Volume of Dumped Imports
Total Philippine imports of CRC from Malaysia during the POI
aggregated to 10,662 MT that were all at dumped prices. Dumped imports constituted 21.87%
of total Philippine CRC imports (48,761 MT) and 9.47% of the domestic consumption (112,550
MT).
Dumping was significant in the first five months of 1999 (January-May),
accounting for 92.44% of total dumped imports. Noted was the big share of dumped imports
to total Philippine CRC imports during the month of December 1998 and May 1999 at 82.58%
and 91.37%, respectively.
Price Effect
Price undercutting occurs when the prices of dumped
imports are significantly lower than the price of the like product.
The incidence or extent of price undercutting was estimated using the
monthly landed cost of dumped CRC from Malaysia against the monthly domestic selling price
of local CRC. Table 2 shows that undercutting was evident in December 1998 and January
1999 as NSC’s CRC was sold, vis-à-vis the imported counterpart, at prices higher by
11.45% and 14.93%, respectively. For the succeeding months (February-May) of 1999,
however, no evidence of price undercutting was established as Malaysia's CRC was priced
higher than NSC's.
Price depression occurs when the price of dumped import
forces down the price of like product.
On a per 6-month period basis (December – May), NSC's average
selling prices displayed an erratic trend. Average selling price increased by 24.03% from
December 1996-May 1997 to December 1997- May 1998. The incidence of price depression was
evident during the POI (December 1998-May 1999) when the domestic selling price dropped by
22.11% vis-à-vis the December 1997-May 1998 price. The 22.11% drop was greater than the
12.46% decline in the cost of production from December 1997-May 1998. NSC’s adoption
of a pricing strategy of selling below cost, if only to maintain its market presence,
resulted in a loss of P1,527/MT during the POI.
Price suppression occurs when the company, despite
increases in cost (which normally should be translated into an upward price adjustment)
could not increase their prices in order to remain competitive against cheap imports.
There was no evidence of price suppression during the POI.
Market Share
On a per 6-month period basis, NSC's market share slightly declined
from 56.70% in December 1996 – May 1997 to 55.03% in December 1997- May 1998. In
contrast, other countries' and normal imports' share in the market rose from 43.30% to
44.96%. During the POI (December 1998 - May 1999), NSC's share went up from 55.03% in
December 1997- May 1998 to 56.68 % or by 3%. On the other hand, other countries' and
normal imports' share declined by 24.71% from 44.96 % in December 1997- May 1998 to 33.85%
in December 1998 - May 1999. It was noted that the domestic industry was able to maintain
its market share despite the occurrence of dumped imports during the POI, only because of
its adoption of the pricing strategy of selling below cost. On the other hand, the sharp
drop in the other countries’ and normal imports’ share could be attributed
partly to the dumped imports from Malaysia and to the discouraged sourcing of CRC
primarily from Russia and Taiwan following the imposition of anti-dumping bond in the
CRC-Russia case and the filing of anti- dumping protest against Taiwan.
Production, Sales and Inventory
On a per 6-month period basis, there was a constant decline in
NSC’s production from December 1996 to May 1999. Sales dropped from 86,720 MT
December 1996 – May 1997 to 55,580 MT in December 1997- May 1998 but the same
rebounded in December 1998 – May 1999 at volumes lower than those in December 1996
– May 1997. Evident was the significant slide of the volume of production and sales
in December 1997 - May 1998 by 55.56% and 35.91%, respectively.
The reduction in production volumes led to a corresponding decline in
inventory levels from 11,639 MT in the 6-month period covering December 1997-May 1998 to
4,841 MT during the POI.
Reduction in production, sales and inventory could be attributed mainly
to the market contraction and partly to the presence of dumped imports.
Capacity Utilization
NSC's cold mill had an annual rated capacity of 700,000 MT. The
specific sizes .35/.38/.40 x 914/915 mm cold rolled were earmarked for direct sales and
not for conversion to tinplates. On a per 6-month period basis, NSC's actual capacity
utilization constantly declined from 58.29% in December 1996 - May 1997 to 37% in December
1997 - May 1998 to 29.14% during the POI. Likewise, actual production slid from 204,000 MT
in December 1996-May 1997 to 129,498 MT in December 1997- May 1998 or by 36.52%. It
further declined to 102,000 MT or by 21.23% during the POI. The decline in capacity
utilization could be attributed to the effect of the contraction of the Philippine market
as well as to the entry of imports at dumped prices.
Cost of Production
The average cost of producing a metric ton of CRC in 1998 was
45.78% higher than the 1997 level. The rise in cost was attributable to the 48.48% and
37.41% increase in direct materials (slabs) and conversion cost, respectively. In 1999,
however, the average cost of production was lower by 24.92% compared to the previous
year's. The decline was brought about by the drop of cost of direct materials and
conversion cost except direct labor which expanded by 36.88%. Evident was the rise in the
cost of production in 1998 and 1999 when compared with that in 1997. This was mainly due
to the weakening of the peso which started in the 3rd quarter of 1997.
Profitability
On a per 6-month period basis, NSC's audited financial statements
disclosed that sales revenue declined from the period covering December 1997-May 1998 to
December 1998 – May 1999. Noted was NSC's gross loss amounting to P 37 million during
the period December 1997-May 1998 resulting from the adoption of the pricing strategy of
selling below cost if only to retain market presence. Sales below cost persisted till the
POI resulting to a gross loss of P172 million, or a further decline in gross loss by 565%.
In December 1997-May 1998, NSC’s loss from operations already
reached P150 million which further dipped to P288 million during the POI attributable to
the increased operating expenses. NSC incurred a net deficit amounting to P 524 million
during the period (December 1997-May 1998) which further worsened to P791 million during
the POI as a result of the continued selling below cost and the increased operating
expenses. The hefty interest and other charges related to the total CRC operations
exacerbated NSC’s financial performance as early as the pre-POI.
The unfavorable result of operating and financial performance was
mainly due to the rise in operating expenses and the huge interest expenses and other
charges related to the CRC operation.
Return on Sales
NSC’s income from CRC operation in relation to its sales prior
to the occurrence of the alleged dumping, i.e., December 1997-May 1998, was unfavorable at
–9.26%, which worsened during the POI at –19.61% resulting from the reduced
sales, selling below cost and increased operating expenses.
Cash Flow
The drop in actual sales revenue, attributable to the
contraction of the market, dumped imports from Malaysia and the entry of other countries'
CRC exports during the POI, contributed to the liquidity problem of NSC. The revenue
foregone could have generated internal cash to fund working capital requirements.
Investment and Ability to Raise Capital
NSC’s inability to generate investment and raise capital
was traced to the fact that the company was saddled with internal problems including
enormous debt, high interest cost, foreign exchange losses, high slab cost, high operating
costs, and a shortage of working capital.
NSC’s interest expense in 1998 ballooned to P2.23 billion or an
increase of 80% from P1.23 billion in 1997. The high interest expense of P2.23 billion
represents 26% total net sales of P8.58 billion, against 10% interest expense in 1997.
This heavy debt servicing exhausted NSC’s financial resources, causing difficulty in
sustaining operations and eventually led to a shutdown in November 1999.
In July 1998, NSC entered into a debt restructuring agreement with its
creditor banks. Despite its debt restructuring, it failed to service its loans, a
consequence of its poor cash flow and high working capital requirement.
Employment and Wages
Labor complement exhibited a steady downtrend, dwindling by 7.43%
from 1996 to 1997, 10.60% from 1997 to 1998 and by 7.05% from 1998 to the first five (5)
months of 1999. This was as a result of the slump in production brought about by the
declining sales leading to serious operating and cash flow problems. Consequently, wages
in 1998 dropped continuously till 1999 (May).
