WASHINGTON—Domestic and foreign producers of emulsion styrene-butadiene rubber gave opposing portraits of the domestic ESBR industry at a hearing before the U.S. International Trade Commission.
The June 29 hearing was the final one before the ITC votes whether the domestic ESBR industry is suffering from or threatened by material injury because of ESBR imports at less than fair value.
Consistent underpricing by suppliers from Mexico, South Korea, Brazil and Poland is causing severe harm to the U.S. ESBR industry, said representatives of Port Neches, Texas-based Lion Copolymer L.L.C. at the hearing.
The bankruptcy earlier this year of East West Copolymer L.L.C. in Baton Rouge, La., underscored the desperate straits of U.S. ESBR producers against foreign competition, Lion said.
But representatives of foreign SBR manufacturers—including Industrias Negromex S.A. de CV, Arlanxeo U.S.A. L.L.C., and Kumho Petrochemical Co. Ltd.—insisted that ESBR is not a price-driven industry. Backed by a purchasing executive of Cooper Tire & Rubber Co., the foreign ESBR suppliers said they offered consistency of supply during the 2014-16 period of investigation that Lion and East West did not.
The key issue in this investigation is the fixed conversion cost of the price calculation in negotiating an ESBR supply contract, according to Jesse Zeringue, Lion CEO and president.
This conversion fee is expressed in cents per pound of ESBR, and does not increase or decrease with fluctuations in the price of styrene or butadiene, Zeringue said at the hearing.
"A buyer with sufficient volume requirements can and does negotiate deeper cuts in the fixed conversion cost portion of the price calculation, which is intended to cover the ESBR manufacturers' other material costs (of which there are several), fixed overhead costs, and a profit margin, if any," he said.
Since 2012, Lion's conversion price has declined by approximately 35 percent across all of its ESBR contract customers, according to Zeringue.
"Virtually every large customer now can try to dictate our conversion price each year by leveraging producers from these four countries against Lion," he said.
Zeringue's testimony was seconded by Robert Rikhoff, a consultant to the polymer and elastomer industry. Before the closure of East West, Rikhoff was a co-owner of the company and its vice president of operations.
"In the period since 2013, at least during the part of it when East West and its predecessors were still producing ESBR, imports gained a permanently increased market share at permanently reduced pricing and margins," Rikhoff said.
"We were seeing diminishing returns even during the brief period we had been able to recover lost sales at much lower prices," he said.
But Mary Pauken, Cooper vice president of global purchasing, said that stability of ESBR supply is more important to tire makers than price.
"Securing supply is our No. 1 objective," Pauken said. "Without ESBR, we do not make tires.
"That is why we contract with three or four suppliers each year, and we must import ESBR to obtain the volume we need," she said. "There are now only two ESBR suppliers in the U.S. (Goodyear and Lion), and we don't see that number increasing."
Cooper actually signed an ESBR contract with East West earlier this year, according to Pauken.
"This is a relationship-based industry," she said. "We want suppliers we trust who will work with us to achieve our goals."
Lion does not have global production, and also does not provide the new products or technical support that Negromex, Kumho or Arlanxeo provide, she said.
Negromex Commercial Director Tomas Acevedo said his company has maintained a steady presence in the U.S. through research and development investment and strategic partnerships with customers.
One of its most important partnerships is the one it made with Cooper in 2013 to file jointly for a patent for a new process to produce hydrophobated silica, silica masterbatch and rubber products, Acevedo said.
"Since the early nineties, we have diversified our raw material supply chain by investing in our own petrochemical terminal and storage facilities," he said. "By investing in those types of assets, we have become owners of our destiny and turn our company into one of the most reliable suppliers to the U.S. market."
Opponents of the ESBR investigation said Goodyear was the only stable ESBR producer in the U.S., but also that they couldn't count on Goodyear for supply because Goodyear's production is mostly for internal use.
The ITC set a deadline of July 7 for post-hearing briefs. The agency said it would make additional information on the ESBR investigation available on July 28, and would accept final comments on that information through Aug. 1.