Sides face off at ESBR antidumping hearing

WASHINGTON—Opponents in the antidumping case involving emulsion SBR imported from the Czech Republic and Russia made their cases at a Nov. 8 hearing before the U.S. International Trade Commission, and both sides predictably painted the case from diametrically opposed perspectives.

Lion Elastomers, which petitioned the ITC in November 2021 for relief from these two countries as well as Italy, claimed in testimony the financial damage caused by the underselling was so severe it may need to close the Texas synthetic rubber facility where it produces ESBR if it doesn't get relief.

"The impact of this surge of low-priced imports has been devastating—Lion's trade and financial data speaks for itself in this respect," Bobby Rikhoff, vice president of venture projects for Lion Elastomers, said in his testimony. "The simple reality is that we will likely need to shutter our Port Neches (Texas) plant without remedial action by the commission.

"This investigation is therefore critical to the future viability of the domestic industry."

Those opposing the petition told the commissioners that the customers purchasing the imported ESBR needed an alternate source of the material, as Lion was the only domestic producer focused on selling the SR on the open market. They argued that Goodyear, the only other U.S. producer of ESBR, used most of its production in-house, and that other tire makers might also be leery of buying from a competitor.

They further claimed that Lion and Goodyear's production sites were located close to each other in an area of the Gulf Coast that has been subject to closure due to severe weather events such as hurricanes and Winter Storm Uri, which occurred in February 2021 and caused Lion to declare force majeure for more than a month.

In addition, they said Lion was more focused on servicing its larger tire industry customers and were not able or willing to properly supply non-tire customers of ESBR. That left these customers no choice but to search for import sources that would provide the supply and service they needed, according to testimony.

Lion asked the ITC to look at the period from 2019 to 2021 in finding potential dumping and underselling of product from the three nations. The petition covered grades of ESBR included in the IISRP 1500 and 1700 series of synthetic rubbers sold in all solid forms. While primarily used in tire manufacturing, it also is used in such products as conveyor belts, shoe soles, hose, roller coverings and flooring.

The investigation into Italian imports was concluded this past spring, with the Department of Commerce proposing an antidumping rate of 29 percent on ESBR produced by Italy's Versalis S.p.A.

Lion, which has production facilities in Port Neches and Orange, Texas, and Geismar, La., previously had pursued an antidumping case in 2016 against ESBR imported from Brazil, Mexico, Poland and South Korea.

The Department of Commerce and ITC ruled in its favor, and imposed dumping margins of 19.61 percent for Brazil, 19.52 percent for Mexico, 25.43 percent for Poland, and ranging from 9.66 to 44.30 percent for South Korea.

The ITC, in fact, just voted Nov. 4 to conduct a sunset review of those duties.

"As a result of the affirmative determination in that case, market conditions markedly improved in 2018," Rikhoff said in his testimony. "But unfortunately, these conditions did not persist. Since 2019, unfairly priced subject imports have again surged into the U.S. market, quickly replacing the imports included in the earlier antidumping duty order.

"It is, in short, deja vu for the domestic industry. We are seeing much of the same in terms of the predatory commercial practices the commission observed in the earlier investigation."

In his testimony, Rikhoff characterized ESBR as a highly commoditized synthetic rubber material that is "broadly interchangeable, regardless of supply source."

"Our Port Neches plant produces one of the most diverse and expansive portfolios of ESBR across the globe, including 1500- and 1700-series ESBR currently sold in the U.S. market," he said. "And imports from the Czech Republic and Russia compete unfairly against these specific grades."

Rikhoff said that for two years after the relief granted by the ITC in 2017, the domestic industry increased production, shipments, hired more workers and, "finally," turned a profit.

But starting in 2017, Lion saw increased volumes of low-priced imports from the Czech Republic and Russia. He said the imports in question jumped by nearly 550 percent, with the import volume nearly equivalent to the corresponding decrease in import volume from Brazil, Mexico, South Korea and Poland.

"The result in this surge in subject imports has been devastating to the domestic industry," Rikhoff said. "... The data are clear, from 2019 to 2021 Lion has operated increasingly in the red, as low-priced subject imports have squeezed us on cost, while we produced less, sold less and employed fewer people."

He added that the "conversion price"—the amount of revenues over raw material and other fixed costs—moved up in 2018 after the relief in the prior case, and then fell each year from 2019-21. "We cannot continue to run a business where we lose money on each unit of product produced," he said.

Sherry Ballard, Lion Elastomers accounting manager, also testified to the impact of the alleged dumping on Lion's finances. She also tried to counter the opposition's claim that two events—Winter Storm Uri in 2021 and the November 2019 explosion at the TPC Group plant in Port Neches—severely compromised Lion's ability to serve the market.

"We cannot claim that these two events did not disrupt our day-to-day activities," Ballard said. "But I believe it would be fundamentally incorrect for the commission to unduly focus on these events when dumped imports have persistently impacted our financial performance through the (period of investigation), especially in light of the limited nature of the disruptions caused by these events."

Arguments in opposition to Lion's petition came from an official of Poland's Synthos S.A., which supplies ESBR from a plant in the Czech Republic; counsel for Synthos and Russian supplier Tatneft; a purchasing director from Michelin North America Inc.; two officials from Intertex World Resources Inc., which imports and sells ESBR; and the president of Mountville Rubber Co.

With regards to Russian imports, witnesses said those haven't been a factor in the U.S. since the Russian invasion of Ukraine, as those shipments—while not banned—since the start of the war have been subject to a 35-percent tariff. Although it didn't have a witness to present testimony, Russia's SR firm Sibur Holding did state its case against the petition in a pre-trial brief.

At the hearing, Michelin's Steven Prior, purchasing director for raw materials, outlined why it is vital for the tire manufacturer, which operates 34 plants in North America, to keep alternative sources of ESBR, which it said is a relatively small portion of the ingredients of a tire, but an essential one.

Having both Lion's and Goodyear's ESBR production located in the Houston/Beaumont, Texas, area, puts supply at risk. Contrary to what Lion contended, Prior said the TPC Group explosion and Winter Storm Uri caused both domestic producers to shut down production and place contract customers on allocation.

Prior also testified that domestic ESBR producers recently advised Michelin they may be unable to deliver all of its contracted requirements, which would put the tire maker at risk of closing plants if it didn't have alternate supply options. But he said that the imports in question haven't threatened to displace domestic ESBR as its chief source of material.

"When domestic ESBR is available, it is our first purchasing priority," Prior said. "However, no responsible manufacturer could turn a blind eye to the risks posed by the domestic industry's extreme geographic concentration and vulnerability to supply disruptions."

Stan Rybalov, president of Intertex World Resources, said there is a difference in ESBR used in tires vs. those in non-tire applications, and that his firm's customers typically have not been able to count on Lion to supply its needs.

"Based on my observations of the market, Lion has failed to supply ESBR to the technical goods segment in a reliable manner," Rybalov said. "Instead, Lion has focused on tire production, which is a much larger market, and the certain grades used by tire producers."

The Intertex president also detailed four occasions other than the TPC explosion and Winter Storm Uri where supply in the Gulf region was compromised. "Given these challenges, it's no surprise to me that U.S. customers would choose to diversify their purchases of ESBR with imports rather than rely solely on domestic production," he said.

Mountville Rubber President Darrin Layton said his firm makes rubber slab for the production of floor mats used in a variety of industries, using a non-oil extended Grade 1502 ESBR. It places a premium on supplier relationships and has used Intertex as its main supplier of ESBR for the past six to seven years.

Layton said Mountville does use Lion as a supplier for EPDM, but that its willingness or ability to sell ESBR to his company has been inconsistent. "Lion has quoted ESBR to Mountville when its supply is plentiful," he testified. "These offers have been both spot-buy and longer term. However, they have not been compelling enough to warrant our change from Intertex to Lion as our primary source of ESBR"

Jan Kurilla, Synthos global sales director for SR sales, said U.S. tire producers buy from Synthos as a supplement to their U.S. vendors to ensure a consistent and reliable supply of ESBR.

After several supply disruptions including the TPC and Winter Storm Uri events, he said several major tire producers approached Synthos for immediate supply to fill the gap left by Lion's business disruption. They even paid to have stopgap supplies of up to 30 metric tons of ESBR air-freighted to the U.S.

"Paying for the most expensive type of freight is simply not consistent with the idea of buying 'cheap' imports," Kurilla said. "And that's because such sourcing decisions were not about price. Without ESBR from Synthos, these tire producers would have had to halt production and would probably fail to fulfill their contractual obligations with their customers."

Ron Kendler, counsel for Synthos and Tatneft, said Lion's petition doesn't meet the requirements for antidumping relief. He argued that import volumes in the segment remained unchanged over the period of investigation; the domestic industry actually increased market share in supply to the tire segment; the record doesn't show any pattern of significant underselling; and that there was no evidence to support that the imports were the cause of Lion's financial difficulties.

After extensive questioning from the commissioners during the hearing, both sides have until Nov. 15 to submit additional post-hearing answers and information before the case moves to the next phase.