Prysmian's Brazil fiber optics plant in imminent danger of closure due to Chinese dumping

Prysmian's fiber optics factory in Sorocaba in São Paulo state is at imminent risk of closing due to imports of low-cost Chinese products, BNamericas has learned.

The factory is operating at less than a third of capacity and with low customer demand that, according to the company’s Italian controllers, does not justify keeping it running. The plant could be shut down in two months, according to Prysmian.

“If we look at the business as a whole, we have to stop everything, say, tomorrow. It makes no sense to continue with a business where the price difference is approximately 60%,” Prysmian Brazil CEO Emerson Tonon told BNamericas.

The company claims that Chinese fiber optics arrive in Brazil at a subsidized price of US$2.50 per km of fiber, whereas Prysmian’s production cost is around US$6/km. According to Tonon, this gap widened in recent months.

In Sorocaba, part of the factory's employees who were under a temporary lay-off regime returned to their posts. However, if the factory is shut down, Prysmian claims that hundreds of direct or indirect jobs will be lost. According to the company, the impact would be systemic, as the plant also supplies cabling companies like Furukawa, in addition to exporting to other markets in Latin America.

“The factory is over 40 years old and is one of Prysmian’s benchmarks in the world. It is the only plant in all of Latin America that makes fiber optics, and with national technology. There is an impact on the chain as a whole. It’s difficult to understand the closure of an operation like this,” said the CEO.

The company filed on Friday a new anti-dumping complaint against Chinese fiber with the ministry of development, industry and commerce (MDIC).

A first request submitted by Prysmian last year, together with Furukawa and Cablena, was rejected by the Brazilian government due to document and technical issues. However, the merit of the complaint was not fully evaluated.

This time, Prysmian submitted the updated request on its own. The process of analyzing such requests usually takes months, but according to company executives, the situation is urgent.

Therefore, in parallel to the anti-dumping petition, the company presented a separate request to the government.

Prysmian is calling for Chinese fiber optics that currently benefit from certain tariff exemptions under the scope of the Mercosur trade bloc to be excluded from that list. 

Unlike anti-dumping, this measure can be carried out more quickly, via decree.

This month, Prysmian's legal affairs director Inaiê Reis met with federal lawmaker Vitor Lippi to discuss the topic. Lippi is active in issues related to ICT.

In a letter the lawmaker sent to the company after the meeting, to which BNamericas had access, Lippi said he took the case to vice president Geraldo Alckmin, who also heads the MDIC, and to MDIC's executive secretary Marcio Elias Rosa.

“It was clear, both to the vice president and the executive secretary, that the Prysmian unit in Sorocaba is a strategic, high-technology, quality plant that develops national technology, in addition to supplying its products to other cable industries in Brazil and, until recently, responsible for approximately 50% of the market share in our country,” says the letter.

Also, according to Lippi, Alckmin promised that the matter will be given priority, and that there is “total interest” in resolving the issue as quickly as possible.

“We also believe that we have favorable conditions to meet the company's fair claims, which not only harm Prysmian but also Brazil,” said Lippi.

CONTEXT

On top of alleged subsidies, the backdrop has to do with oversupply of Chinese fiber.

Given weaker demand in China, excess production from local manufacturers gets offloaded to markets where there are no tariff barriers in place.

In Europe, where anti-dumping measures are in place, and in the US, Chinese fiber faces different barriers. As a result, the products end up being directed to Brazil, to Latin America as a whole and to other emerging markets.

China has denied any illegal subsidy or unfair trade practices and often decries the imposition of tariffs and anti-dumping measures as protectionism due to the inability of international producers to compete with its products.

The topic of Chinese dumping is sensitive and not restricted to the fiber optics market – nor to Brazil.

President Joe Biden recently announced tariffs on Chinese steel following claims of dumping by local producers.

The same can be seen in the steel sector in Latin America.

Chilean steelmaker Huachipato reversed its decision to close its Talcahuano bar rolling mill after a fair trade commission upped provisional anti-dumping tariffs on steel bars and balls imported from China in line with what the company demanded.

Meanwhile, Brazilian steelmaker Gerdau and Luxembourg-based ArcelorMittal Brasil have reduced output as they expect anti-dumping rulings.

According to Tonon, Mexico has also just announced an increase in import taxes on optical cables. The measure applies to Brazil, China and other markets.