales figures in the table below relate to the volume sold to the first independent customer on the Union market.

Table 6

(72)

While Union consumption dropped by 28 % during 2006 and the IP, the sales volume of the like product by the Union industry to independent customers on the Union market dropped by 15 %. Hence, the Union industry was able to increase its market share from 74 % in 2006 to 86 % in the IP.

(73)

Average ex-works sales prices of the Union industry to unrelated customers on the Union market decreased by 5 % over the period considered. A significant decrease in sales price by 26 % occurred between 2008 and the IP.

Table 7(a)

(74)

It was found that the average cost of production of the Union industry decreased by 2 % between 2006 and the IP. However, during the same period, the Union industry was forced to keep its sales prices down in order to compete with the low-priced dumped imports. Consequently, the sales prices of the Union industry were significantly below the cost of production during the IP.

(75)

The cost of production (COP) of the Union industry developed as follows during the period considered:

Table 7(b)

(76)

Stocks represented around 5 % of the production volume in the IP. The Union industry decreased its stock levels by 68 % during the period considered, in particular between 2008 and the IP. However, this decrease in stocks should be seen in light of the lower level of activity following the downsizing of the Union industry.

Table 8

(77)

Due to the downsizing activities of the Union industry, the number of employees was reduced by 13 % in 2008, and by another 1 % during the IP. The decrease in the productivity should be seen in light of the general nature of downsizing activities, where the decrease in the number of employees follows the drop in production only after a certain delay. As regards labour costs, they increase slightly by 6 % over the period considered.

(78)

Profitability of the Union industry was established by expressing the pre-tax net profit of the sales of the like product as a percentage of the turnover of these sales. Over the period considered the profitability of the Union industry decreased dramatically from a loss of 9,9 % in 2006 to a loss of 18 % in the IP. This situation occurred despite a decrease in the COP of the Union industry by 14 % between 2008 and the IP as shown in Table 7(b) above.

(79)

The trend shown by the cash flow, which is the ability of the industry to self-finance its activities, reflects to a large extent the evolution of profitability. Consequently, the cash flow shows a substantial decrease during the period considered. The same can be said about the return on investments, which showed a similar development in line with the negative results achieved by the Union industry over the period considered.

(80)

Following the above, the ability of the Union industry to invest became limited as the cash flow significantly deteriorated during the period considered. As a consequence, the investments dropped by 26,2 % during the period considered.

(81)

While the Union consumption decreased by 28 % between 2006 and the IP, the Union industry decrease its sales volume on the Union market by 15 %. When looking at the development over the period considered, the drop of 15 % in the sales volume of the Union industry was less pronounced than the decrease of 28 % in Union consumption. As a consequence, the market share of the Union industry increased by 12 percentage points during the same period.

(82)

The dumping margins for the PRC, specified above in the dumping section, are above de minimis. Given the volumes and the prices of the dumped imports, the impact of the actual margins of dumping cannot be considered to be negligible.

(83)

The investigation showed that a number of indicators pertaining to the economic situation of the Union industry significantly deteriorated during the period considered.

(84)

Sales volume decreased by 15 %, production volume by 20 %, the utilisation of the production facilities dropped from 86 % to 77 %, employment had to be reduced by 14 %. In the same period prices were reduced by 5 %. A decrease in sales price by 26 % occurred between 2008 and the IP, hence profitability was dramatically low with negative consequences on investments and financial indicators such as cash flow and return on investment.

(85)

Even if, in the context of a declining consumption, the Union industry managed to increase its market share by 12 percentage points in the Union market, the low level of prices on the Union market in particular during the IP led to a significant deterioration during the IP in particular of the financial situation of the Union industry. Indeed, prices did not allow covering the cost of production and the losses incurred were as high as – 18 % on turnover.

(86)

On that basis, it is considered that the Union industry suffered material injury during the IP.

(87)

In accordance with Article 3(6) and 3(7) of the basic Regulation, it was examined whether the material injury suffered by the Union industry had been caused by the dumped imports from the country concerned. Furthermore, known factors other than the dumped imports, which might have injured the Union industry, were examined to ensure that any injury caused by those other factors was not attributed to the dumped imports.

(88)

It should be recalled that cooperation from Chinese exporting producers was very low in this investigation. The cooperating exporting producers represent around 29 % of the total imports of melamine during the IP.

(89)

The Eurostat import statistics showed that overall, imports volume from China significantly decreased by 34 % during the period considered. In other words, these imports decreased relatively at a higher pace than consumption (– 28 %) during that period.

(90)

With regards to prices, Eurostat indicate that the import price of Chinese melamine increased by 10 % during the period considered. It decreased significantly by 31 % in the period from 2008 to the IP. However, the verified information of the Chinese cooperating exporters which represent around 30 % of the total imports from China showed that the average Chinese import price was much lower than Eurostat. It was found that the cooperating producers were undercutting on average by 10,3 % the Union industry price during the IP.

(91)

Given the high level of non-cooperation from the PRC it is considered that the verified price at the premises of the cooperating producers should prevail over the Eurostat price data.

(92)

An analysis on a monthly basis of the import volume of melamine showed that the Chinese imports were massively present in the Union market in the first semester of the IP, when the crisis in the sector was at its peak, and held up to 15 % share of the Union market in the first semester of the IP. Given the structure and the production process of the Union industry, it had no choice other than lowering its sales price to keep market share. Even though the Chinese exporters had significantly reduced their exports to the Union in the second semester of the IP, the negative effect of their massive presence in the beginning of the IP and their low level of sales prices continued to affect the Union market and the Union industry in the remainder of the IP.

(93)

The investigation showed that the Union industry suffered from serious cuts in production, a decrease in the rate of capacity utilisation, losses in sales volume and in employment in the period considered. The structure of the Union industry and the development of the above injury factors suggest that the deterioration in its economic situation was due to a certain extent to the crisis situation and the low demand on the market as explained in recitals 97 to 100 below. But it is also due to the low level of prices and the pressure exerted by the Chinese exports in particular between 2008 and the IP which did not allow it to cover its costs. As a result the losses accumulated during the IP were as high as – 18 % on turnover.

(94)

Taking into account the distortion encountered during the MET investigation in the PRC, the high level of dumping found, and in view of the findings made in particular in recital 92 above, it is considered that even with a decreasing market share, the presence of low-priced dumped imports undercutting the Union industry price by over 10 % on the Union market played a role in further exacerbating the negative trend on sales prices on the Union market during the whole IP.

(95)

On this basis a causal link between the dumped imports and the injury suffered by the Union industry can be established.

(96)

The other factors which were examined in the context of the causality are the development of demand on the Union market, the economic crisis, the production cost of the Union industry, the export performance of the Union industry and the imports of melamine from other third countries.

(97)

It should be recalled that the main applications of melamine are in the housing and construction markets. Following the economic crisis, the housing and construction markets contracted which also resulted in a contraction of consumption not only on the Union market but on a global scale. Given that the EU is by far the largest worldwide market for melamine; the crisis has had a negative impact on that market. This was illustrated by a 28 % decrease in consumption, stoppages in production by the Union industry and a decrease in sales prices.

(98)

The above facts and considerations thus suggest that a part of the injury suffered by the Union industry could be attributed to the economic crisis.

(99)

However, as explained in recitals 88 to 95 above, it should be borne in mind that there were clear distortions on the Chinese market for melamine. Moreover, the dumped imports from the PRC were undercutting on average by 10 % the price of the Union industry during the IP thus further exacerbating the negative effects on the price level, in particular during the IP.

(100)

In view of the undercutting practiced by the Chinese exporters and the selective increase of their presence during the IP as described in recital 92 above, even if it is considered that part of the material injury suffered by the Union industry can be attributed to the economic crisis, it is not such as to break the causal link between the dumped import and the material injury of the Union industry.

(101)

The investigation showed that the production of melamine is capital intensive with a high proportion of fixed costs. The cost of production of the Union industry to produce melamine remained stable over the period considered but decreased by 14 % between 2008 and the IP as shown in Table 7(b) above. This should have allowed for a certain recovery in the profitability of the Union industry but the low level of price in the Union market and the undercutting practiced by the low-priced dumped imports from the PRC did not allow this situation to materialise.

(102)

Accordingly, it is concluded that the cost of production is not a cause of the injury suffered by the Union industry.

(103)

Although the analysis of injury and causation focused on the situation of the Union industry in the Union market, its export performance was examined as a potential other factor that may explain the injury found.

Table 11

(104)

The analysis showed that the export sales to unrelated parties made by the Union industry remained stable at around 85 000 tonnes, or 28 % of production during the period considered. The export performance of the complainants has thus been very good even during the crisis. Hence the injurious situation of the Union industry cannot be explained or attributed to exports.

(105)

The trends in import volumes and prices from other third countries between 2006 and the IP were as follows:

Table 12

(106)

Apart from Iran and Saudi Arabia, imports from individual third countries were below the de minimis threshold of 1 % of market share of the Union market during the IP. The investigation showed that imports volume from third countries have decreased over the period considered. As regard to Iran and Saudi Arabia which accounted respectively for 4,4 % and 1,4 % of EU consumption during the IP, it was found that their pricing was higher that of the cooperating Chinese exporters. It is therefore considered that such quantities and prices would only have had a limited impact, if any, on the EU market.

(107)

On the basis of the above, it was provisionally concluded that the imports from these third countries did not significantly contribute to the material injury suffered by the Union industry.

(108)

The above analysis showed that there was a substantial decrease in the volume of import and market share of the low-priced dumped imports originating in the PRC over the period considered. Nevertheless, these imports were made at significant dumped prices which were undercutting by 10 % the prices charged by the Union industry on the Union market during the IP. This negative effect on the sales price prevailing on the Union market lasted during the whole IP. Based on all facts and considerations, it was considered that there was a causal link between the dumped imports and the injury suffered by the Union industry during the IP.

(109)

The examination of the other known factors which could have caused injury to the Union industry revealed that these factors did not appear to be such as to break the causal link established between the dumped imports from the PRC and the material injury suffered by the Union industry.

(110)

Based on the above analysis, which has properly distinguished and separated the effects of all known factors on the situation of the Union industry from the injurious effects of the dumped imports, it was provisionally concluded that the dumped imports from the PRC have caused material injury to the Union industry within the meaning of Article 3(6) of the basic Regulation.

(111)

In accordance with Article 21 of the basic Regulation, it was examined whether, despite the provisional conclusion on injurious dumping, compelling reasons existed for concluding that it was not in the Union interest to adopt provisional anti-dumping measures in this particular case. The analysis of the Union interest was based on an appreciation of all the various interests involved, including those of the Union industry, importers and users of the product concerned.

(112)

The Union industry is composed of three producers with factories located in different Member States of the Union, employing directly over 600 people related to the like product.

(113)

The Union industry has suffered material injury caused by the dumped imports from the PRC. It is recalled that most relevant injury indicators showed a negative trend during the period considered. In particular injury indicators related to the financial performance of the Union industry, such as profitability, cash flow and return on investments were seriously affected. In the absence of measures, it is considered that the recovery in the melamine sector will not be sufficient to allow the recovery of the Union industry’s financial situation.

(114)

It is expected that the imposition of provisional anti-dumping duties will restore effective trade conditions on the Union market, allowing prices of melamine to reflect the costs of the various components and the market conditions. It can be expected that the imposition of provisional measures and the recovery in the sector would enable the Union industry to make economies of scale in order to keep its market share with a positive impact on its economic situation and profitability.

(115)

It was therefore concluded that the imposition of provisional anti-dumping measures on imports of melamine originating in the PRC would be in the interest of the Union industry.

(116)

The cooperation by the users was relatively low in this case. 44 questionnaires were sent to the known users in the Union market and only seven replies could be considered to be sufficiently meaningful to assess their economic situation and the possible impact of anti-dumping measures on their activity. The cooperating users represented around 10 % of the EU consumption.

(117)

According to the Union industry the share of melamine in the cost of production of the user’s industry would be 3 % at most and 2 % on average. If this is confirmed by the further verification visits which will take place in the remainder of the investigation at the premises of the users, the impact of the proposed anti-dumping measures would be limited on the users’ industry.

(118)

Based on the few meaningful replies received from users, it would appear that the share of melamine in the users cost of production would be around 10 %. The possible impact of measures may therefore be negative depending on the level of their profitability which was not clearly disclosed by the users. As mentioned above verification visits will take place at the main users’ premises in the remainder of the investigation. The Commission will also seek for more cooperation from the user industry.

(119)

Some parties also suggested that because the market share held by the Union industry is very high a price increase which that industry will apply on melamine once measures are imposed may be the main impact of the imposition of anti-dumping measures in this case.

(120)

Nevertheless, it is considered that not imposing measures on Chinese dumped imports may lead to further cuts in production by certain Union producers and then possible problems such as shortages of supply on the Union market, the largest market for melamine worldwide.

(121)

Based on the above facts and considerations, it is considered that at this stage there are no substantiated elements which show that the impact of the imposition of provisional measures would be disproportionate as regard the activity of the user industry. Hence, it is considered that there are no compelling reasons not to impose provisional measures.

(122)

In view of the above, it was provisionally concluded that overall, based on the information available concerning the Union interest, there are no compelling reasons against the imposition of provisional measures on imports of melamine originating in the PRC.

(123)

In view of the conclusions reached with regard to dumping, injury, causation and Union interest, provisional anti-dumping measures should be imposed in order to prevent further injury being caused to the Union industry by the dumped imports.

(124)

For the purpose of determining the level of these measures, account was taken of the dumping margins found and the amount of duty necessary to eliminate the injury sustained by the Union industry.

(125)

When calculating the amount of duty necessary to remove the effects of the injurious dumping, it was considered that any measures should allow the Union industry to cover its costs of production and to obtain a profit before tax that could be reasonably achieved by an industry of this type in the sector under normal conditions of competition, i.e. in the absence of dumped imports, on sales of the like product in the Union. It is considered that the profit that could be achieved in the absence of dumped imports should be based on the year 2003 which is the only year where profits were achieved by the Union industry and when Chinese imports were less present on the Union market. It is thus considered that a profit margin of 5 % of turnover could be regarded as an appropriate minimum which the Union industry could have expected to obtain in the absence of injurious dumping.

(126)

On this basis, a non-injurious price was calculated for the Union industry for the like product. The non-injurious price was obtained by adding the abovementioned profit margin of 5 % to the cost of production.

(127)

The necessary price increase was then determined on the basis of a comparison of the weighted average import price of the cooperating exporting producers in the PRC, duly adjusted for importation costs and customs duties with the non-injurious price of the Union industry on the Union market during the IP. Any difference resulting from this comparison was then expressed as a percentage of the average cif import value of the compared types.

(128)

In the light of the foregoing, it is considered that, in accordance with Article 7(2) of the basic Regulation, provisional anti-dumping measures should be imposed in respect of imports originating in the PRC at the level of the lower of the dumping and the injury margins, in accordance with the lesser duty rule.

(129)

The individual company anti-dumping duty rates specified in this Regulation were established on the basis of the findings of the present investigation. Therefore, they reflect the situation found during that investigation with respect to these companies. These duty rates (as opposed to the countrywide duty applicable to ‘all other companies’) are thus exclusively applicable to imports of products originating in the People’s Republic of China and produced by the companies and thus by the specific legal entities mentioned. Imported products produced by any other company not specifically mentioned in the operative part of this Regulation, including entities related to those specifically mentioned, cannot benefit from these rates and shall be subject to the duty rate applicable to ‘all other companies’.

(130)

Any claim requesting the application of these individual company anti-dumping duty rates (e.g. following a change in the name of the entity or following the setting up of new production or sales entities) should be addressed to the Commission (3) forthwith with all relevant information, in particular any modification in the company’s activities linked to production, domestic and export sales associated with, for example, that name change or that change in the production and sales entities. If appropriate, the Regulation will accordingly be amended by updating the list of companies benefiting from individual duty rates.

(131)

In order to ensure a proper enforcement of the anti-dumping duty, the residual duty level should not only apply to the non-cooperating exporting producers but also to those producers which did not have any exports to the Union during the IP.

(132)

The dumping and injury margins established are as follows:

(133)

The above provisional findings will be disclosed to all interested parties which will be invited to make their views known in writing and request a hearing. Their comments will be analysed and taken into consideration where warranted before any definitive determinations are made. Furthermore, it should be stated that the findings concerning the imposition of anti-dumping duties made for the purposes of this Regulation are provisional and may have to be reconsidered for the purposes of any definitive findings,

(1)

On 17 February 2010, the European Commission (the ‘Commission’) announced, by a notice published in the Official Journal of the European Union (2) (‘Notice of Initiation’), the initiation of an anti-dumping proceeding with regard to imports into the Union of zeolite A powder originating in Bosnia and Herzegovina (‘BiH’).

(2)

The proceeding was initiated as a result of a complaint lodged on 4 January 2010 by Industrias Quimicas del Ebro SA, MAL Magyar Aluminium, PQ Silicas BV, Silkem d.o.o. and Zeolite Mira Srl Unipersonale (the ‘complainants’), representing a major proportion, in this case more than 25 % of the total Union production of zeolite A powder. The complaint contained prima facie evidence of dumping of the said product and of material injury resulting therefrom, which was considered sufficient to justify the initiation of an investigation.

(3)

The Commission officially advised the complainants, other known Union producers, the exporting producer group in BiH, importers, users, and other parties known to be concerned, and representatives of BiH of the initiation of the proceeding. Interested parties were given an opportunity to make their views known in writing and to request a hearing within the time limit set in the notice of initiation.

(4)

The complainants, Union producers, the exporting producer group in BiH, importers and users made their views known. All interested parties, who so requested and showed that there were particular reasons why they should be heard, were granted a hearing.

(5)

In view of the apparent high number of Union producers and importers, sampling was envisaged in the Notice of initiation, in accordance with Article 17 of the basic Regulation. In order to enable the Commission to decide whether sampling would be necessary and if so, to select a sample, all known Union producers and importers were asked to make themselves known to the Commission and to provide, as specified in the Notice of initiation, basic information on their activities related to the product concerned (as defined in section 2.1. below) during the period from 1 January 2009 to 31 December 2009.

(6)

As explained in recital (16) below, eight Union producers provided the requested information and agreed to be included in a sample. On the basis of the information received from the cooperating Union producers, the Commission selected a sample of four Union producers having the largest volume of production/sales in the Union.

(7)

As explained in recital (20) below, only three unrelated importers provided the requested information and agreed to be included in a sample. However one of these importers did not import/purchase the product concerned. Therefore, in view of the limited number of importers, sampling was deemed to be no longer necessary.

(8)

The Commission sent questionnaires to all parties known to be concerned and to all the other companies that made themselves known within the deadlines set out in the Notice of initiation, namely to the exporting producer group in BiH, the four sampled Union producers and three unrelated importers/users.

(9)

Replies were received from the exporting producer group in BiH, including its related companies, from the four sampled Union producers and three Union unrelated importer/users.

(10)

The Commission sought and verified all the information deemed necessary for a provisional determination of dumping, resulting injury and Union interest. Verification visits were carried out at the premises of the following companies:

(11)

The investigation of dumping and injury covered the period from 1 January 2009 to 31 December 2009 (the ‘investigation period’ or the ‘IP’). The examination of trends relevant for the assessment of injury covered the period from January 2005 to the end of the IP (‘period considered’).

(12)

The product concerned is zeolite A powder, also referred to as zeolite NaA powder or zeolite 4A powder (the ‘product concerned’), currently falling within CN code ex 2842 10 00.

(13)

The product concerned is destined at end-use applications as a builder, used in the production of dry detergents and water softeners.

(14)

The product concerned, the product sold domestically in BiH as well as the one manufactured and sold in the Union by the Union producers were found to have the same basic physical and technical characteristics as well as the same basic uses and are therefore considered to be alike within the meaning of Article 1(4) of the basic Regulation.

(15)

The Bosnian exporting producer group submitted that the product concerned exported by both Fabrika Glinice Birac AD and its related company Alumina d.o.o. (‘the Birac group’), has different production costs, production processes and quality than the like product produced by some Union producers. It was also argued that the production process of the Birac group is based on alumina liquor from the alumina production process instead of aluminium trihydrate, while production in the Union is typically based on hydrate crystals which, by heating and adding caustic soda, are brought back to liquid state for the production of the zeolite slurry. With respect to the above arguments it is noted that the information submitted by the Birac group does not put in dispute the established facts that irrespectively of any alleged differences in production processes, costs or quality, the product concerned has the same basic physical and technical characteristics and serves the same purposes as the like product.

(16)

Eight Union producers representing around 50 % of the Union producers’ sales volume on the market replied to the request for sampling data in the Notice of Initiation. Initially the five largest Union producers were selected to be part of the sample. However, one company decided to terminate its co-operation. Therefore the remaining four Union producers form the sample in this investigation.

(17)

These four producers represented around 37 % of the Union producers’ total sales volume on the Union market in the IP and more than 75 % of the sales volume of the eight producers that provided data for the sampling exercise. The four producers selected in the sample were considered to be representative of the overall producers in the Union.

(18)

The Bosnian exporting producer group argued that three Union producers (MAL Magyar Aluminium, Silkem d.o.o. and Industrias Quimicas del Ebro SA) should be considered as non-cooperating with the investigation. It was argued that these companies submitted non-confidential replies to deficiency letters some days latter than the dateline set. With respect to the above it is noted that the information provided by the aforesaid parties was submitted in a timely fashion and it did not impede in any way the progress of the investigation or the rights of defence of parties.

(19)

It was also argued that one Union producer (MAL Magyar Aluminium) failed to mention in its reply on sampling that it was related to another Union producer (Silkem d.o.o.). The latter company was not sampled and was not included in MAL Magyar Aluminium's questionnaire reply. It was therefore argued that both these two Union producers should be considered as non-cooperating with the present investigation. To this it is noted that the relationship between these two parties was known to the Commission services at complaint stage and the relationship was stated in the reply on sampling from one of the two parties. Furthermore the relationship was disclosed in MAL Magyar Aluminium's questionnaire response. Finally it should be made clear that Silkem d.o.o. and MAL Magyar Aluminium have fully co-operated with the investigation. In respect of Silkem d.o.o. they submitted data at sampling stage but were not sampled and hence were not requested to complete a questionnaire response. In respect of MAL Magyar Aluminium there was no need for them to submit a consolidated response including Silkem d.o.o. as Silkem d.o.o. is a separate legal entity.

(20)

Only three unrelated importers replied to the request for information for the sampling exercise in the Notice of Initiation. It was subsequently discovered that one of these companies did not import or purchase the product concerned. Subsequently it was decided that sampling was not necessary for unrelated importers.

(21)

In accordance with Article 2(2) of the basic Regulation, the Commission first examined whether the domestic sales of the like product to independent customers by each of the two exporting producers of the Birac group were representative, i.e. whether the total volume of such sales was equal to or greater than 5 % of the total volume of the corresponding export sales to the Union. It was found that the domestic sales were not representative.

(22)

The Commission subsequently examined whether the domestic sales of each exporting producer could be considered as having been made in the ordinary course of trade pursuant to Article 2(4) of the basic Regulation. This was done by establishing the proportion of profitable domestic sales to independent customers.

(23)

Domestic sales transactions were considered profitable where the unit price was equal to or above the cost of production. Cost of production on the domestic market during the IP was therefore determined.

(24)

The above analysis showed that all domestic sales of both exporting producers were profitable, given that the unit net sales price was above the calculated unit cost of production.

(25)

Since the sales on the domestic market were not sold in representative quantities, normal value had to be constructed, in accordance with Article 2(3) of the basic Regulation.

(26)

To construct normal value pursuant to Article 2(3) of the basic Regulation, the selling, general and administrative (SG&A) expenses incurred and the weighted average profit realised by each of the cooperating exporting producers on domestic sales of the like product, in the ordinary course of trade, during the investigation period, was added to their own average cost of production during the investigation period. Where necessary, the costs of production and SG&A expenses were adjusted, before being used in the ordinary course of trade test and in constructing normal values.

(27)

Since all exports to the Union were made via a related importer, the export price was constructed on the basis of the resale price to independent customers in accordance with Article 2(9) of the basic Regulation. Adjustments were made in the resale price to the first independent buyer in the Union for all costs including duties and taxes, incurred between importation and resale, as well as a reasonable margin for SG&A and profits. As regards the SG&A, the related importer’s own SG&A costs were used. In the absence of cooperation by unrelated importers in the investigation, a reasonable profit margin of 5 % was used, based on information obtained from users who also imported the product concerned in the IP.

(28)

The Birac group claimed that the functions of its related importer were similar to those of an export department rather than an importer, and therefore the export price should not be constructed in accordance with Article 2(9) of the basic Regulation, but rather established in accordance with Article 2(8) of the basic Regulation, on the basis of export prices actually paid or payable. In this respect, it is noted that, in accordance with Article 2(9) of the basic Regulation, the export price is established on the basis of the resale price to independent customers whenever the product concerned is resold to independent customers by companies related to the exporter in the exporting country. The investigation showed that the related company is located in the Union. It handles, inter alia, the customer orders and the invoicing of the product concerned produced by the Birac group. It was further found that the Birac group sells the product concerned to the related company in the Union for resale to EU independent customers. Consequently, the claim has to be rejected. It should be noted that the fact that certain activities are performed by the related company prior to importation does not mean that the export price may not be reconstructed on the basis of the resale price to the first independent customer with the necessary allowances being made pursuant to Article 2(9).

(29)

The comparison between normal value and export price was made on an ex-works basis. For the purpose of ensuring a fair comparison between the normal value and the export price, due allowance in the form of adjustments was made for differences affecting prices and price comparability in accordance with Article 2(10) of the basic Regulation. Appropriate adjustments for transport costs, freight and insurance costs, bank charges, packing costs and credit costs were granted in all cases where they were found to be reasonable, accurate and supported by verified evidence.

(30)

According to Article 2(11) of the basic Regulation, the dumping margin for both exporting producers was established based on the comparison of the weighted average normal value with the weighted average export price.

(31)

The individual dumping margins of both exporting producers were weighted based on quantities exported to the Union, resulting in a dumping margin, expressed as a percentage of the CIF Union border price, duty unpaid, of 28,1 % for the Birac group.

(32)

Based on information available from the complaint and the cooperating exporting producer group in BiH, there are no other known producers of the product concerned in BiH. Therefore, the country-wide dumping margin to be established for BiH should be equal to the dumping margin established for the sole cooperating exporting producer group in BiH.

(33)

It is recalled that in this case there is only one Bosnian exporting producer (the Birac group). Therefore, no precise figures can be given relating to import volumes, import prices, market shares and Union production as well as sales volumes in order to protect business proprietary information. In these circumstances, indicators are given in indexed form or ranges.

(34)

In line with section 3.1 above, the four sampled Union producers constitute the Union industry within the meaning of Article 4(1) and Article 5(4) of the basic Regulation and will be hereafter referred to as the ‘Union industry’.

(35)

During the provisional stage of the investigation the calculation of Union consumption was based on figures contained in the complaint and supplemented by verified figures established from producers and importer/users involved in the investigation. This data was sent to all interested parties for comment. No comments were provided to dispute the Union consumption data.

(36)

The Union consumption was thus established on the basis of the volume of sales in the Union of the like product produced by the Union industry, the volume of sales in the Union of the like product produced by the other known Union producers and the volume of imports of the product concerned from third countries.

(37)

On this basis the Union consumption developed as follows:

(38)

The consumption of the product concerned and the like product in the Union fell 7 % over the period considered. This reflects a gradual reduction of the amount of the product concerned incorporated into key products such as laundry detergents by users. It also reflects that more user industry products are becoming zeolite free.

(39)

The volume of imports of the product concerned increased by 359 % through the period considered.

(40)

The average import price was stable from 2005 to 2008 and increased by around 10 % in the IP. This was mainly due to an improved situation on the EU market which permitted price increases for all producers of the product concerned.

(41)

The market share of the imports from the country concerned nearly quadrupled in the period considered and represented a market share of between 10-15 % in the IP.

(42)

For the purpose of analysing price undercutting, the import prices of the Bosnian exporting producer were compared to the Union industry prices during the IP, on an average to average basis. The Union industry prices were adjusted to a net ex-works level, and compared to CIF import prices. No customs duties were taken into account as the Bosnian exporting producer was subject to a 0 % preferential rate in the IP.

(43)

The weighted average undercutting margin found, expressed as a percentage of the Union industry’s prices is between 20 and 25 %.

(44)

Pursuant to Article 3(5) of the basic Regulation, the Commission examined all economic factors and indices having a bearing on the state of the Union industry.

(45)

The indicators referring to macroeconomic elements, such as production, capacity, sales volume, market share etc, are based on data established by the Commission services and sent to interested parties for comment as mentioned above at recital (35). The data for these indicators represent all Union producers. Whenever data relating to the Union producers as a whole are used, the tables below refer to macro data as a source. Other indicators are based on verified data from the sampled producers. These indicators are referred to as micro data. With respect to the macro data the Bosnian exporting producer argued that due to the controversy concerning the appropriate CN code used for classification of the product it is unlikely that these data is reliable. In this respect it is noted that the injury indicators are not in anyway affected by the alleged controversy on CN codes. It is recalled that the definition of the product concerned was provided in the published notice of initiation. This definition is clear leaving out any possibility of misinterpretation. Interested parties were requested to provide information on the basis of the product definition irrespectively of CN codes as the notice of initiation states that the CN code is given for information only. Furthermore it is recalled that the Bosnian exporting producer has not disputed the information concerning Union consumption. Most of the information on imports was directly derived from the Bosnian exporting producer data while the remainder referred to a small volume of imports from other countries. Account taken of the above and of the fact that no concrete evidence was presented to corroborate the claim on unreliable data this argument had to be rejected.

(46)

During the period considered, the Union industry's production volume decreased by 14 %. In 2008-2009 an Union producer (Sasol Italy SpA) ceased production altogether. In addition Henkel AG stopped production of its zeolite slurry (this is not the product concerned but is a liquid version which is used as a substitutute). To some extent these developments helped the situation of the remaining producers.

(47)

Despite the developments mentioned above capacity was relatively stable across the period considered based on the method of calculation normally employed by the industry. However, the verification of the sampled producers showed that calculation of capacity for this industry can fluctuate depending on the relative fortunes of the market for the product concerned and the market for other products which can be produced using the same facilities.

(48)

The capacity utilisation figures above show a decrease of 14 %. Furthermore at no point did this rate reach 80 % which demonstrates a certain overcapacity. This issue is further discussed under causation.

Stocks

(49)

The Union industry's stock level was low and stable throughout the period considered. The production of the like product was planned to match orders and stocks were always kept to the minimum possible level. This was not therefore an important factor in this investigation.

Sales volume and market share

(50)

The sales volume of the union industry decreased during the period considered by 18 %.

(51)

The market share of the union industry decreased during the period considered by 11 %.

Sales prices

(52)

The average sales price of the Union industry to unrelated parties in the EU increased by 21 % over the period considered. This reflected by and large higher raw material and energy prices and, in isolation, is therefore not considered to be a meaningful indicator.

Profitability

(53)

The profitability of the Union industry was low throughout the period considered. This situation resulted from its inability to raise its prices for the reasons discussed under the ‘Causation’ section below and in particular the existence of increasing volumes of dumped imports. It also resulted from the low capacity utilisation explained at recital (47).

(54)

From 2005 to 2008 the Union industry’s profitability fell substantially and in 2008 became loss-making. It recovered during the IP to the highest level during the period examined but still fell short to the profit of 5,9 % that the industry could have achieved in the absence of dumped imports (see below recital (67)).

(55)

The exporting producer claimed that the profitability of the Union producers was healthy in 2009. This assumption was not backed up by any positive evidence but rather the claim refers to unspecified ‘publicly available information’. The sampled producers claimed that the profitability rate achieved in 2009 was a one-off and was not sustainable in the light of the vigorous Bosnian exporting producers’ entry to the market in large quantities and low dumped prices. The sampled producers claimed that profitability in 2010 was likely to fall back to 2008 levels.

(56)

The above claims were examined by the Commission services. The examination comprised in particular the development of raw material and sales costs, prices as reflected in the relevant contracts. It was found that the Union industry benefited in 2009 from certain temporary factors which increased its profitability despite the existence of significant volumes of dumped imports:

(57)

On this basis, the development of the profit margin still pointed to the existence of injury as the profit would have been considerably higher without the dumped imports.

Investments, return on investment, cash flow and the ability to raise capital

(58)

It was claimed by the Bosnian exporting producer that investments were low over the period considered while the Union industry explained that returns on investment were too low to justify substantial investment in the product concerned.

(59)

The return on investment, expressed in terms of net profits of the Union industry and the net book value of its investments follows the trend of profitability shown above. It should be noted that the net assets involved had already been largely depreciated.

(60)

The cash flow situation of the Union industry also follows the trend of profitability shown above. The cash flow situation was serious in 2008 as losses in sale volume were compounded by the producers having to continue to meet their contractual obligations to purchase raw materials.

(61)

Ability to raise capital was not raised as an issue by the Union industry.

Employment, productivity and wages

(62)

The number of employees of all Union producers involved with the like product decreased during the period considered in line with reductions in production and sales volume. The average labour cost per worker increased reflecting inflation rises.

(63)

Productivity, expressed in terms of output per worker, decreased by 14 % over the period considered as the sales volume decreased more than employment. This negative development is likely to lead to further job losses in the future.

(64)

Given the volume and the prices of dumped imports from the country concerned the impact on the EU market of the actual margin of dumping cannot be considered to be negligible.

(65)

During the period considered the Union producers suffered substantial volume injury which is clearly evident from the above analysis of its production, capacity utilisation, sales volume, market share, employment and productivity trends.

(66)

In terms of prices and profitability an injurious picture is also present. However this analysis is complicated by raw material and energy price increases which have impacted on prices of the product concerned. Profitability, cash flow, and return on investment all deteriorated over the period 2005-2008. 2008 was a particularly serious year for the industry mainly because the companies were locked into raw material contracts but lost more than 20 % of its sales volume.

(67)

In 2009 the market situation eased and price increases enabled an improved profitability situation but as explained above at recital (56) it was clear that this was a temporary respite and that the 2009 market situation is unlikely to be repeated. However, it should be noted that even in 2009 the profitability rate did not reach the 5,9 % deemed as a normal profit for this industry.

(68)

Injury was assessed for the whole Union industry (macro-economic indicators) although for some indicators only the sampled producers were assessed (micro-economic indicators). No significant differences were identified between the micro and macro indicators.

(69)

In the light of the foregoing, it is provisionally established that a major proportion of the Union industry has suffered injury within the meaning of Article 3(5) of the basic Regulation.

(70)

In accordance with Articles 3(6) and (7) of the basic Regulation, the Commission examined whether the dumped imports from the country concerned had caused injury to the Union industry to a degree sufficient to be considered as material. Known factors other than the dumped imports, which could at the same time have injured the Union industry, were also examined in order to ensure that possible injury caused by these other factors was not attributed to the dumped imports.

(71)

Over the period considered imports from the country concerned increased by nearly 400 % and gained a substantial market, i.e. they increased from below 5 % to between 10 and 15 %. In parallel there was a direct and comparable deterioration of the economic situation of the Union industry being the only other significant player on the EU market as imports from other sources are negligible.

(72)

The market share increases of the dumped imports occurred against the backdrop of a fall in EU consumption of 7 % over the period considered.

(73)

The dumped imports of increasing volume undercut the prices of the Union industry by between 20-25 % in the IP. It can be reasonably concluded that such increasing imports in a contracting market were responsible for price suppression in 2008 and 2009. This effect of the dumped imports on prices was magnified by the fact that most sales were made on the basis of annual contracts. Thus, the dumped Bosnian imports could be used to suppress price increases for large volumes of sales despite increases in raw material prices. In 2009 there was an easing of this effect but not enough to enable the industry as a whole to reach the normal profit level of 5,9 %.

(74)

In view of the clearly established coincidence in time between, on the one hand, the surge of dumped imports at prices undercutting the Union industry’s prices and, on the other hand, the Union industry’s loss of sales and production volume, decrease in market shares and price suppression, it is provisionally concluded that the dumped imports played a major role in the injurious situation of the Union industry.

(75)

The export volume of all the Union producers increased during the period considered but represented on average only about 10 % of production. The exports of the sampled producers increased and partially compensated for lost EU sales volumes.

(76)

Therefore, the export performance of the Union producers helped sustain its business and did not contribute to the material injury suffered.

(77)

Imports from third countries were negligible during the period considered and could not have contributed to the injury suffered by the Union industry. The Bosnian exporting producer argued that market share of Union producers has been lost to imports from China and Korea but this claim is not supported by the actual facts as imports from these countries were marginal.

(78)

Over the period considered consumption fell by around 24 000 tonnes (7 %) reflecting the fact that the laundry detergent industry was gradually using more alternative products in their formulas to replace the product concerned. It was claimed by the exporting producer that this led to ‘saturated stocks, cancellations of orders and lower profits’.

(79)

It should be said that two producers in the EU market have ceased production towards the end of the period considered and therefore an adjustment of capacity has taken place to compensate for the decrease in consumption. Furthermore, as explained at recital (49) stock levels have remained low and stable meaning that production has adjusted to the lower consumption levels.

(80)

Therefore whilst it cannot be excluded that the fall in consumption has contributed to the injury suffered by the Union producers, it appears that this impact is not important.

(81)

It was claimed by the exporting producer that compliance with REACH legislation caused the injury. However, as explained at recital (58) given the level of investments in the product concerned throughout the period considered this could not have contributed to the injury suffered to any significant degree. Furthermore, the costs associated with REACH have been moderate.

(82)

It was claimed by certain parties that increased raw material and energy costs contributed to the injury. The increases in these costs were indeed significant and took place mainly in 2008. This no doubt had some impact on profitability in that year because they occurred at a time of falling sales volume. However, to a certain degree increases in energy costs were reflected in increases in sales prices as shown at recital (52) although the price depression effect of the dumped imports has prevented adequate increase levels.

(83)

Therefore it is considered that the increase in raw material and energy costs has not contributed to the injury suffered.

(84)

The issues of overcapacity and low capacity utilisation were discussed at recital (46). The effect of the capacity issues on profitability has to be looked at in view of both the structural characteristics of this industry and the existence of dumped imports. The effect on profitability is because of the substantial fixed costs which would be recovered if utilisation rates were higher.

(85)

However, the overcapacity and low capacity utilisation issues can partially explain some of the negative injury indicators suffered by the Union producers but do not explain the large declines in production, sales volume and market share in 2009. They clearly therefore do not break the causal link between the big increase in imports at dumped prices and the injury suffered by the Union producers.

(86)

It was claimed by certain interested parties that the global credit crisis and the general economic crisis contributed to the injury. In fact consumption of the product concerned did fall in 2008/2009 when these crises occurred.

(87)

However, these issues cannot explain why the market share of the Union producers fell substantially in 2009 while the market share held by Bosnian imports increased and undercut the EU prices by over 20 %. Therefore whilst the decline in consumption in 2008/2009 would in itself have affected the Union industry, the significant rise of imports from BiH had a much more significant impact on sales volumes of the Union industry and, in view of the undercutting, on prices. Thus, the crisis did not break the causal link between the big increase in imports at dumped prices and the injury suffered by the Union producers.

(88)

Although more than 10 companies manufactured the product concerned in the IP the main user industry (laundry detergent and water softener producers) consisted essentially of 4 big groups (Reckitt Benckiser, Henkel, Proctor & Gamble and Unilever). In fact the two main co-operating users represented nearly 40 % of purchases of the product concerned in the EU. Using centralised purchasing these 4 groups are indeed able to keep prices of the product concerned low.

(89)

However, this issue is not a new phenomenon but has existed for many years. Therefore, it again cannot explain the large declines in production, sales volume and market share in 2009. It clearly therefore does not break the causal link between the big increase in imports at dumped prices and the injury suffered by the Union producers.

(90)

Based in the above, it is provisionally concluded that the material injury to the Union industry was caused by the dumped imports concerned.

(91)

A number of factors other than the dumped imports were examined but none of these could explain the serious losses in market share, production and sales volume which occurred in 2008 and 2009 which coincides with the increases in volumes of dumped imports.

(92)

Given the above analysis which has properly distinguished and separated the effects of all the known factors on the situation of the Union industry from the injurious effects of the dumped imports, it is provisionally concluded that the imports from BiH have caused material injury to the Union industry within the meaning of Article 3(6) of the basic Regulation.

(93)

The Commission examined whether, despite the provisional conclusion on the existence of injurious dumping, compelling reasons existed that could lead to the conclusion that it is not in the Union interest to adopt measures in this particular case. For this purpose, and in accordance with Article 21(1) of the basic Regulation, the impact of possible measures on all parties involved in this proceeding and also the consequences of not taking measures were considered on the basis of all evidence submitted.

(94)

The injury analysis has clearly demonstrated that the Union industry has suffered from the dumped imports. The increased presence of dumped imports in recent years caused a suppression of sales in the Union market and a loss of market share for the Union industry. This prevented the Union industry from achieving profitability levels similar to those achieved for other products.

(95)

The investigation has shown that any increase in the market share of the dumped imports from the country concerned is gained at the direct expense of the Union industry. Despite the restructuring that occurred with respect to the Union producers (two companies stopped production) the situation has not ameliorated. In this respect it is noted that zeolite A powder is an important product in terms of the turnover of the sampled companies being up to 30 % of their sales turnover. Without the imposition of measures the Union industry situation would clearly deteriorate further. The imposition of measures will restore the import price to non-injurious levels, allowing the Union industry to compete under fair trade circumstances.

(96)

It is therefore provisionally concluded that imposing measures would clearly be in the interest of the Union industry.

(97)

The likely impact of measures on importers has been considered in accordance with Article 21 (2) of the basic Regulation. In this respect it is noted that the unrelated importers that made themselves known were also users. Thus the analysis referring to them is presented under the relevant section on interest of users.

(98)

No representations were received from consumers’ organisations following the publication of the notice of initiation of this proceeding. Therefore, the analysis has been limited to the effect of measures on users.

(99)

Questionnaires were sent to 8 known users. However, meaningful comments were received from only two of them. Therefore, the Union interest analysis is based on the responses of two rather large users, which together represent almost 40 % of Union consumption.

(100)

The two co-operating Union users represent major players in the Union laundry detergent and water softener industry. They both objected to the imposition of measures.

(101)

The investigation established that with respect to the co-operating Union users’ consumption less than 1/3 of it is imported from the Bosnian exporting producer. The remaining part is covered by procurements from the Union producers which remain the prime supply source of the co-operating users. Account taken of the low capacity utilisation rate of the Union producers, as explained above at recitals (47) and (48), it is clear that any imposition of measures is not expected to lead to any shortages in supply or consequent increase of prices.

(102)

Further to the above it appears that the Union user industry has already started exploring the possibility of imports from China. The fact that such option exists and is considered reliable demonstrates that any imposition of measures will not in any way lead to a shortage of the product concerned.

(103)

The percentage in turnover of the final products incorporating the product concerned was also looked at. To this respect it is noted that in both cases the relevant products represent less than 10 % of their turnovers.

(104)

The percentages of the product concerned being incorporated into the final products was also investigated. The investigation established that in general these percentages are extremely small (on average less than 5 % on the total cost), and therefore the product concerned does not represent a very significant cost element in the finished products.

(105)

The Commission examined also if the imposition of measures would have any significant negative financial impact on the situation of these two users. The Commission established two scenarios, i.e. worst case scenario and a more realistic scenario.

(106)

The worst case scenario assumes that both the import and Union prices increased by the level of the duty. This would increase on average the costs of the users by less than 2 %.

(107)

The above situation has to be compared with the profitability rates of the co-operating Union users. The users’ profitability on products incorporating the product concerned is around 11 % and for all their products was over 20 %. Account taken of such profitability rates even a full pass of measures to both import and Union prices would not have a disproportionate effect on these parties’ financial situation.

(108)

In fact a much more realistic scenario is that the imposition of measures would lead to a situation where only import prices from BiH increase while the Union industry benefits from increased economies of scale. Indeed, as explained above, the supply situation of the product concerned within the EU is fully sufficient, since most Union producers operate at far from full capacity.

(109)

It should also be noted that the investigation established that there are products that could be substituted for the product concerned. Indeed, it is clear that both the co-operating and non co-operating users also produce laundry detergents without the product concerned. In this more realistic scenario, the costs of the cooperating users will only increase by a fraction of one percent. In other words, in light of the profitability figures the imposition of measures will only have negligible consequences for users.

(110)

Account taken of the above it is clear that the imposition of measures would not lead to any significant impact to users and thus it is highly unlikely that there would even be any increase in price to the consumers.

(111)

Overall, it is expected that the Union industry would clearly be in a position to benefit from measures. Indeed, they could in the first place benefit from increased economies of scale because of a higher capacity utilization due to an increase in production and sales.

(112)

Account taken of the above it is provisionally concluded that the imposition of measures on dumped imports of the product concerned from Bosnia and Herzegovina will not affect the Union users significantly and that overall it is in the Union interest.

(113)

In view of the conclusions reached above with regard to dumping, resulting injury and Union interest, provisional measures on imports of the product concerned from Bosnia and Herzegovina should be imposed in order to prevent further injury being caused to the Union industry by dumped imports.

(114)

The level of the provisional anti-dumping measures should be sufficient to eliminate the injury to the Union industry caused by the dumped imports, without exceeding the dumping margins found.

(115)

When calculating the amount of duty necessary to remove the effects of the injurious dumping, it was considered that any measures should allow the Union industry to cover its costs and obtain a profit before tax that could be reasonably achieved under normal conditions of competition, i.e. in the absence of dumped imports. The pre-tax profit margin used for this calculation was 5,9 % of turnover. This was the profit level achieved by the Union industry in the IP for all its products including the product concerned. Bearing in mind that the profitability for the product concerned was affected by dumped imports it is clear that this level of profit is prudent and not excessive. It was also considered whether the profit rates achieved by the Union industry in 2005-2007 should be used but the profit rates were low in terms of profitability achieved by the companies for similar products and were not considered to be representative for a viable industry. This is because the Bosnian imports undercut those of the Union industry by between 10-20 % during these 3 years and such differences would have played a significant role in annual contract negotiations. Thus these profit margins could not be considered representative of a normal situation in the EU market. On the basis mentioned above, a non-injurious price was calculated for the Union industry of the like product. The non-injurious price has been obtained by adding the above mentioned profit margin to the cost of production.

(116)

The necessary price increase was then determined on the basis of a comparison of the weighted average import price, as established for the undercutting calculations, with the average non-injurious price of products sold by the Union industry on the EU market. The difference resulting from this comparison was then expressed as a percentage of the average import CIF value. The underselling margin thereby calculated was 31,5 %.

(117)

In the light of the foregoing, and in accordance with Article 7(2) of the basic Regulation, it is considered that provisional anti-dumping measures should be imposed on imports originating in the Bosnia and Herzegovina at the level of the dumping margin found.

(118)

On the basis of the above, the rate of the provisional anti-dumping duty for Bosnia and Herzegovina is 28,1 %.

(119)

In the interest of sound administration, a period should be fixed within which the interested parties which made themselves known within the time limit specified in the notice of initiation may make their views known in writing and request a hearing. Furthermore, it should be stated that the findings concerning the imposition of duties made for the purpose of this Regulation are provisional and may have to be reconsidered for the purpose of any definitive duty,

(1)

By letter of 27 March 2008, the Polish authorities gave notification of a restructuring plan for PZL Hydral S.A. (‘PZL Hydral’). The Commission requested additional information by letter of 6 May 2008. By letter of 4 June 2008, the Polish authorities requested that the deadline for replying be extended until 27 June 2008; the Commission agreed by letter of 10 June 2008. The Polish authorities provided additional information concerning the restructuring plan by letter of 7 July 2008.

(2)

Proceedings under Article 108(2) of the Treaty on the Functioning of the European Union (the formal investigation procedure) were opened on 10 September 2008. The formal investigation procedure was subsequently extended by a decision adopted on 12 November 2008.

(3)

Poland submitted its observations on 14 October and 22 December 2008 and additional information on 7 April 2009. The Commission received no comments from third parties.

(4)

Meetings with the Polish authorities took place on 27 April and 14 October 2009 and 12 February 2010. On 18 December 2009 the Commission requested further information. Various exchanges of emails took place between the Commission and the Polish authorities and additional information was submitted by the Polish authorities by email on the following dates: 20 October 2009, 23 November 2009, 15 December 2009, 13 January 2010, 16 January 2010, 9 February 2010, 10 February 2010, 26 February 2010, 1 March 2010, 3 March 2010, 4 March 2010, 19 March 2010, 5 May 2010, 12 May 2010, 20 May 2010, 28 May 2010, 3 June 2010, 4 June 2010, 7 June 2010, 8 June 2010, 9 June 2010, 17 June 2010, 23 June 2010, 24 June 2010, 28 June 2010, 7 July 2010, 8 July 2010, 9 July 2010, 12 July 2010 and 13 July 2010.

(5)

PZL Hydral was established in 1946 as a State enterprise. It is now a large company which until 2008 specialised in the production of civil and military industrial hydraulics, the design, manufacture and service of electronic hydromechanic fuel-regulating systems for aviation engines of all types, hydraulic control systems for aircraft and power hydraulics for helicopters. Since 2008 PZL Hydral has operated as the parent company of a group and no long has any industrial activities of its own.

(6)

In 2003 the state-owned Industrial Development Agency (‘the IDA’) acquired 80,94 % of shares in PZL Hydral (1 284 686 shares) from the Treasury. Further transfers of shares from the Treasury to the IDA took place in 2005 (499 103 shares), increasing the IDA's shareholding to 87,39 %, in 2007 (64 374 shares), increasing the shareholding to 90,54 %, and on 12 January 2010 (38 399 shares), increasing the shareholding to 92,42 %. Each of these transactions was effected at the symbolic price of PLN 1. Since 12 January 2010 the IDA has held 18 886 562 shares with a nominal value of PLN 18 865 620. The remaining shares (7,58 %), with a nominal value of 1 547 210, are currently held by the employees.

(7)

In 2007 PZL Hydral controlled the following subsidiaries: Zakład Odlewniczy ‘Hydral’ Sp. z o.o., whose main activity is casting, founding, processing and treating steel parts; Zakład Cieplowniczy Term ‘Hydral’ Sp. z o.o., which produces and sells thermal energy; Przedsiębiorstwo Usługowo Handlowe Zakład Produkcji Hydrauliki ‘Hydral’ Sp. z o.o., which produces valves and hydraulic distributors, processes metal equipment and provides repair services for hydraulic machinery and equipment, and PZL Wrocław Sp. z o.o. (‘PZL Wrocław’). In addition, PZL Hydral controlled two other companies, now in the process of liquidation. At end-2006 the group as a whole had 795 employees.

(8)

PZL Wrocław was founded as a fully-owned subsidiary of PZL Hydral in 2004 in order to create an operating company which would take over the operational arm of PZL Hydral, thereby allowing the latter to act as holding company and manage the restructuring process of the PZL Hydral group.

(9)

A part of PZL Wrocław's assets was transferred from PZL Hydral to PZL Wrocław either by way of an in-kind contribution to the capital of PZL Wrocław or a sale at the book value in the books of PZL Hydral as of 2004, as shown in Table 1.

Table 1

Transfer of assets by way of an in-kind contribution or sale (in PLN)

(10)

The tangible fixed assets which PZL Wrocław acquired from PZL Hydral were transferred either as an in-kind contribution to the capital of PZL Wrocław or by way of a sale, as shown in Table 2. In both cases the value of the transaction was based on the assessment of an independent expert. When these fixed assets were transferred they had already been encumbered with mortgages on real estate in favour of the following public creditors: the Social Security Office, the Lower Silesia Region Tax Office and Wrocław City Council in an amount of PLN 142,558 million.

Table 2

Transfer of real estate (in PLN)

(11)

On 31 December 2007, PZL Hydral transferred to PZL Wrocław funds with a nominal value of PLN 918 900 by way of a contribution to the capital of PZL Wrocław.

(12)

The rest of the assets transferred from PZL Hydral to PZL Wrocław between 17 January 2006 and 27 April 2010 were sold at their book value and consisted of numerous transfers of assets under construction which were free of any pledges or mortgages.

(13)

The overall value of the assets transferred from PZL Hydral to PZL Wrocław between 2004 and 2010 amounted to PLN 44 708 791,02.

(14)

559 employees were transferred from PZL Hydral to PZL Wrocław in 2008 and 37 employees were transferred in 2009.

(15)

PZL Wrocław produces components for aircraft used by the Polish armed forces (until end-2007 this production was carried out by PZL Hydral) and provides services comprising the maintenance and repair of equipment used by the Polish army. Military products undergo certification specific to the product type in accordance with the technical requirements of the Polish armed forces. Individual documentation is provided at each stage and these products (and the associated maintenance services) are supervised by a resident military representative.

(16)

PZL Wrocław currently operates on the basis of Permit No B-007/2007 issued by the Minister for Internal Affairs and Administration on 17 January 2007 for the performance of business activities in the area of:

(17)

PZL Wrocław holds the following certificates:

(18)

The Polish authorities informed the Commission that the product line of PZL Hydral (and now PZL Wrocław) is an important part of the economic development plan launched by the Polish Government in 1995 for 1996-2000 and in 2000 for 2001-2006.

(19)

Moreover, explicit reference is made to PZL Hydral or to its business activities in a number of implementing measures and governmental guidelines for the economic development plan, such as:

(20)

Companies entered on lists of this type are required to provide detailed annual reports on their defence production capacity (quantities, profile, values) in order to enable the Ministry to ensure that the military tasks are performed.

(21)

The Polish authorities informed the Commission that the relevant permits and certificates (points 16 and 17) enable goods and services of specific quality to be supplied to special customers (enterprises of particular significance to the defence of the state and the Ministry of Defence). PZL Wrocław (PZL Hydral in the past) does not just supply components of hydraulic systems, fuel systems and control systems; repairs to installed sub-assemblies are crucial to the functioning of the aircraft operated by the Polish armed forces (W-3, Mi-2, M28 Bryza and PZL 130 Orlik); the Polish authorities also emphasised that the W-3 and Mi-2 are the main helicopters used by the Polish army.

(22)

The goods produced by PZL Hydral for the use of the armed forces have the corresponding NATO code under the NATO Standardisation Agreement and the company itself has a NATO code.

(23)

As explained above in point 9 et seq., as of December 2004 PZL Hydral transferred assets to PZL Wrocław. Only the assets transferred on 30 December 2007 (real estate) were encumbered by mortgages in favour of public creditors.

(24)

The Polish authorities confirmed that since it started operating PZL Wrocław has settled all its liabilities vis-à-vis public creditors on time, including social security contributions and taxes for its employees.

(25)

PZL Hydral started to have difficulties in repaying liabilities to both its private and public creditors in 1998.

(26)

At the end of 1998, PZL Hydral's private liabilities vis-à-vis banks and suppliers amounted to PLN 90,4 million. The bulk of these debts were owed to two banks: Bank […] (*1) and Bank […].

(27)

PZL Hydral owed Bank […] PLN 54 million at the end of 1998 and PLN 86,4 million by November 2006, when a settlement agreement was signed, and its claim was finally settled in 2007. PZL Hydral owed Bank […] PLN 23 million at the end of 1998 and PLN 55,6 million by October 2003, and its claim was finally settled in 2004.

Table 3

Changes in the total amount owed by PZL Hydral to […] (PLN thousand)