Between the lines - Dumping issue clouds pricing

By BRIAN FALLOW

As pricing mechanisms go, that which determines the price of Gib board does not inspire confidence.

The fact that in New Zealand the Gib brand is synonymous with plasterboard reflects Winstone's longstanding dominance in the market.

Since 1989, when its price was being undercut by more than 20 per cent by Thai imports and its market share was slipping, it has enjoyed the protection of anti-dumping duties and has been able to keep its market share above 90 per cent.

With that sort of market power what keeps it honest? The price of undumped imports, it says.

There is no dispute that the prices at which the two Thai producers of plasterboard are prepared to sell to their New Zealand importers are dumped prices.

According to Winstone, that reflects the fact that making plasterboard is a business with high fixed capital costs and relatively low variable costs.

The Thai domestic market is heavily protected by tariffs, allowing the Thai producers to cover their overheads in their home market and price exports at marginal cost, says Winstone.

(It knows a bit about the Thai market having done due diligence on one of the Thai producers a few years ago.)

Unsurprisingly, Kevin van Hest, managing director of Kiwi importer Sigma Agencies, sees it differently.

Because of plasterboard's low value relative to its weight and volume, the cost of sea freight is crucial to the viability of exports, he says.

It is normal, indeed inevitable, for the export price to discount for this and be below the local price, meeting the definition of dumping.

Winstone itself sells specialist boards into the Pacific Islands and Asia at dumped prices.

Given these structural features of the industry, the calculation of anti-dumping duties becomes crucial to the price NZ consumers pay.

Through a tortuous and just about continual series of assessments, reassessments and reviews (plain and judicial) since 1989 the way the duties are calculated has changed, but duties have remained.

The upshot has been periods where the value of the protection afforded Winstone has eroded, squeezing its profit margins, and periods like the one we are in now, where it does very nicely thank-you and its competitors hang on by their finger-tips.

Which of these situations prevails depends on slow-moving bureaucratic processes. The processes are far from transparent.

Fletcher Challenge, Winstone's parent, will not disclose Winstone's profitability and all the relevant figures are expurgated from the officials' public reports.

Fletcher needs to worry about what happens if its competitors disappear altogether.

In a public policy environment less tolerant of monopoly, having to justify its prices against those of potential competitors rather than actual ones would be an uncomfortable position to be in.