A compostable carrier bag sounds good in theory but further scrutiny reveals that these bags and other biodegradable plastic products will only degrade in a properly managed composting facility and definitely not in a suburban compost heap. (Reuters)
Sasol is under attack on both flanks, fighting off a bid by Brazil to impose duties on the company’s cheap exports and a fine by the Competition Tribunal for overcharging domestically — all because of its pricing of plastics.
The plastics sector is lucrative and expected to be worth about $382-billion by 2016, according to market research company RnRMarketResearch.com.
Although South Africa produces only 0.5% of the world’s polypropylene (a key component of durable plastics), Sasol is by far the biggest manufacturer in South Africa. Its only local competitor, Safripol, produces about one-third of its output.
The tribunal began its second round of hearings in Pretoria this week to decide whether Sasol has been charging too much locally for propylene and polypropylene, chemical components needed for the manufacture of plastic products ranging from garden furniture to plastic bottles and lunch boxes.
Sasol produces propylene, a plastics molecule that can be bonded to other molecules to form a polymer, as part of its synthetic fuels process. Propylene is used in the production of polypropylene.
The Competition Commission alleges that Sasol sells polypropylene locally for 30% more than it exports it for, and that Safripol and Sasol have engaged in price fixing to the detriment of local plastic manufacturers.
Intensifying efforts to lower input prices
The department of trade and industry has been intensifying its efforts to lower input prices to boost local manufacturing. The DTI requested a probe into the polymer sector in 2007 after it became concerned that companies were charging excessively high prices.
The Commission found Sasol had exerted its market power to charge domestic consumers prices that bore little relation to the value of its products.
In its submission to the tribunal, the commission said the DTI has identified polypropylene conversion as the most important part of its chemicals sector development strategy, which is part of the department’s Industrial Policy Action Plan.
Several companies, including Usabco, trading as Addis, SA Leisure and Plastamid, testified that they have struggled to remain competitive because of the high polypropylene price. In Plastamid’s case, its plant eventually closed, resulting in the loss of more than 120 jobs.
This makes the allegations against Sasol all the more significant.
Apart from a requested fine of 10% of the company’s South African annual turnover and exports from 2009, which in Sasol Chemical Industries amounted to about R22-billion, concerns about the negative impact on manufacturing could give weight to a request by the commission for the price of polypropylene to be regulated.
Investigation
The investigation by Brazil’s Federal Secretary of Foreign Trade, the equivalent of South Africa’s International Trade Administration Commission (ITAC), follows a complaint by the Brazilian-founded petrochemical company, Braskem, that Sasol is dumping polypropylene in that country, making it hard to compete.
Brazil is investigating similar charges against India and South Korea. South Africa is estimated to export about 60% of the polypropylene it produces.
Another investigation has been launched in Brazil to establish whether Sasol is being unfairly subsidised by the South African government, according to documents in the Mail & Guardian’s possession.
But Sasol’s spokesperson, Jacqui O’Sullivan, this week denied that the company concerned, Sasol Polymers, “has benefited from any subsidies during the period under review, namely April 2011 to March 2012”.
If Brazil decides Sasol has been assisted by subsidy programmes such as the Export Marketing and Investment Assistance Scheme, the Critical Infrastructure Programme, the Support Programme for Industrial Innovation, or the Manufacturing Investment Programme, to name just a few listed in the complaint, import duties could be levied on Sasol’s products.
Documents also show that regional programmes in Mpumalanga and the Free State, aimed among other things at improving polypropylene beneficiation and coal processing, are also being scrutinised.
Probe into the dumping allegations
Brazil has already found there is sufficient merit to warrant a formal investigation of the dumping allegations.
A trade lawyer Grant Herholdt, director at ENS said: “The formal investigation includes a detailed analysis of both industries [in both countries] and allows for comment and participation by interested parties.”
He said the only option, should Brazil not be persuaded to change its mind on the issue of duties, would be for Sasol and the department to take the matter to the World Trade Organisation dispute settlement panel to request mediation.
O’Sullivan said Sasol Polymers was still finalising its response to the anti-subsidy questionnaire, which is due in September.
“While the information has been collated, it is currently being translated into Portuguese,” she said.
O’Sullivan said Sasol Polymers had already submitted “all required information in relation to the Brazilian department of trade and defence’s anti-dumping questionnaire [issued on March 19 this year].”
Denial
Regarding the tribunal investigation, which is expected to be concluded only in October this year, Sasol has denied that it is overcharging local manufacturers.
Adriaan Roland Janse van Rensburg, general manager of the polyolefins business of Sasol Polymers, said in an affidavit that, although the company is charging import parity prices, it has based this price on a South Korean pricing model, which is at the bottom of the scale compared to other countries, and does not include costs of production.
The Competition Commission believes that Sasol has been given preferential treatment since it was set up and funded by the state to ensure a supply of petroleum products, which continues despite fuel production now having been secured.
Advocate Arnold Subel, in his submission for the commission, cited Sasol’s access to the gas pipeline between Mozambique and South Africa as a case in point.
Subel, in the first round of hearings in March this year, said that Sasol was charging import parity prices, not because it needed to compete locally with international suppliers but because it’s the “highest possible price that Sasol Chemical Industries was able to, and did, set”.
The only other local polypropylene producer is Safripol, which has limited capacity and buys its additional propylene, needed for the manufacture of polypropylene, from Sasol.
The commission argues that Sasol’s dominance and its import parity pricing, which, until 2008, included the 10% duty and was higher than its export price, limited the growth of the plastics manufacturing sector.
Strong performance
Sasol has continued to show a strong performance. Turnover for the 2011-2012 financial year was R169.4-billion, up from R142.4-billion the year before, and earnings are expected to rise 20% to 30% for the 2012-2013 financial year.
A witness at the commission, Gavin Gerber, managing director of the Plastamid section of the AECI group, said in an affidavit that high local pricing made impossible the expansion and survival of Plastamid’s division that made talc-filled polypropylene used in motor vehicles for door panels and dashboards.
After Sasol and Safripol turned down a request from him in about 2009 to drop prices by about 30% — the amount manufacturers believe they are being overcharged — Plastamid’s plant was closed. Polypropylene made up 70% of the cost.
Pieter van der Walt, director of operations of SB Plastics, in his submission also said that polypropylene, the core raw material for his goods, was the biggest contributor to costs. He believed a 20% reduction in price would make his product competitive with overseas brands.
He said he knew he had lost large contracts with retailers to overseas products because of price.
The department of trade and industry was asked this week if it believed Sasol enjoyed an unfair advantage because of the subsidy schemes put in place by government to encourage the development of the manufacturing sector, and whether it would consider calling for the price of polymers to be regulated, because, like fuel and gas, it is a by-product of the fuel process.
Unable to respond
Department spokesperson, Sidwell Medupe, declined to answer saying the department would not be able to respond by the time the M&G went to print.
It is not clear whether the department has considered regulation to assist struggling manufacturers in the plastics sector, or if it is waiting for a finding by the tribunal that could resolve the matter.
Sasol has argued before the tribunal that, despite imports of polypropylene being relatively low, at between 9% and 11% of domestic sales, it saw the imports as a sufficient threat to justify import parity pricing locally.
O’Sullivan told the M&G that, as polymers are traded globally, and supply and demand determine prices.
Sasol argues that there are no duties protecting the upstream sector, but in many sectors of the convert industry there is a 20% duty on imports.
The company says that just because export prices were lower than domestic prices, did not mean that the real value was less than the export price.