Commission Regulation (EC) No 1694/2002

of 27 September 2002

imposing definitive safeguard measures against imports of certain steel products

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 3285/94 of 22 December 1994 on common rules for imports and repealing Regulation (EC) No 518/94(1), as last amended by Council Regulation (EC) No 2474/2000(2), and in particular Articles 7 and 16 thereof,

Having regard to Council Regulation (EC) No 519/94 of 7 March 1994 on common rules for imports from certain third countries and repealing Regulations (EEC) No 1765/82, (EEC) No 1766/82 and (EEC) 3420/83(3), as last amended by Regulation (EC) No 1138/98(4), and in particular Articles 6 and 15 thereof,

After consultations within the Advisory Committee established under Article 4 of Regulation (EC) No 3285/94 and of Regulation (EC) No 519/94 respectively,

Whereas:

PROCEDURE

(1) On 6 March 2002, certain Member States ("the Member States concerned") informed the Commission that trends in imports appeared to call for safeguard measures; submitted information containing the evidence available as determined on the basis of Article 10 of Regulation (EC) No 3285/94 and Article 8 of Regulation (EC) No 519/94; and requested the Commission to impose provisional safeguard measures and to open a safeguard investigation.

(2) The Member States concerned claimed that there had been recent substantial increases in imports of certain steel products and that the closure of the US market implied by US trade defence measures not only substantially denied the Community producers an important outlet for their exports, but also created the conditions for a huge diversion of steel trade from the US to the European Community ("the Community"). They claimed that steel destined for the US would be re-directed to the Community. This could lead to a dramatic increase in the existing high level of imports at low prices, exacerbating the already serious disruption on the Community steel market due to previous increased imports which threatened serious injury to the Community producers.

(3) The Member States concerned advised that the Community producers had submitted relevant information and urged the adoption of Community safeguard measures as a matter of urgency because any delay in their adoption would cause damage which it would be difficult to repair.

(4) The Commission informed all Member States of the alleged situation and consulted with them on the terms and conditions of imports, import trends and the serious injury or threat thereof to each of the sectors concerned, and the various aspects of the economic and commercial situation with regard to the Community products in question.

(5) On 28 March 2002, the Commission initiated an investigation relating to serious injury or threat thereof to the Community producers of products like or directly competing with certain imported steel products. The 21 steel products covered by the investigation are (1) non alloy hot rolled coils, (2) non alloy hot rolled sheets and plates, (3) non alloy hot rolled narrow strip, (4) alloy hot rolled flat products, (5) cold rolled sheets, (6) electrical sheets (other than GOES), (7) metallic coated sheets, (8) organic coated sheets, (9) tin mill products, (10) quarto plates, (11) wide flats, (12) non alloy merchant bars and light sections, (13) alloy merchant bars and light sections, (14) rebars, (15) stainless bars and light shapes, (16) stainless wire rod, (17) stainless steel wire, (18) fittings (< 609,6 mm), (19) flanges (other than of stainless steel), (20) gas pipes and (21) hollow sections.

(6) On the same day, on the basis of information gathered and verified prior to the initiation, provisional measures were imposed on 15 of the steel products covered by the investigation. These are the product numbers 1, 2, 3, 4, 5, 6, 9, 10, 11, 12, 13, 14, 17, 18 and 19 referred to in recital (5) above.

(7) The Commission proceeded to a full investigation in relation to each of the 21 products. The Commission officially advised the exporting producers and importers as well as their representative associations known to be concerned, the representatives of exporting countries and the Community producers. The Commission sent questionnaires to all these parties and to those who made themselves known within the time limits set in the Notice of Initiation. Pursuant to Articles 5 of Council Regulation (EC) No 519/94 and 6 of Council Regulation (EC) No 3285/94 the Commission also gave parties directly concerned the opportunity to make their views known in writing and to request a hearing.

(8) Certain exporting producers, Community producers and importers submitted comments in writing. All interested parties who requested a hearing within the time limit set and who indicated that they were likely to be affected by the result of the proceeding and that there were particular reasons why they should be heard, were granted such a hearing. The oral and written comments submitted by the parties were considered and taken into account in reaching the definitive findings. The Commission sought and verified all the information which it deemed necessary for the purpose of a definitive determination. Verification visits were carried out at the premises of 30 Community producers, 12 exporting producers and 2 importers.

(9) The results of the investigation in relation to product numbers 1, 2, 3, 4, 5, 18 and 19 are set out below. The results of the investigation in relation to the remaining products are set out in a separate regulation relating to those products.

RESULTS OF THE INVESTIGATIONS

1. PRODUCT 1: HOT ROLLED COILS

1.1. Product Concerned and Like or Directly Competing Product

1.1.1. Product Concerned

(10) The product concerned is certain flat rolled products of iron or non-alloy steel, of a width of 600mm or more, not clad, plated or coated, in coils, not further worked than hot-rolled (hereinafter referred to as "hot rolled coils"). The product concerned is currently classified under CN codes 7208 10 00, 7208 25 00, 7208 26 00, 7208 27 00, 7208 36 00, 7208 37 10, 7208 37 90, 7208 38 10, 7208 38 90, 7208 39 10, 7208 39 90.

(11) Hot rolled coils are generally obtained in steel mills by hot rolling semi-finished steel products after the final rolling pass or after pickling or continuous annealing. Hot rolled coils are wound into a regular coil.

(12) Hot rolled coils can be of various grades and dimensions. The vast majority of imports from third countries consist of "structural steels" (such as S235 and S275 according to Euronorm EN 10025) and "mild steels" (such as DD11, DD12, DD13 according to EN10011 and "Deutsche Industrie Norm" DIN 1614/1). Each of the relevant CN codes listed above corresponds to a specific product type as differentiated by width and thickness within the above ranges.

(13) The product concerned is also classified into two distinct categories according to its finish: black hot rolled coils, which are the basic product, and pickled hot rolled coils, which, after being hot rolled, go through an additional surface treatment called pickling. The distinction between black coils and pickled coils is also reflected in the structure of the Combined Nomenclature as coils classified under the two categories belong to specific and separate CN codes.

(14) Hot rolled coils are used as a pre-material for manufacturing other steel products (wide and narrow strips, all cold rolled products, tubes, etc.).

(15) Notwithstanding the fact that each CN code corresponds to a distinguishable type of hot rolled coil, it was found that they all have identical characteristics or similar physical and technical characteristics, uses and applications. Accordingly, all types of hot rolled coils form one single product falling under the relevant CN codes listed above.

1.1.2. Like Or Directly Competing Products

(16) The Commission has examined whether the product produced by the Community producers (hereinafter referred to as "the like product") is like the imported product concerned. In the course of the investigation, the Commission received submissions from certain major exporters and importers of hot rolled coils which alleged that certain types of hot rolled coil imported into the Community were not produced by the Community producers and therefore should not be considered as "like" the product concerned.

(17) The Commission examined these submissions in detail, and took into account in particular the following findings of the investigation:

(a) the imported product and the Community product shared the same international classification for tariff purposes. Furthermore, they shared the same or similar physical properties such as composition, size, shape and texture and were manufactured to internationally recognised standards;

(b) the imported product and the Community product were sold via similar or identical sales channels and price information was readily available (for example, details of prices are published in industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and the product of the Community producers competed mainly on price;

(c) the imported product and the Community product were both capable of serving the same or similar end-uses, they were, therefore, largely alternative or substitute products and were easily interchangeable;

(d) the imported product and the Community product were both perceived by consumers as alternative means of performing particular functions in order to satisfy a particular want or demand, in this respect the differences identified by the exporter/importer were simply minor variations manufactured for a particular customer.

(18) The Commission has concluded that despite the alleged technical differences in the product characteristics and qualities identified in those submissions, the imported product and the Community product are "like or directly competing".

1.2. Increased Imports

(19) The Commission has examined whether the product concerned is imported into the Community in such greatly increased quantities, absolute or relative to Community production and/or on such terms or conditions as to cause or threaten to cause, serious injury to the Community producers. In this respect, the Commission has focused on imports of the product concerned in the most recent period for which data were available in absolute terms and relative to production destined for sales (excluding "captive use") and total production. The table below shows the development of imports in absolute terms and against both Community production destined for sales and total Community production (including captive use) for each of the years 1997 to 2001.

Product 1

Hot rolled coils

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(20) In the period prior to the Asian crisis(5), imports were more or less constant at around 2,4m tonnes (1995: 2,26m tonnes, 1996: 2,39m tonnes). As a result of the Asian crisis, between 1997 and 1998, imports increased by around 47 % whilst their average price fell by nearly 9 %. Relative to total Community production, imports increased from around 5 % to around 7 %, whilst relative to production sold, they increased from 14,8 % to 23,7 %. However, the Commission considers that the level of imports in 1998 was non representative due to the extremely low prices practised by Asian producers and the resulting influx of imports.

(21) In the following year, as the effects of the Asian crisis began to recede, imports fell back to more normal levels albeit somewhat higher than in 1997 but their average price remained depressed. In 1999, imports also fell relative to total production and to production sold on the free market. Nevertheless, comparing 1997 and 1999, a progression in import penetration by imports can be observed in absolute terms, and relative to production destined for sales and total production.

(22) Between 1999 and 2000, there was an increase in imports from 3,85m tonnes to 4,83m tonnes, an increase of 0,98m tonnes or 25 %. Over the same period, production destined for sales fell slightly (from 20,7mt to 20,3mt) so that the increase relative to free market production was 28 %. Total production increased by nearly 2 % in 2000, reflecting an increase in production for captive use, so that the increase in imports relative to total production was smaller, at 24 %.

(23) Between 2000 and 2001, imports increased further to 5,01 million tonnes (an increase of about 0,18m tonnes or 4 %). In 2001, production destined for sales contracted by a further 4,2 % to 19,45m tonnes so that, relative to production sold on the free market, imports increased by around 8 %. Total production also fell in 2001 (by 5,05m tonnes or 7,5 %), reflecting a decrease in production for captive use and in production sold on the free market, so that the increase in imports relative to total production was around 11 %.

(24) The price of the product concerned fell between 1997 and 1998, and remained at a depressed level in 1999. The fall in 1998 and continuing price depression in 1999 appear to have resulted from the Asian crisis. Prices rose in 2000 (to 290 EUR/tonne) but fell again in 2001 (by 13 %). The Commission notes that, although prices increased in 2000, the increase in imports (both absolute and relative to production) continued in 2001 against a background of falling prices. The average price of imports fell from 290 EUR/tonne in 2000 to 254 EUR/tonne in 2001. The Commission also notes that the further increase in imports to the Community occurred at a time when the euro was relatively weak by comparison to the US dollar and, during which prices in the US for hot rolled coils were between 30 % and 40 % higher than prices for that product in the Community.

1.2.1. Two year moving average

(25) In order to establish the underlying trend in the level of imports between 1997 and 2001 and determine whether the recent increases in imports form an established trend, the Commission considered two year moving averages. These illustrate that, whilst between 1997/98 and 1999/00, imports in any two year period fluctuated between 4,05m tonnes and 4,34m tonnes, between 1999/00 and 2000/01 they increased by over 13 % from 4,34m tonnes to 4,92m tonnes.

1.2.2. Market share of imports

(26) The market share of imports increased steeply between 1997 and 1998 as a result of the Asian crisis, before falling back to 17,1 % in 1999, representing an increase of around 19 % relative to 1997. From 2000 onwards, the market share of imports increased to 20,8 % and then 22,3 % - increases of around 22 % and 7 % respectively.

1.2.3. Conclusion

(27) Whilst imports increased sharply in 1998, the Commission considers that that increase was exceptional and cannot be considered to represent part of the normal development of imports. This is also reflected in the fact that imports declined substantially in 1999. Leaving aside 1998, the annual rate of growth in imports between 1997 and 1999 was 8,6 % in absolute terms (9.2 % relative to total production and 13 % relative to production sold on the free market). By contrast between 1999 and 2000, the annual rate of growth in imports in absolute terms was 25 % (24 % relative to total production and 28 % relative to production sold on the free market). By each measure, the annual rate of growth of imports was more than twice as high between 1999 and 2000 than in the previous period with a further increase in 2001. It should be noted that the high level of imports according to the utilisation of the quota set at the provisional stage appears to be confirmed for 2002.

(28) That recent increases in imports are not attributable to established trends in import levels is demonstrated by the development of the two year moving average of imports over the five year period of investigation.

(29) It is concluded that the increases in the recent past can be considered sudden, sharp and significant when comparing them to developments in previous years, in particular bearing in mind that the increase in imports in 1998, must be considered non representative.

1.3. Unforeseen Developments

1.3.1. Increased use of trade defence instruments by the US

(30) From 1998 onwards, in reaction to the Asian crisis, the US, which represents around one eighth of world steel consumption, began to make greater use of trade defence instruments (TDIs) in the steel sector with a view to protecting their domestic producers from competition. A number of these measures have been adjudicated in the WTO and some of the methodologies used have been declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are based on these same methodologies.

(31) The table below shows the annual number of anti-dumping and countervailing duty final determinations for one or more countries made by the US between 1997 and 2001 in relation to the steel sector as a whole, and illustrates the increase in activity in the last three years.

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(32) In the course of 2001, the US also announced further broadly based action in the steel sector. In January 2001, the US opened an investigation into steel under section 223 of the US Trade Act of 1974. In July 2001, the US ITC announced a broad ranging investigation into steel under section 202 of the Trade Act of 1974; and in December, the ITC recommended safeguard measures across a broad range of steel products.

(33) These actions, had an increasingly discouraging effect on imports of steel products to the US and led to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which had been mooted for several months before its initiation, had a restraining effect on imports to the US due to the uncertainty which it created for economic operators. It is indeed the largest commercial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

1.3.2. Increased use of TDIs by the US - relating to the product concerned

(34) In relation to hot rolled coils, the US imposed 14 anti-dumping measures (including one suspension agreement) at high levels of duty and 6 countervailing duty measures between 1999 and 2001. In particular, in July 1999, the US imposed anti-dumping duties of between 41,27 % and 43,40 % on imports of the product concerned originating in Brazil. In September 2000, the US imposed anti-dumping duties of between 40,6 % and 44,59 % and countervailing duties of 41,69 % (some of which applied cumulatively) on imports of the product concerned originating in Argentina. In November 2000, the US imposed anti-dumping duties of between 64,20 % and 90,83 % on imports of the product concerned originating in China. Also in November 2000, the US imposed anti-dumping duties of between 36,53 % and 44,40 % and countervailing duties of between 8,28 % and 31,89 % (some of which applied cumulatively) on imports of the product concerned originating in India.

(35) By 15 March 2002, in relation to hot rolled coils, the US had in force anti-dumping measures against exporters in 14 countries and countervailing measures against exporters in 6 countries The countries concerned by these proceedings were Argentina, Brazil, China, India, Indonesia, Japan, Kazakhstan, the Netherlands, Romania, Russia, South Africa, Taiwan, Thailand and Ukraine. In each case, after an anti-dumping or countervailing measure has been taken, US imports of the product concerned from that country have declined. In addition, the dramatic fall in US imports in 2001 occurred in a year in which not only were 14 anti-dumping and 6 countervailing measures relating to the product concerned in place, but at the start of which the US opened a steel investigation under section 223 of the US Trade Act of 1974 and in the middle of which the US ITC announced a broad ranging investigation into steel under section 202 of the Trade Act of 1974.

(36) Between 1999 and 2001, US imports decreased from 5,40m tonnes to 2,56m tonnes. In the same period imports to the Community increased from 3,8m tonnes to 5m tonnes, an increase of 32 %.

(37) The Commission has also determined that an effect of the US reducing imports of hot rolled coils to its market was to increase imports to the Community market. On the basis of the available information, the Commission has determined that there is a correlation in time between the increased and extensive use of TDIs by the US in recent years, the dramatic reduction in US imports of hot rolled coils between 2000 and 2001, and the increase in Community imports of that product in that period. The Community was the principal export market for hot rolled coils in 2001. Both the Community and US markets have the same types of industrial users. Many of the exporters affected by the US TDIs have also exported to the Community for a number of years. At the same time as US imports fell dramatically, imports into the Community grew to record levels notwithstanding a fall in GDP growth, production and consumption in the Community in 2001.

(38) This increased and extensive use of trade defence instruments, a number of which were found to be WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and constitutes the unforeseen circumstances as required by the Safeguard Agreement.

1.3.3. Decrease In Imports to the US

(39) The table below shows imports of goods classified within Harmonised System Code (HSC) 720810, 720825, 720826, 720827, 720836, 720837, 720838, 720839 (which include the product concerned and the like product) to the US for the period 1997 to 2001.

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Source:

Global Trade Atlas

(40) Imports to the US increased between 1997 and 1998, before falling back to just below 1997 levels in 1999. Between 1999 and 2000, they increased to around 6,4 million tonnes. Between 2000 and 2001, imports fell very sharply, by around 60 %.

(41) The decrease in the level of imports of hot rolled coils to the US can be explained, primarily, by reference to the direct effect of the measures referred to in paragraphs (21) to (26) above on exporters whose goods became subject to anti-dumping and/or countervailing duties; but also by the indirect dissuasive effect of those measures and the investigations on all exporters of the product concerned to the US.

(42) The table below illustrates the effect of particular anti-dumping/countervailing measures on exports of the product concerned from certain countries.

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1.4. Definition of the Community Producers

(43) Total Community production of hot rolled coils is around 68 million tonnes per annum. The Community steel companies which cooperated fully in the investigation are:

- Aceralia Corporacion Siderurgica, Spain;

- Cockerill Sambre SA, Belgium;

- Arbed Sidmar NV, Belgium;

- Sollac SA, France;

- Stahlwerke Bremen GmbH, Germany;

- EKO Stahl GmbH, Germany;

- Corus Strip UK, UK;

- Corus Staal BV, The Netherlands;

- Rautaruukki Oyj, Finland;

- Riva Ilva SpA, Italy;

- Salzgitter AG Stahl & Technologie, Germany;

- SSAB Tunplatt AB, Sweden;

- Thyssen Krupp Stahl AG, Germany.

(44) These companies are all members of the European Confederation of the Iron and Steel Industry ("Eurofer"). They accounted for around 91,4 % of the total Community production of the product concerned, and represent a major proportion of total Community production within the meaning of Article 5(3)(c) of Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94. They are accordingly considered as the Community producers for the purposes of this proceeding.

1.5. Serious Injury

1.5.1. Introduction

(45) In order to determine whether there is serious injury to the Community producers of the like product, i.e. a significant overall impairment in the position of the Community producers, the Commission has evaluated all relevant factors of an objective and quantifiable nature having a bearing on the situation of the Community producers. In particular, for the product concerned, the Commission has evaluated the development of production capacity, production, capacity utilisation, employment, productivity, cash flow, return on capital employed, captive use, stocks, consumption, sales, market share, price, undercutting and profitability for the years 1997 to 2001. The relevant economic data are provided at the end of this product analysis.

(46) The investigation has demonstrated that hot rolled coils can follow one of two distinct destinations. They can either be sold as hot rolled coils or used internally to make other products. It was found that around 69 % of the hot rolled coils manufactured by the Community producers are used internally (i.e. they are further processed by these producers in an integrated process, often on the same production line, hereinafter referred to as "captive use"). These hot rolled coils follow an internal process of downstream processing for which invoices are not normally issued.

(47) The remaining production is sold as hot rolled coils to both related and unrelated customers at market prices on the Community market (hereinafter referred to as the "free market"). Imports of hot rolled coils are also sold on the free market. The main purchasers on the free market are independent cold rolling mills, tube makers, steel service centres, steel merchants and stockholders. Both the hot rolled coils sold by the Community industry and imported hot rolled coils are sold to the same types of customers and are used for the same purposes. The sale of hot rolled coils on the free market is supported by the issuing of commercial invoices.

(48) The investigation demonstrated that there is a clear distinction between hot rolled coils destined for captive use and those destined for the free market. Hot rolled coils destined for captive use were found not to be directly affected by the imports. By contrast, production destined for sales was in direct competition with the imports.

(49) In order to provide as complete a picture as possible of the situation of the Community producers, the Commission has obtained and analysed data both for hot rolled coils destined for captive use and those destined for the free market. Because the free market sales are in competition with the imported products concerned, the Commission focused its attention on the free market. While it has, to the extent possible, combined free market and captive data, it has also split the analysis between free market and captive use, where necessary and possible.

1.5.2. Analysis of the Whole Activity for the Product Concerned

1.5.2.1. Production capacity and Capacity utilisation

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(50) The investigation showed that there were no significant changes in overall estimated theoretical production capacity throughout the period of the investigation.

(51) Capacity utilisation remained relatively stable between 1997 and 2000 (varying between 83,4 % and 85,9 %) but fell by nearly 8 % in 2001 (to 79.4 %). The steel industry requires to achieve a high level of capacity utilisation to make profits, and this sharp fall in capacity utilisation reflects the fall in production.

1.5.2.2. Total Community Production

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(52) Total Community production fell between 1997 and 1998, but partially recovered in 1999 and reached a peak in 2000 in line with the increase in demand. In 2001, production fell as sales and captive use declined. In this respect, reference is made to the analysis of imports in relation to product 5, the largest of the downstream products.

1.5.2.3. Employment

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(53) Employment in relation to the product concerned was more or less stable in 1997 and 1998. It fell by nearly 2300 (6,6 %) between 1998 and 1999 amidst reports of plant closures, but stabilised in 2000. Employment fell by a further 1400 (4,3 %) in 2001, and loss of employment was particularly felt in 2001 due to further plant closures. Employment is expected to fall further in 2002, and this expectation was to some extent confirmed by the closure of one facility in the UK which occurred in the second quarter of 2002.

1.5.2.4. Productivity

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(54) Productivity remained stable at around 1900 tonnes/employee in 1997 and 1998 before climbing to over 2000 tonnes/employee in 1999. It remained stable at about this level throughout 2000 and 2001.

1.5.2.5. Cash Flow

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(55) Cash flow could only be examined at the level of the cooperating companies which produced the product concerned rather than in relation to only the product concerned itself. This indicator was therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative situation is evident between 1997 and 2001 and from 2000 to 2001.

1.5.2.6. Return on Capital Employed (ROCE)

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(56) ROCE could only be examined on the level of the cooperating companies which produced the product concerned rather than in relation to only the product concerned itself. This indicator was therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a negative situation is evident between 1997 and 2001 and from 2000 to 2001.

(57) It was not found to be relevant to analyse consumption, sales volume, market share, unit prices, profitability and stocks under this heading because a complete analysis of these indicators was only relevant to the free market.

1.5.3. Analysis of the Free Market

1.5.3.1. Consumption

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(58) Consumption of hot rolled coils in the Community was established on the basis of the total sales made by the Community producers on the free market and total imports of the product concerned into the Community as reported by Eurostat.

(59) Between 1997 and 1999, consumption in the Community declined by nearly 2 % from 22,9m tonnes to 22,5m tonnes. Between 1999 and 2000, it grew by 2,8 % to reach its highest level for the five year period (23,2m tonnes), before falling back to 22,5m tonnes in 2001 (a fall of 3 %). The fall in consumption between 2000 and 2001 is examined under other factors to determine whether, and if so, to what extent, it contributed to the serious injury suffered by the Community producers.

1.5.3.2. Sales volume

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(60) Sales of the like product in the Community fell from 19,66m tonnes to 18,08m tonnes between 1997 and 1998 before recovering to 18,70m tonnes in 1999. Thereafter, between 1999 and 2000, sales of the like product again fell, this time by 2 %. Between 2000 and 2001, sales fell by a further 4 %, reaching a five year low of 17,49m tonnes in 2001. This reflects the increasing dominance of imports in a declining market.

1.5.3.3. Market share

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(61) The Community producers market share fell from 85,7 % to 79 % between 1997 and 1998 as a result of the significant increase in imports from the South East Asia in 1998 that occurred as a result of the Asian crisis. In order to regain most of that lost market share the following year (1999), the Community producers had no choice but to respond to the price decreases initiated by imports by cutting their own prices. However, since 1999, the Community producers market share has declined substantially, to 79,2 % in 2000 and 77,7 % in 2001. This demonstrates the increasing market penetration of imports in that period, which has occurred despite the fact that Community producers lowered their prices by 8 % between 2000 and 2001. The combination of the fall in prices and loss of market share to imports had a dramatic effect on the profitability of the Community producers as discussed below.

1.5.3.4. Price of like product and undercutting

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(62) The average price of the like product rose between 1997 and 1998 before falling to a five-year low of 235 EUR/tonne in 1999. Prices recovered in 2000, but fell again (by 8 %) to 277 EUR/tonne in 2001. This trend is further confirmed because quarterly prices from Q1 2001 to Q1 2002 show a fall from 283 EUR/tonne to 254 EUR/tonne in the price of the Community product.

(63) In order to determine the level of undercutting, price information was examined for comparable time periods, at the same level of trade and for sales to similar customers. Based on a comparison of prices invoiced by the Community producers and by exporting producers to the Community, domestic prices were undercut by an average of 3,9 % in 2001.

(64) The Commission notes that, throughout the whole period of the investigation, the price of imports was clearly below the price of the Community product. The graph illustrates that the sharp increase in imports at low prices in 1998 forced the Community producers to reduce their prices in 1999, leading to a sharp reduction in profitability and the losses sustained by the Community producers in 1999. In 2000, increased consumption and more normal market conditions enabled the Community producers to increase their prices and their profitability. However, the sharp increase in imports in that year, led to a fall in prices in 2001. That sharp increase continued into 2001 and its continued effect is seen in the fall in the price of the Community product.

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1.5.3.5. Profitability

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(65) The profitability of the Community producers sales in the Community varied significantly in the five-year period under consideration. The lowest profitability was recorded in 1999, and the highest in 2000. In 2001, as imports increased to their highest level in the five-year period, the average price of imports fell to 254 EUR/tonne and the average price of the Community product fell to 277 EUR/tonne. This is mirrored in the undercutting of 3,9 % found for 2001. This fall in prices taken together with the fall in sales volume led the Community producers profitability to fall from 10,8 % to -3,1 %. This trend is further confirmed because quarterly data for Q1 2001 to Q1 2002, shows that the profitability of the Community producers sales on the Community market fell from 1,1 % to -10,9 %.

(66) Underselling reflects the extent to which the price of the imported product is lower than the price level which the Community producers could be expected to achieve in a non-injurious situation. The level of underselling was calculated on the basis of the weighted average non injurious price per tonne of the Community product. This price was calculated by taking the respective cost of production for the Community product to which was added a profit margin of 8 %. This profit margin was considered reasonable as it refers to profits of the Community producers in a normal trading situation unaffected by sudden sharp rise in imports. This non injurious price was compared with the weighted average price per tonne of the imported product concerned during 2001. The difference between these two prices was expressed as a percentage of the cif/Community border price of the imported product, and resulted in underselling of 17,5 %.

1.5.3.6. Stocks

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(67) Stock levels fell slightly in 1998, but then increased significantly in 1999 and again (though more modestly) in 2000 and 2001. The increase in stock between 1998 and 1999 coincided with a fall in captive use and appears to be chiefly attributable to that fall. However, despite the recovery in captive use in the following year (2000), stock levels continued to grow. They grew further in 2001 as both production destined for sales and captive use declined.

1.5.4. Analysis of Captive Use

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(68) Some indicators relating to captive use have been shown in global terms, whereby captive use forms part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisation, employment and productivity). With respect to certain other factors which are analysed above in respect of the free market, i.e., sales prices, stocks and profitability, the data received is not, by its very nature, adapted to an immediate and objective comparison with the data obtained for the free market for hot rolled coils, but nevertheless does not show evidence that it was more profitable to produce for captive use than for the free market. Therefore, this analysis focuses on production for captive use and examines if its trend is comparable to those of the free and total markets.

(69) Production for captive use increased by nearly 700000 tonnes between 1997 and 1998 before falling back to 44,6m tonnes in 1999. Captive use increased between 1999 and 2000, from 44,6 to 46,7m tonnes (an increase of 4,7 %). This allowed the Community producers to increase total production in 2000 despite a fall in production sold in the free market. In 2001, however, captive use fell. Together with the fall in production sold on the free market, this led to a fall in total production to 62,4m tonnes in 2001 (a fall of over 7 % from 2000).

1.5.5. Conclusion

(70) The data shows that while production capacity remained stable and there is a slight increase in productivity, overall, there is negative development for capacity utilisation, production, employment, and negative elements can as well be observed for cash flow and ROCE. Overall, the free market data shows, before the background of a decline in consumption and an increase in stocks, negative developments for sales, market share, prices and profitability. The data for captive use has demonstrated that a similar trend was identified in respect of captive use. These findings were indeed supported by the analysis of the whole activity for the product concerned.

(71) In particular, the Commission notes that whilst, in 2001, as imports reached their highest level for five years (5m tonnes), the Community producers' sales volume in the Community reached its lowest level for five years (17,49m tonnes) and profitability fell rapidly. This occurred against the background of a concurrent fall in production sold on the free market, consumption and falling prices. Against such a background, imports could have been expected to fall, but instead they rose for the second consecutive year.

(72) The effect of this combination of factors on the Community producers is reflected in the economic indicators. The Community producers have lost market share, which reached its lowest level for five years in 2001. Capacity utilisation has fallen sharply in 2001, and with it productivity. Employment has also fallen and is expected to fall further in 2002. The overall effect of the falls in production, Community sales volume and prices was to reduce the profitability of the Community producers and plunge them into a loss-making situation in 2001. These trends are confirmed by the continuing deterioration in prices and profitability between Q1 2001 and Q1 2002.

(73) Taking account of all of these factors and relying, in particular, on its analysis of the free market activities, the Commission concludes that the Community producers have suffered serious injury.

1.6. Causation

(74) In order to examine the existence of a causal link between increased imports and the serious injury, and in order to ensure that injury caused by other factors is not attributed to increased imports, the Commission has proceeded as follows:

- The injurious effects of factors considered to be causing injury have been distinguished from each other,

- These injurious effects have been attributed to the factors which are causing them, and,

- After having attributed injury to all causal factors present, the Commission has determined whether increased imports are a genuine and substantial cause of serious injury.

1.6.1. Effect of increased imports

(75) The market for hot rolled coils is a transparent one as regards sources of supply, customers and prices. As hot rolled coils are essentially a commodity product, the product concerned and the like product compete mainly on price.

(76) In the period 1999 to 2001, the market share of imports grew from 17,1 % of the market to 22,3 %, whilst the market share of the Community producers fell from 82,9 % to 77,7 %. Over the same period, imports have grown from 18,6 % to 25,8 % of production sold on the free market. Thus, imports have also increased relative to production, at the expense of the Community producers.

(77) As to prices, between 2000 and 2001, the average unit price of the imported product on the Community market fell from 290 to 254 EUR/tonne. The average unit price of the Community product fell from 301 to 277 EUR/tonne. In this transparent market, price undercutting had a decisive impact. The effect of the fall in the average unit price of the like product alone on the Community producers Community sales revenue would have been a reduction of 8 % (EUR 440m) in 2001. Taking account of the simultaneous fall in sales volume the actual fall in sales revenue in the Community was EUR 678m. Fixed costs represent a material proportion of total costs. Therefore, the reduction in sales revenues created a disproportionately higher fall in profits, and, in 2001, the Community producers made a loss of -3,1 %. This fall in prices and profitability furthermore must be seen in the context of a number of plant closures and ensuing reduction in employment.

(78) For these reasons, it is considered that there is a correlation between the increase in imports at low prices and the serious injury suffered by the Community producers, and that the increase in imports has had injurious effects in particular in terms of pressure on prices and a reduction in the volume sold by the Community producers on the Community market.

1.6.2. Effect of changes in consumption

(79) The Commission examined the injurious effects of the fall in consumption between 2000 and 2001. That fall has to be considered in the context of the overall trend during the 5 year period under investigation. Consumption decreased from 22,9m tonnes in 1997 to 22,5m tonnes in 1999, but then grew by 634000 tonnes to 23,2m tonnes in 2000, before falling back some 677000 tonnes to 22,5m tonnes in 2001.

(80) In this particular case, the Commission considers that the apparent rise in consumption in 2000 was largely due to the large increase in imports and stocks in that year. For this reason, the trend movements present a more accurate picture. Although consumption fell between 2000 and 2001, overall during the five year period consumption fell by 442000 tonnes or 2 %. This represents an average rate of decline of 0,4 % per annum.

(81) In examining this question in this particular case account has to be taken of the reaction of all market participants to the trend fall in consumption. In this respect, it was found that while Community producers were forced to reduce their sales in the Community by roughly 900000 tonnes in 2001 compared to 2000, imports moved sharply in the other direction. No economic justification was established which could explain the sharp rise in imports. For example, no exporter claimed that this was due to lower production costs.

(82) As regards price effects, a fall in consumption of only 0,4 % per annum should not normally lead to substantial price effects if production is quickly adjusted to the needs of the market. In this respect, the Community producers appear to have reacted by reducing both production and sales to a greater extent than that necessary to be in line with the falls in consumption.

(83) Similarly, if price pressure is reduced then the injurious effects which stem from low prices would also be kept in check. The most important factor here is profit, where any fall would have been minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that in the absence of the sharp rise in imports at low prices, the fall in consumption would not have led to a substantial fall in profits.

(84) Nevertheless, even if all market participants acted responsibly and adjusted their production, the Community producers would still have sold less. Consumption in 2001 was at the same level as in 1999 (i.e. 22,5m tonnes). In 2000, consumption increased by 600000 tonnes only to fall back to the 1999 level in 2001. The Community producers' sales, however, decreased in 2000 compared to 1999 by 350000 tonnes despite the enormous increase in consumption. At the same time, imports increased in 2000 by 1000000 tonnes compared to 1999. Imports therefore took the entire increase in consumption and considerably more. In 2001, consumption fell back to the 1999 levels and the Community producers' sales fell by roughly 900000 tonnes whereas imports continued to increase. In terms of the trend fall in consumption, the Community producers fall in sales should have been approximately 70000 tonnes per annum.

(85) For the reasons given above, it is concluded that there is a significant, but not substantial, link between the fall in consumption and the injurious effects observed.

1.6.3. Effect of changes in captive use

(86) The Commission has also examined the effects of the development of captive use of hot rolled coils. This was more or less stable between 1997 and 1999 (44,6 million tonnes), but rose considerably in 2000 (46,7 million tonnes) and then fell in 2001 (42,8 million tonnes). The trend fall over the period was approximately 2 million tonnes. The Commission noted that this trend fall corresponded with the market conditions for the intermediate and finished products.

(87) The further data received in respect of captive use is not, by its very nature, adapted to an immediate and objective comparison with the data obtained for the free market for hot rolled coils, but nevertheless does not show evidence that it was more profitable to produce for captive use than for the free market.

(88) The fall in captive use thus has caused injurious effects in terms of production, which in turn has affected capacity utilisation, and ultimately profitability. However, the fall in prices and revenues suffered by Community producers on the free market was created by low priced imports and bears little or no relation to the fall in captive use.

1.6.4. Effect of changes in export performance

(89) The Commission also examined the effects of a fall in exports.

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(90) Between 1997 and 1999, the volume of Community producers' exports of hot rolled coils fell from 2,54m tonnes to 1,94m tonnes. Between 1999 and 2001, exports remained relatively stable, with a decrease in 2000 and a small increase in 2001. Over the five year period, exports decreased by approximately 580000 tonnes, although most of this occurred between 1997 and 1999. Since 1999, exports have been stable. Therefore, in the most recent period between 2000 and 2001 they have not contributed to the injurious effects. In this respect, as the injury resulting from a fall in exports mainly occurred in the early part of the 5 year period it has to be viewed as less significant than if it had occurred in the latter part of the 5 year period.

(91) For the reasons given above, it is concluded that there is some link between the fall in exports and the injurious effects observed in the earlier part of the 5 year period.

1.6.5. Effect of any excess capacity

(92) The Commission has further examined whether injurious effects may have resulted from excess capacity amongst the Community producers. There were no significant changes in overall estimated theoretical production capacity throughout the period of the investigation, and capacity utilisation always remained above or very slightly below 80 %. Therefore, no correlation between capacity and the injurious effects was observed.

1.6.6. Effect of restructuring

(93) The Commission further examined the injurious effects of the costs of restructuring which the Community producers have undergone in recent years. In this respect it is noted that restructuring will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this would imply that ongoing short term costs, even if found to be minor, impacted on the cost structure.

1.6.7. Attribution of injurious effects

(94) The serious injury suffered by the Community producers took the form mainly of reduced sales and worsening financial losses. The Commission identified that four factors contributed to the injury apart from the increase in imports: decline in consumption, decline in captive use, decline in exports, and ongoing rationalisation efforts.

(95) First of all, there was a small decline in consumption of approximately 0,4 % per annum, although the fall was more pronounced in 2001 compared to 2000. However, the development of imports did not follow this consumption pattern at all and the Commission considers that the small decline in consumption did not play a significant role either in volume or prices.

(96) As to the decline in captive use observed in particular between 2000 and 2001, this has had a negative impact primarily in terms of volume. Thus, it bears no significant relation to the fall in prices and revenues suffered by the Community producers on the free market.

(97) The Commission also examined the decline in exports by the Community producers over the five year period. There was a decline over the earlier part of the five year period. However, in the latter part of the period, when serious injury was sustained, exports were stable. Therefore, the development in exports had a significantly lesser impact on the Community producers in the period 2000/01 compared to the surge in imports.

(98) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the impact on the cost structure of the Community producers is not significant, in particular by comparison to the price effect of the low priced imports.

(99) The Commission noted that the decline in the Community producers' sales volume, sales prices and profitability was due primarily to the increase in imports, which not only increased much faster than the increase in consumption in 2000 but continued to increase during the fall in consumption in 2001.

1.6.8. Conclusion

(100) It is concluded that, after having examined the injurious effects of the other known factors and separated and distinguished them from each other and from the injurious effects of the increased imports, and after having ensured that injury caused by other factors is not attributed to imports, it can be considered that there is a genuine and substantial link between increased imports and serious injury to the Community producers.

1.7. Further Developments

(101) The Commission has, in addition, analysed a number of elements which justify the conclusion that the serious injury suffered by the Community producers could be expected to seriously worsen should imports continue at their current level or increase.

1.7.1. The US steel safeguard measures

(102) It is recalled that on 5 March 2002, the US imposed safeguard measures against certain steel products including hot rolled carbon flat products. Those measures came into effect on 20 March 2002, and consist of an increase in duty on imports to the US of 30 % ad valorem in the first year, 24 % in the second year and 18 % in the third year. The measures do not apply to Canada, Israel, Jordan and Mexico as well as a number of countries specified as developing countries.

1.7.2. Trade diversion arising from US steel safeguard measures

(103) The Commission examined the likely impact of the US measures by analysing the situation of the major exporting countries to the US.

(104) In 2001, the US imported 2562747 tonnes of goods classified within the same HSC codes as the product concerned. The principal exporters to the US of these products were the Netherlands (13 %/340000 tonnes), France (13 %/320000 tonnes), Korea (11 %/270000 tonnes), Canada (9 %/240000 tonnes), Turkey (9 %/230000 tonnes), Mexico (9 %/230000 tonnes) and Australia (9 %/230000 tonnes). India, China, Taiwan, Indonesia, Thailand, Ukraine, Russia, South Africa, Brazil, Germany and Japan have also been important suppliers to the US market in recent years.

(105) Total exports to the US in 2001 from countries affected by the US safeguard measures (excluding producers in the Community and in those countries excluded from the US safeguard measures insofar as it relates to these products) amounted to around 1 million tonnes. Certain products produced by certain suppliers have also been excluded from the US measures, but these quantities are not considered to be significant.

(106) The Commission then examined the likelihood that the restricted access to the US market as a result of safeguard action taken by the US would lead to increased exports to the Community. The Commission investigated the capacity situation of the cooperating exporting producers. It was found that they had increased their capacity from its level between 1997 and 1999 of around 123m tonnes to 140,4m tonnes in 2001. None of the cooperating exporting producers reported an intention to reduce their capacity in the immediate future and none reported an intention to reduce their production in light of the US measures.

(107) Most indicated their aim to make up for any reduction in their exports to the US by selling more on their domestic markets but this claim was made within the context of static or falling consumption in these markets. In this respect, it is very unlikely that these producers can increase sales significantly on their domestic markets. Neither is it likely that they can increase sales to other export markets as producers in most of these markets are already suffering from the substantial closure of the US market and there is no indication that significant extra consumption will be available in these markets in the short and medium term to permit increased imports.

(108) The potential trade which, in the absence of definitive measures, could be diverted to the Community as a result of the US measures therefore amounts to 1 million tonnes. There are reasons why this potential may not be wholly realized, e.g. the current high levels prices of domestic prices in the US which may result in a somewhat higher than expected level of imports despite the existence of 30 % duties as well as the fact that third country producers may be able to partially offset the loss of the US market by selling more on their domestic markets. This may be particularly true to a degree for those countries which have taken protective measures to counteract the US safeguard action. Producers may also increase their stocks for a period of time.

(109) However, a very substantial potential for increased exports to the Community will still prevail. The increase which took place in 2001 had many causes as already identified in the analysis of serious injury and all of these still apply and can be expected to continue to push imports higher. Moreover, there is now the new element of the US safeguard action which manifestly leaves a substantial amount of production for which producers are under enormous pressure to find buyers. In these circumstances, it can reasonably be assumed that in the absence of definitive measures the very minimum trade diversion that would occur would be between 25 % and 50 % of the amount calculated above (1m tonnes) which could be diverted from the US market. In all likelihood, it would be greater but it is considered prudent to base this analysis on a conservative basis.

(110) It is also relevant that in 2001, the major export markets for hot rolled coils was the Community (5mt). This compares to Korea (4,2mt), the US (2,6mt), China (2,3mt), Japan (1,7mt) and Turkey (1,6mt). This reflects that fact that the Community was, and following recent measures, remains, one of the most open markets in the world. The recent appreciation of the euro relative to the US dollar and other major currencies increases the attractiveness of imports relative to Community production in the short and medium term.

1.7.3. Reduction in Community exports arising from the US steel safeguard measures

(111) An immediate effect of US measures has been to reduce sharply the Community exports of hot rolled coils to the US. The imposition of 30 % ad valorem duties will largely stop these exports though some small volumes may occur due to the current high level of prices in the US which can result in duties being worth paying at least to sell any excess stock. After taking account to the extent possible of the exclusions granted by the US since the imposition of measures that Community exports to the US, which were around 820000 tonnes in 2001, will fall significantly as a result of the US measures.

(112) It is also likely that Community exports to other third markets will also fall both because the all producers worldwide will find it more difficult to export both because of the US measures and the defensive safeguard actions taken by other third countries and the Community to avoid diversion to their own markets.

1.7.4. Projected effects of US measures

(113) The Commission has evaluated the possible impact on the Community producers of not imposing definitive measures and the consequent trade diversion arising from the US safeguard measures as well as the effect of these measures on Community exports. In this respect, the Commission has found that in the absence of Community safeguard measures, imports will inevitably rise substantially with the result that the state of the Community industry will show a very serious and substantial decline. Given the extremely fragile state of the Community producers any significant rise in imports would have extremely serious consequences. The expected rise of between 250000 to 500000 tonnes would immediately lead to a further substantial reduction in the sales of the Community producers and these reduced sales would very quickly lead to serious negative consequences for the other indicators which identify the state of the industry.

(114) The continued fall in Community exports will also significantly contribute to the worsening state of the Community producers. It is estimated that since the US measures were taken that Community exports fell substantially and this position is likely to be maintained or even deteriorate in the coming months.

(115) The projected increase in imports and the projected fall in Community exports would substantially worsen the situation of the Community industry in relation to all factors already examined when determining the existence of serious injury. They would immediately lead to a further sharp fall in sales and prices, with consequent negative effects on production, increased unit costs and increased losses. In fact, the overall negative impact would be greatly magnified by the fact that Community producers are already suffering serious injury from the increased imports of recent years.

1.7.5. Conclusion

(116) Taking due account of the fact that the Community producers are already suffering serious injury, it is reasonable to conclude that, without definitive measures, the likely further substantial increase in imports would substantially aggravate the situation of the Community producers. Moreover, this situation will be worsened by a significant fall in Community exports as a result of US measures.

Product 1

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2. PRODUCT 2 - NON ALLOY HOT ROLLED SHEETS AND PLATES

2.1. Product Concerned and Like or Directly Competing Product

2.1.1. Product Concerned

(117) The product concerned is certain flat rolled products of iron or non-alloy steel, of a width of 600mm or more, not clad, plated or coated, not in coils, not further worked than hot-rolled

- with patterns in relief, or,

- other than with patterns in relief, of a thickness of 4,75mm or more but not exceeding 10mm and of a width less than 2050 mm, other than rolled on four faces or in a closed box pass and of a width not exceeding 1250 mm, or,

- other than with patterns in relief, of a thickness of 3mm or more but less than 4,75 mm other than rolled on four faces or in a closed box pass and of a width exceeding 1250 mm and of a thickness of 4 mm or more, or,

- other than with patterns in relief, of a thickness of less than 3 mm

(hereinafter referred to as hot rolled sheets and plates). The product concerned is currently classified under CN codes 7208 40 10, 7208 40 90, 7208 52 99, 7208 53 90, 7208 54 10, 7208 54 90.

(118) Hot rolled sheets and plates are generally obtained in steel mills by hot rolling semi-finished steel products after the final rolling pass or after pickling or continuous annealing.

(119) Notwithstanding the fact that each CN code corresponds to a distinguishable type of hot rolled sheets and plates, it was found that they all have identical characteristics or similar physical and technical characteristics, uses and applications. Accordingly, all types of hot rolled sheets and plates form one single product falling under the relevant CN codes listed above.

2.1.2. Like Or Directly Competing Products

(120) The Commission has examined whether the product produced by the Community producers (hereinafter referred to as the like product) is like the imported product concerned. In the course of the investigation, the Commission received submissions from certain major exporters and importers of hot rolled sheets and plates which alleged that certain types of hot rolled sheets and plates imported into the Community were not produced by the Community producers and therefore should not be considered as like the product concerned.

(121) The Commission examined these submissions in detail and took into account in particular the following findings of the investigation:

(a) the imported product and Community product shared the same international classification for tariff purposes. Furthermore, they shared the same or similar physical properties such as composition, size, shape and texture and were manufactured to internationally recognised standards;

(b) the imported product and Community product were sold via similar or identical sales channels and price information was readily available (for example, details of prices are published in industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and the product of the Community producers competed mainly on price;

(c) the imported and Community product were both capable of serving the same or similar end-uses, they were, therefore, largely alternative or substitute products and were easily interchangeable;

(d) the imported and Community product were both perceived by consumers as alternative means of performing particular functions in order to satisfy a particular want or demand, in this respect the differences identified by the exporter/importer were simply minor variations manufactured for a particular customer;

(122) The Commission has concluded that despite the alleged technical differences in the product characteristics and qualities identified in those submissions, the imported product and the Community product are like or directly competing.

2.2. Increased Imports

(123) The Commission has examined whether the product concerned is imported into the Community in such greatly increased quantities, absolute or relative to Community production and/or on such terms or conditions as to cause serious injury to Community producers. In this respect, the Commission has focused on imports of the product concerned in the most recent period for which data were available in absolute terms and relative to production destined for sales (excluding captive use) and total production. The table below shows the development of imports in absolute terms and against both Community production destined for sales and total Community production (including captive use) for each of the years 1997 to 2001.

Product 2

Non-alloy hot rolled sheets and plates

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(124) In the period prior to the Asian crisis(6), imports were more or less constant at around 400000 tonnes (1996: 387176 tonnes, 1997: 417598 tonnes). However, as a result of the Asian crisis, between 1997 and 1998, imports increased by 22 % whilst their average price fell by nearly 6 %. Total Community production and production destined for sales also increased in 1998, so that, relative to production destined for sales, imports increased from 22,9 % to 25,8 %, whilst relative to total production, they increased from 19 % to 21,2 %. However, the Commission considers that the level of imports in 1998 was non representative due to the extremely low prices practised by Asian producers and the resulting influx of imports.

(125) In the following year, as the effects of the Asian crisis began to recede, imports fell back by around 7 % although they remained higher in absolute terms than in 1997. In relative terms (compared to production destined for sales and total production), imports returned to around 1997 levels, although the price of imports remained depressed.

(126) Between 1999 and 2000, there was an increase in imports from 477067 tonnes to 533107 tonnes, an increase of 56000 tonnes or 12 %. Over the same period, production destined for sales fell by over 14 %, from 2,16mt to 1,85mt. In consequence, imports increased relative to production destined for sales from 22,1 % to 28,9 %, an increase of 30 %. As a result of the fall in production destined for sales and a rise in captive use, total Community production fell from 2,58mt to 2,32mt. Imports increased from 18,5 % to 23 % of total production.

(127) Between 2000 and 2001, imports increased to 572133 tonnes (a further increase of about 39000 tonnes or 7,3 %). In 2001, production destined for sales declined by a further 3 % to 1,79m tonnes so that, relative to production sold on the free market, imports increased by 11 %. Total Community production also fell in 2001 (by 133000 tonnes or 6 %), reflecting a decrease in production for captive use and production sold on the free market, so that the increase in imports relative to total Community production was 14 %.

(128) The price of the product concerned fell between 1997 and 1998, and remained at a depressed level in 1999. The fall in 1998 and continuing price depression in 1999 appear to have resulted from the Asian crisis. Prices rose by 24 % to 305 EUR/tonne in 2000, but fell by 25 % in 2001. The Commission notes that, although prices increased in 2000, the increase in imports (both absolute and relative to production) continued in 2001 against the background of a sharp fall in prices. The average price of imports fell from 305 EUR/tonne in 2000 to 229 EUR/tonne in 2001. The Commission also notes that the further increase in imports to the Community occurred at a time when the euro was relatively weak by comparison to the US dollar and, during which, prices in the US for hot rolled steel and plate were between 30 % and 40 % higher than prices for hot rolled sheets and plates in the Community.

2.2.1. Two year moving average

(129) In order to establish the underlying trend in the level of imports between 1997 and 2001 and determine whether the recent increases in imports form an established trend, the Commission considered two year moving averages. These illustrate that, whilst between 1997/98 and 1999/00, imports in any two year period fluctuated between 464319 tonnes and 505087 tonnes (i.e. 484703 tonnes +/- 4 %); between 1999/00 and 2000/01 they increased by over 9 % from 505087 tonnes to 552620 tonnes.

2.2.2. Market share of imports

(130) The market share of imports increased slightly between 1997 and 1998, before falling back to 19,3 % in 1999, representing a slight fall in market share relative to 1997. In 2000 and 2001, the market share of imports increased significantly, to 24 % and then 25,9 % - increases of 24 % and 8 % respectively.

2.2.3. Conclusion

(131) Whilst imports increased sharply in 1998, the Commission considers that that increase was exceptional and cannot be considered to represent part of the normal development of imports. This is also reflected in the fact that imports declined in 1999. Leaving aside 1998, the annual rate of growth in imports between 1997 and 1999 was 7 % in absolute terms (and negative relative to total production and to relative to production destined for sales). By contrast between 1999 and 2000, the annual rate of growth in imports in absolute terms was 12 % (24 % relative to total Community production and 28 % relative to production destined for sales). By each measure, the annual rate of growth of imports was higher between 1999 and 2000 than in the previous period, and between 2000 and 2001, notwithstanding that imports had reached a peak in 2000, they continued to grow at a higher rate than in the period 1997 to 1999. It should be noted that the high level of imports according to the utilisation of the quota set at the provisional stage appears to be confirmed for 2002.

(132) That recent increases in imports are not attributable to established trends in import levels is demonstrated by the development of the two year moving average of imports over the five year period of investigation.

(133) It is concluded that the increases in the recent past can be considered sudden, sharp and significant when comparing them to developments in previous years, in particular bearing in mind that the increase in imports in 1998, must be considered non representative.

2.3. Unforeseen Developments

2.3.1. Increased use of trade defence instruments by the US

(134) From 1998 onwards, in reaction to the Asian crisis, the US, which represents around one eighth of world steel consumption, began to make greater use of trade defence instruments (TDIs) in the steel sector with a view to protecting their domestic producers from competition. A number of these measures have been adjudicated in the WTO and some of the methodologies used have been declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are based on these same methodologies.

(135) The table below shows the annual number of anti-dumping and countervailing duty final determinations for one or more countries made by the US between 1997 and 2001 in relation to the steel sector as a whole, and illustrates the increase in activity in the last three years.

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(136) In the course of 2001, the US also announced further broadly based action in the steel sector. In January 2001, the US opened an investigation into steel under section 223 of the US Trade Act of 1974. In July 2001, the US ITC announced a broad ranging investigation into steel under section 202 of the Trade Act of 1974; and in December, the ITC recommended safeguard measures across a broad range of steel products.

(137) These actions, had an increasingly discouraging effect on imports of steel products to the US and led to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which had been mooted for several months before its initiation, had a restraining effect on imports to the US due to the uncertainty which it created for economic operators. It is indeed the largest commercial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

2.3.2. Increased use of TDIs by the US - relating to the product concerned

(138) In relation to hot rolled steel and plate (being the US product categories of which hot rolled sheets and plates form part), the US imposed 19 anti-dumping measures at high levels of duty (including one suspension agreement) and 10 countervailing duty measures between 1999 and 2001. In particular, in February 1999, the US imposed anti-dumping duties of between 10,78 % and 67,14 % on imports of the product concerned originating in Japan; and anti-dumping duties and countervailing duties of between 10,21 % and 52,14 % (some of which applied cumulatively) on imports of the product concerned originating in Indonesia. In July 1999, the US imposed anti-dumping duties of between 41,27 % and 42,12 % on imports of the product concerned originating in Brazil. In September 2000, the US imposed anti-dumping duties and countervailing duties of between 40,6 % and 44,59 % (some of which applied cumulatively) on imports of the product concerned originating in Argentina. In November 2000, the US imposed anti-dumping duties of between 64,20 % and 90,83 % on imports of the product concerned originating in China. Also in November 2000, the US imposed anti-dumping duties and countervailing duties of between 8,28 % and 44,4 % (some of which applied cumulatively) on imports of the product concerned originating in India.

(139) By 15 March 2002, in relation to hot rolled steel and plate, the US had in force anti-dumping measures against exporters in 17 countries and countervailing measures against exporters in 9 countries The countries concerned by these proceedings were Argentina, Brazil, China, France, India, Indonesia, Italy, Japan, Kazakhstan, the Netherlands, Romania, Russia, South Africa, South Korea, Taiwan, Thailand and Ukraine. In each case, after an anti-dumping or countervailing measure has been taken, US imports of the product concerned from that country have declined. In addition, the dramatic fall in US imports in 2001 occurred in a year in which not only were 19 anti-dumping and 10 countervailing measures relating to the product concerned in place, but at the start of which the US opened a steel investigation under section 223 of the US Trade Act of 1974 and in the middle of which the US ITC announced a broad ranging investigation into steel under section 202 of the Trade Act of 1974.

(140) Between 1999 and 2001, US imports decreased from 6,61m tonnes to 3,63m tonnes. In the same period imports to the Community of hot rolled sheets and plates increased from 477067 tonnes to 572133 tonnes, an increase of 20 %.

(141) The Commission has also determined that an effect of the US reducing imports of hot rolled steel and plate to its market was to increase imports of hot rolled sheets and plates to the Community market. On the basis of the available information, the Commission has determined that there is a correlation in time between the increased and extensive use of TDIs by the US in recent years, the dramatic reduction in US imports of hot rolled steel and plate between 2000 and 2001, and the increase in imports to the Community of hot rolled sheets and plates in that period. The Community was an important export market for hot rolled sheets and plate in 2001. Both the Community and US markets have the same types of industrial users. Many of the exporters affected by the US TDIs have also exported to the Community for a number of years. At the same time as US imports fell dramatically, imports into the Community grew to record levels notwithstanding a fall in GDP growth, production and consumption in the Community in 2001.

(142) This increased and extensive use of trade defence instruments, a number of which were found to be WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and constitutes the unforeseen circumstances as required by the Safeguard Agreement.

2.3.3. Decrease In Imports to the US

(143) The table below shows imports to the US of those products which the US categorises as hot rolled steel (including plate in coils) and plate (including cut to length plate and clad plate) for the period 1997 to 2001. Hot rolled sheets and plates are classifiable within these US product categories.

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Source:

Global Trade Atlas

(144) Imports to the US increased between 1997 and 1998, before falling back to just below 1997 levels in 1999. Between 1999 and 2000, they increased to around 7,6 million tonnes. However, between 2000 and 2001, imports fell by over 52 % to 3,6m tonnes.

(145) The decrease in the level of imports of hot rolled steel and plate to the US can be explained, primarily, by reference to the direct effect of the measures referred to above on exporters whose goods became subject to anti-dumping and/or countervailing duties; but also by the indirect dissuasive effect of those measures and the investigations on all exporters of the product concerned to the US.

(146) The table below illustrates the effect of particular anti-dumping/countervailing measures on exports to the US of hot rolled steel (including plate in coils) and plate (including cut to length plate and clad plate) from certain countries.

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2.4. Definition of the Community Producers

(147) Total Community production of the product concerned is around 2,4 million tonnes per annum The Community steel companies which cooperated fully in the investigation are:

- Cockerill Sambre SA, Belgium

- Sidmar NV, Belgium

- Sollac SA, France

- EKO Stahl GmbH, Germany

- Corus Strip UK, UK

- Corus Staal BV, The Netherlands

- Rautaruukki Oyj, Finland

- Riva/Ilva SPA, Italy

- Salzgitter AG Stahl & Technologie, Germany

- SSAB Tunnplat AB, Sweden

- Thyssen Krupp Stahl AG, Germany and

- Voest Alpine Stahl GmbH, Austria

(148) These companies are all members of the European Confederation of the Iron and Steel Industry (Eurofer). They accounted for around 93 % of the total Community production of the product concerned, and represent a major proportion of total Community production within the meaning of Article 5(3)(c) of 3285/94 and Article 15(1) of 519/94. They are accordingly considered as the Community producers for the purposes of this proceeding.

2.5. Serious Injury

2.5.1. Introduction

(149) In order to determine whether there is serious injury to the Community producers of the like product, i.e. a significant impairment in the position of the Community producers, the Commission has evaluated all relevant factors of an objective and quantifiable nature having a bearing on the situation of the Community producers. In particular, for the product concerned, the Commission has evaluated the development of production capacity, production, capacity utilisation, employment, productivity, cash flow, return on capital employed, captive use, stocks, consumption, sales, market share, price, undercutting and profitability for the years 1997 to 2001. The relevant economic data are provided at the end of this product analysis.

(150) The investigation has demonstrated that the product concerned can follow one of two distinct destinations. They can either be sold or used internally to make other products. It was found that around 17 % of the product concerned manufactured by the Community producers are used internally (i.e. they are further processed by these producers in an integrated process, often on the same production line, hereinafter referred to as captive use). These products follow an internal process of downstream processing for which invoices are not normally issued.

(151) The remaining production is sold at market prices on the Community market (hereinafter referred to as the free market). Imports of the product concerned are also sold on the free market. The main purchasers on the free market are independent cold rolling mills, tube makers, steel service centres, steel merchants and stockholders. Both the product concerned sold by the Community industry and by importers are sold to the same types of customers and is used for the same purposes. The sale of the product concerned on the free market is supported by the issuing of commercial invoices.

(152) The investigation demonstrated that there is a clear distinction between the product concerned destined for captive use and those destined for the free market. The product concerned destined for captive use was found not to be directly affected by the imports. By contrast, production destined for sales was in direct competition with the imports.

(153) In order to provide as complete a picture as possible of the situation of the Community producers, the Commission has obtained and analysed data both for hot rolled sheets and plates destined for captive use and those destined for the free market. Because the free market sales are in competition with the imported products concerned, the Commission focussed its attention on the free market. While it has, to the extent possible, combined free market and captive data, it has also split the analysis between free market and captive use, where necessary and possible.

2.5.2. Analysis of the Whole Activity for the Product Concerned

2.5.2.1. Production capacity and Capacity utilisation

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(154) The investigation showed that there were no significant changes in overall estimated theoretical production capacity, which remained at about 3,6m tonnes throughout the period of the investigation.

(155) Capacity utilisation increased steadily at a rate of around 7 % between 1997 and 1999, before falling back to 64 % in 2000. Capacity utilisation then fell to its lowest level in the five year period, in 2001 (61 %). The Commission notes that the fall in captive use and in exports between 2000 and 2001 contributed to this fall in capacity utilisation. However, whilst captive use fell by 64000 tonnes and exports fell by 9000 tonnes (in total, 2,7 % of production in 2000), capacity utilisation fell by 5 %. The steel industry requires to achieve a high level of capacity utilisation to make profits, and the fall in capacity utilisation reflects the fall in production in 2001.

2.5.2.2. Total Community Production

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(156) Total Community production rose from 2,19m tonnes to 2,41m tonnes between 1997 and 1998 and on to 2,58m tonnes in 1999, encouraged by healthy growth in consumption in the Community market (which increased by about 430000 tonnes, or 21 %, between 1997 and 1999). Thereafter, total Community production fell by 10 % in 2000 and by a further 6 %, in 2001 due to the combination of falling consumption and increasing imports. This reflects the increasing dominance of imports in 2000 and 2001, which were growing in absolute terms in a shrinking market.

2.5.2.3. Employment

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(157) Employment in relation to the like product grew between 1997 and 1998 in response to increasing consumption but then fell back in 1999 as efficiency gains were realised. It fell by 260 between 1999 and 2000, and then by a further 290 in 2001 and this was reflected in reports of job losses and closures. It is expected to fall further in 2002, and these predictions are to some extent confirmed by the closure of at least one plant in the UK in the second quarter of 2002.

2.5.2.4. Productivity

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(158) Productivity increased between 1997 and 1999 as a result of a combination of increased production and improved efficiency allowing a reduction in the workforce in 1999. However, due to the fall in production in 2000, notwithstanding a concurrent fall in employment, productivity fell from 398 tonnes per employee to 372 tonnes per employee in 2000. A further fall in production in 2001 caused a further fall in productivity, but Community producers were able to prevent productivity falling below 368 tonnes per employee as a result of the effect of job cuts both in 2000 and early in 2001.

2.5.2.5. Cash Flow

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(159) Cash flow could only be examined at the level of the cooperating companies which produced the like product rather than in relation to the like product itself. This indicator was therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative situation is evident between 1997 and 2001 and from 2000 to 2001.

2.5.2.6. Return on Capital Employed (ROCE)

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(160) ROCE could only be examined on the level of the cooperating companies which produced the like product rather than in relation to the like product itself. This indicator was therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a negative situation is evident between 1997 and 2001 and from 2000 to 2001.

2.5.3. Analysis of the Free Market

2.5.3.1. Consumption

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(161) Consumption of hot rolled sheets and plates in the Community was established on the basis of the total sales made by the Community producers on the free market and total imports of the product concerned into the Community as reported by Eurostat.

(162) Between 1997 and 1999, consumption in the Community increased from 2,04m tonnes to 2,47m tonnes. It fell to 2,22m tonnes in 2000 (a fall of 10 %) and remained at about that level in 2001. The fall in consumption between 1999 and 2000 is examined under other factors to determine whether, and if so, to what extent, it contributed to the serious injury suffered by the Community producers.

2.5.3.2. Sales volume

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(163) Sales of the like product in the Community rose from 1,62m tonnes to 1,78m tonnes between 1997 and 1998 and on to 1,99m tonnes in 1999, encouraged by growing consumption. Thereafter, sales of the like product fell in 2000 and 2001, by 15 % and 3 % respectively. This decline was faster than the rate of decline in consumption, and reflects the increasing dominance of imports in a declining market in 2000, and in a stagnant market in 2001.

2.5.3.3. Market share

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(164) The Community producers' market share fell from 79,5 % to 77,7 % between 1997 and 1998 as a result of the significant increase in imports from the South East Asia in 1998 that occurred as a result of the Asian crisis. The Community producers were forced to cut prices in the following year (1999) in order to regain market share, and in fact managed to marginally increase their market share. However, since 1999, the Community producers' market share has fallen significantly, to 76 % in 2000 and 74,1 % in 2001. At the same time the market share of imports increased from 19,3 % in 1999 to 24 % in 2000 and 25,9 % in 2001. This demonstrates the increasing market penetration of imports in that period, which has occurred despite the fact that Community producers lowered their prices by 8 % between 2000 and 2001.

2.5.3.4. Price of like product and undercutting

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(165) The average price of the like product increased between 1997 and 1998 to 347 EUR/tonne but then fell to 286 EUR/tonne in 1999 as Community producers fought to regain market share. Prices recovered in 2000, but fell again (by 8 %) to 334 EUR/tonne in 2001. This trend is further confirmed because quarterly prices from Q1 2001 to Q1 2002 show a fall from 343 EUR/tonne to 315 EUR/tonne in the price of the Community product.

(166) In order to determine the level of undercutting, price information was examined for comparable time periods, at the same level of trade and for sales to similar customers. Based on a comparison of prices invoiced by the Community producers and by exporting producers to the Community, domestic prices were undercut by an average of 27,9 % in 2001.

2.5.3.5. Profitability

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(167) The profitability of the Community producers' sales in the Community varied significantly in the five-year period under consideration. Their lowest profitability was recorded in 1999, when Community producers were forced to cut prices to regain market share from imports, which had increased. The highest was recorded in 1998.

(168) In 2001, as imports increased to their highest level in the five-year period, the average price of imports fell to 229 EUR/tonne and the average price of the Community product fell to 334 EUR/tonne. This fall in the price of the Community product taken together with the fall in sales volume led the Community producers profitability to fall from 8,5 % to -1,6 %, and this negative trend appears to be continued in 2002. This trend is further confirmed because quarterly data for Q1 2001 to Q1 2002, shows that the profitability of the Community producers' sales on the Community market fell from 2,5 % to -8,5 %.

(169) Underselling reflects the extent to which the price of the imported product is lower than the price level which the Community producers could be expected to achieve in a non-injurious situation. The level of underselling was calculated on the basis of the weighted average non injurious price per tonne of the Community product. This price was calculated by taking the respective cost of production for the Community product to which was added a profit margin of 8 %. This profit margin was considered reasonable as it refers to profits of the Community producers in a normal trading situation unaffected by sudden sharp rise in imports. This non injurious price was compared with the weighted average price per tonne of the imported product concerned during 2001. The difference between these two prices was expressed as a percentage of the cif/Community border price of the imported product, and resulted in underselling of 56 %.

2.5.3.6. Stocks

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(170) Stock levels increased significantly throughout 1997 and 1998 as the predicted increase in demand in 1998 was absorbed to a greater degree than expected by the significant increase in imports in that year. This stock over-hang was in part responsible for the fall in prices in 1999. Production again outstripped consumption in 2000 leading to a further increase in stocks to 232342 tonnes. However, despite a significant reduction in Community production in 2000, stock levels continued to climb as imports increased their market share by 24 % in a single year.

(171) A further reduction in Community production in 2001 (over 120000 tonnes greater than the reduction in consumption in that year), also saw stock levels increase, reaching 289264 tonnes or 13 % of Community consumption in 2001 (compared to 8 % in 1997). This was due to the significant increase in market share taken by imports in 2001.

2.5.4. Analysis of Captive Use

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(172) Some indicators relating to captive use have been shown in global terms, whereby captive use forms part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisation, employment and productivity). With respect to certain other factors which are analysed above in respect of the free market (i.e., sales prices, stocks and profitability), the data received is not, by its very nature, adapted to an immediate and objective comparison with the data obtained for the free market for hot rolled sheets and plates. Nevertheless, there is no evidence that it was more profitable to produce for captive use than for the free market. Therefore, this analysis focuses on production for captive use and examines whether its trend is comparable to those of the free and total markets.

(173) Production for captive use increased by nearly 120000 tonnes between 1997 and 2000. This contributed to the increase in total Community production between 1997 and 1999 (from 2,19mt to 2,58mt), and reduced the effect of the fall in production sold in the free market in 2000. In 2001, captive use fell by 64000 tonnes or 15 %. Although the fall in production destined for sales was the largest factor, this fall in captive use contributed to a fall in total Community production to 2,18m tonnes in 2001 (a fall of 6 % from 2000).

2.5.5. Conclusion

(174) The data shows that while production capacity remained stable and there is a slight increase in productivity, overall, there is negative development for capacity utilisation, production, employment, productivity, and negative elements can also be observed for cash flow and ROCE.

(175) Overall, the free market data shows, in general terms, and before the background of a decline in consumption and an increase in stocks, negative developments for sales, market share, prices and profitability.

(176) The data for captive use demonstrates that, notwithstanding an increase in 2000, a similar trend was identified in respect of captive use, and these findings were supported by the analysis of the whole activity for the product concerned.

(177) In particular, the Commission notes that, in 2001, as imports reached their highest level for five years (572133 tonnes), the Community producers' Community sales reached their lowest level for five years (1,64m tonnes), their profitability declined rapidly and they became loss making. This occurred against the background of a concurrent fall in production sold on the free market, captive use and consumption. Against such a background, imports could have been expected to fall, but instead they rose for the third consecutive year.

(178) The effect of the increase in imports on the Community producers is reflected in the performance indicators. The Community producers have lost market share, which reached its lowest level for five years in 2001. Capacity utilisation has also fallen in 2001 to its lowest level for five years and so too has productivity despite substantial job losses in both 2000 and 2001. By 2001, employment had reached its lowest level for the five-year period, and it is expected to fall further. The overall effect of the falls in production, Community sales volume and prices was to reduce the profitability of the Community producers and create a loss-making situation in 2001. The Community producers are suffering significant losses. These trends are confirmed by the continuing deterioration in prices and profitability from Q1 2001 to Q1 2002.

(179) Taking account of all of these factors and relying, in particular, on its analysis of the free market activities, the Commission concludes that the Community producers have suffered serious injury.

2.6. Causation

(180) In order to examine the existence of a causal link between increased imports and the serious injury, and in order to ensure that injury caused by other factors is not attributed to increased imports, the Commission has proceeded as follows:

- the injurious effects of factors considered to be causing injury have been distinguished from each other,

- these injurious effects have been attributed to the factors which are causing them; and,

- after having attributed injury to all causal factors present, the Commission has determined whether increased imports are a genuine and substantial cause of serious injury.

2.6.1. Effect of increased imports

(181) The market for hot rolled sheets and plates is a transparent one as regards sources of supply, customers and prices. As hot rolled sheets and plates are essentially a commodity product, the product concerned and the like product compete mainly on price. The increase in imports has had injurious effects in terms of pressure on prices and a reduction in the volume sold by the Community producers on the Community market.

(182) In the period 1999 to 2000, the market share of imports grew from 19,3 % of the market to 24 %. Over the same period, imports have grown from 22,1 % to 28,9 % of production destined for sales. Further, in the period 2000 to 2001, the market share of imports increased to 25,9 % and 32 % of production destined for sales. Thus, imports have also increased relative to production, at the expense of the Community producers.

(183) As to prices, between 2000 and 2001, the average unit price of the product concerned on the Community market fell from 305 to 229 EUR/tonne. The average unit price of the like product fell from 363 to 334 EUR/tonne. In this transparent market, price undercutting had a decisive impact. The effect of the fall in the average unit price of the like product alone on the Community producers' Community sales revenue would have been a reduction of 8 % (EUR 45m) in 2001. Taking account of the simultaneous fall in sales volume, the actual fall in turnover in the Community was EUR 66m. Fixed costs represent a material proportion of the Community producers' overheads. Thus, the reduction in sales revenues created a disproportionately higher fall in profitability, which fell to -1,6 % in 2001. This fall in prices and profitability furthermore must be seen in the context of a number of plant closures and ensuing reduction in employment.

(184) For these reasons, it is considered that there is a correlation between the increase in imports at low prices and the serious injury suffered by the Community producers, and that the increase in imports has had injurious effects in particular in terms of pressure on prices and a reduction in the volume sold by the Community producers on the Community market.

2.6.2. Effect of changes in consumption

(185) The Commission examined the injurious effects of the fall in consumption between 2000 and 2001. That fall has to be considered in the context of the overall trend during the 5 year period under investigation. Consumption increased from 2,04m tonnes in 1997 to 2,47m tonnes in 1999, before falling back some 260000 tonnes to 2,2m tonnes in 2000, and remaining about that level in 2001.

(186) In this particular case, the Commission considers that the apparent rise in consumption in 1999 was largely due to the building of stocks in response to the low prices in that year. For this reason, the trend movements present a more accurate picture. Although consumption fell between 1999 and 2000, overall during the five year period consumption actually increased by 170000 tonnes or 8 %. This represents an average rate of increase of 1,6 % per annum. In terms of the overall trend in consumption, the Community producers' sales should have increased over the five year period but in fact they were stagnant.

(187) In examining this question in this particular case account has to be taken of the reaction of all market participants to the trend fall in consumption. In this respect, it was found that while Community producers were forced to reduce their sales in the Community by roughly 51000 tonnes in 2001 compared to 2000, imports moved sharply in the other direction. No economic justification was established which could explain the sharp rise in imports. For example, no exporter claimed that this was due to lower production costs.

(188) As regards price effects, a modest increase in consumption should not normally lead to substantial price effects. Neither should a modest fall in consumption of the type which occurred between 1999 and 2000. Similarly, if price pressure is reduced then the injurious effects which stem from low prices would also be kept in check. The most important factor here is profit, where any fall would have been minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that in the absence of the sharp rise in imports at low prices, the fall in consumption would not have led to a substantial fall in profits.

(189) Nevertheless, even if all market participants acted responsibly and adjusted their production, the Community producers would still have sold less in 2000 compared to 1999. Consumption in 2001 was slightly above the average for 1997 and 1998 (i.e. 2,16m tonnes). In 1999, consumption increased by 180000 tonnes only to fall back to the 1999 level in 2001. In 2001, consumption fell back to the 1997/8 levels and the Community producers' sales fell by roughly 300000 tonnes whereas imports continued to increase. Between 1999 to 2001, whilst consumption fell by 10 %, the Community producers' sales in the Community fell by 18 %.

(190) For the reasons given above, it is concluded that there is a significant, but not substantial, link between the fall in consumption between 1999 and 2000 and the injurious effects observed.

2.6.3. Effect of changes in captive use

(191) The Commission has also examined the effects of the development of captive use of hot rolled sheets and plates. This increased between 1997 and 2000 from 3