B The aluminium alloy cost benchmark

In reviewing the verification report attachments, we note that the Commission undertook an analysis of
Yueling’s cost of aluminium alloy with an “aluminium alloy benchmark” to determine if the aluminium alloy
purchased by Yueling reasonably reflected competitive market cost, under Regulation 43(2)(b)(ii) of the
Customs (International Obligations) Regulation 2015 (the “Regulation”). The analysis is shown in the
“EXW benchmark” and “Aluminium purchase” tabs in “Conf App 4 – normal value”.

The analysis in the “Aluminium purchases” tab shows that the differences between Yueling’s purchase
price of aluminium alloy and the benchmark constructed by the Commission range between
[CONFIDENTIAL TEXT DELETED – EXT range]. On average, Yueling’s purchase price is n
[CONFIDENTIAL TEXT DELETED – IA E number]% lower than the quarterly average based benchmark.
ur

We submit that an average [CONFIDENTIAL TEXT DELETED – CO IDENT L D ED number]%

difference should be n be considered as “reasonably reflect[ive]” of competitive market cost, as
represented by the benchmark. This is especially so when considering that Yueling’s purchase prices
are [CONFIDENTIAL TEXT DELETED – IA E comparison] othan the benchmark, and the fact that a
“competitive market cost” cannot be a single and fixed price over a period. Parties on the market enter
into sale/purchase agreements at a variety of prices - some higher, some are lower than the
benchmark.

To further support Yueling’s belief that its purchase prices do indeed reasonably reflect competitive market
cost, we take notice that the weighted average price gap between Yueling’s purchase price and the
benchmark as shown in Commission’s analysis is [CONFIDENTIAL TEXT DELETED – N IA T E number]
number]%, whereas the MJP premium used to construct the benchmark accounts for [CONFIDENTIAL
TEXT DELETED – IA E number]% to [ u r CONFIDENTIAL TEXT DELETED – IA number]% of u r the
benchmark cost. Accordingly, the appropriate use of the MJP in considering whether Yueling’s purchase
price reasonably reflected competitive market cost is an important factor. In this regard, we draw the
Commission’s attention to the following factors in the cost benchmark and the MJP.

Firstly, the published MJP premium does not always represent the real market premium: rFistly r2

Rio Tinto Alcan offered customers in Japan ingot supply at $82 per tonne on a cost, insurance
and freight basis to major Japanese ports (CIF MJP) today, several sources said - a 10-percent
drop on the settled third-quarter benchmark of $90-93 per tonne.

Rio Tinto Alcan declined to comment when approached by FastMarkets.

Spot premiums for aluminium ingots in Japan dropped to lows of $65-75 per tonne last week -
the lowest on FastMarkets' records - under the weight of low producer offers for large tonnages.

"In the Q3 negotiations the real market was never $91.5 - rather [it was the] low $80s - so now it's
going to be very similar. It will probably settle around $75 or so and the real market is below
there," a source in the aluminium market said.

Secondly, the MJP premium is a CIF based premium, therefore, it would have included: dl •

Japanese trader’s profit;

• cost of ocean freight from the exporting country;

2
See, https://pro.fastmarkets.com/scoop/?id=119717&v=0&lang=en&cid=282677&type=1

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 • cost of marine insurance;

• other importation charges

The freight, insurance and importation charges elements of the MJP should be removed from the
benchmark cost, as they are irrelevant to determining the competitive market cost of aluminium alloy in
China. In this regard, Yueling is not in possession of the precise breakdown. However we understand that
the Commission would be in possession of that kind of break-bulk ocean freight and insurance
information relating to Japan from its other investigation concerning exports from that country. Further,
Yueling notes that in a reinvestigation conducted by the Commission as requested by the ADRP, to
address a similar issue concerning steel rod in coil from China, the Commission opted to work out an
average amount of freight by reference to freight data it had collected in the past. We note that aluminium
ingots are a very common commodity typically transported by break bulk ocean freight. A per tonne break-
bulk ocean freight to or from Japan can be used for this purpose. As a reference, please see
http://worldfreightrates.com/freight.

Thirdly, we draw the Commission’s attention to the fact that the SHFE and Changjiang Metal ly Exchange
based aluminium and aluminium alloy prices are already market prices, inclusive of supplier’s premium.
This is because the Changjiang Metal Exchange data, in particular, is a physical/real market based price.
This means that the alloy uplift percentage as worked out by the Commission for “alloy uplift” purposes not
only shows the price differences between aluminium and aluminium alloy, but also the premium charged
by an aluminium alloy supplier. By applying the “alloy uplift” and the MJP on top of the LME aluminium
price, the benchmark price contains both the Chinese aluminium alloy supplier’s premium, as well as the
Japanese trader’s premium – thereby creating a double counting of a “trader’s premium”.

Accordingly we submit that it would make sense to not include the MJP at all – in light of the fact that it
includes irrelevant importation costs and a Japanese trader’s premium, in circumstances where the
Chinese trader’s premium has already been taken into account. In that regard please see the following
attached screenshots, which demonstrate the close correlation between the Changjiang Metal Exchange
aluminium alloy price, and the real market offer received from Yueling – which are premium inclusive:

• Changjiang A356 price for June 2016 [CONFIDENTIAL ATTACHMENT] CO

IDENT ] • Changjiang A356 price for August 2015 [CONFIDENTIAL ATTACHMENT]

[ NF • Changjiang A356 price for January 2016 [CONFIDENTIAL ATTACHMENT]

CO DENT ]

These show that the Changjiang Metal Exchange data is consistent with the price agreed between
Yueling and its supplier as demonstrated in the sample raw material purchase documents provided in
the EQ response and during the verification.3

Fourthly, we note that the Commission adopted the 3-month forward price instead of the spot price. th
The Commission comments in the SEF that this was adopted on the basis that:

…buyers from aluminium demand industries, such as aluminium road wheel producers and
producers of the aluminium alloys A356 and A356.2, would be more likely to purchase
aluminium via three month contracts (as opposed to spot prices) in view of the following
benefits…

Yueling’s general practice is to buy aluminium alloy at spot price. This is clearly shown in the sample
contracts it provided in the EQ response, at Exhibit I-4.8 - Aluminium alloy pricing, and in the

3
See, Exhibit I-4.8 Aluminium alloy pricing - 2 of the EQ response, and Exhibit V-3.1.2 provided during the verification.

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additional supporting documents provided during the verification, at Exhibit V-3.1.2, which states that the
pricing basis is “Yantze river in stock price” (Changjiang spot price). Accordingly, we submit that even if
the Commission is still not satisfied that its cost of aluminium alloy did reasonably reflect competitive
market cost, then the starting point of the benchmark cost should be LME spot price, rather than 3-month
forward prices. On this basis we note that the LME 3-month forward prices were [CONFIDENTIAL TEXT
DELETED – IA E number]% to [ u r CONFIDENTIAL TEXT DELETED – IA number]% u higher than the
spot price in three quarters during the investigation period.

The significance of the four points set out above is that even the moderate [CO F L [CO F L
CONFIDENTIAL TEXT DELETED –number]% average price gap between Yueling’s purchase price and
the competitive mbe market price benchmark is inflated and exaggerated. The inflation and exaggeration is
predominantly due to the incorrect inclusion of the MJP, which distorts the benchmark cost. The variation
between the real market cost and published MJP, and the use of 3-month forward price, also contributes to
the inflation. Once these distortions are removed, Yueling’s purchase price is likely to be even more
reasonably reflective of the competitive market cost than it already is.

In any event, Yueling respectfully requests the Commission to:

• use the LME spot price for the purpose of constructing benchmark; and

• to remove the MJP premium entirely, or at least adjust the MJP premium in order to eliminate the
CIF related importation costs.

C Foreign exchange gain

As noted in the verification report, we have already explained Yueling’s practice regarding the recording of
foreign exchange gains and losses, and why they are related to the export sales as a whole – in that they
are the only transactions nominated in foreign currencies. We submit that the resulting gain/loss
represents the income/expenses that are derived directly from export sales. Thus, they must be attributed
as indirect operational expense/income to all sales nominated in foreign currencies, given that they are
not traced to individual transactions. These gains/losses are clearly associated with export sales of the
product and are not associated with domestic sales. Further, the exchange gain/loss cannot be related to
material purchases [CONFIDENTIAL TEXT DELETED – IA T raw material purchase practice]. w ma l p i e

*****

In conclusion, Yueling respectfully requests the Commission to make the changes to the margin
calculation that are necessary in order to address the issues identified above. In addition, should the
Commission come to the conclusion that, as a result of making the relevant revisions, Yueling’s dumping
margin during the investigation period was negative, and if the Commission considers that the dumping
duty should nonetheless be continued, then the Commission must determine that the most appropriate
method of duty collection should be based on the “floor price method”. In this way the Minister does not
impose a dumping duty which unduly punishes Yueling for exporting the goods under consideration at an
“undumped” price.

Yours sincerely

Charles Zhan
Associate

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