(News Bulletin 247) – The Chinese Ministry of Commerce said Friday that it would hold an anti-dumping hearing on July 18 on European brandy, a category to which cognac belongs. The investigation is expected to be completed by 2025.

It is a threat that has been hanging over the two major alcohol producers on the Parisian market, Rémy Cointreau and Pernod Ricard, since the beginning of the year: potential sanctions from China on cognac imports.

In January, the Chinese Ministry of Commerce (Mofcom) opened an investigation into European “brandies”, alcohols that include French cognac and Armagnac. In the meantime, French President Emmanuel Macron stated that his Chinese counterpart, Xi Jinping, “wished” that provisional sanctions on cognac would not be applied. Since these statements were made during the Chinese leader’s visit to France, it was difficult to know what real impact they had. But these words helped to give Pernod Ricard and Rémy Cointreau shares a boost.

“This commitment does not, however, exclude the adoption of definitive rights when the Chinese authorities conclude their procedure,” estimates Sarah Thirion, analyst at TP ICAP Midcap, in a note published this Friday.

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A hearing in two weeks

New episode this Friday: the Chinese news agency Xinhua reported that the Ministry of Commerce will hold an anti-dumping hearing on European brandy on July 18.

“The hearing will focus on industrial damage, cause and effect, and public interest in the anti-dumping investigation of related brandy products, the ministry said in an online statement,” the agency explained. “The hearing aims to ensure that the investigation process is fair, just and transparent, according to the statement,” it added.

According to Xinhua, the investigation is due to end on January 5, 2025, but could be extended by six months.

The news comes as the European Commission announced on Thursday that it would impose additional customs duties on imported Chinese electric vehicles this Friday, with customs surcharges of up to 38%.

China’s anti-dumping investigation into European brandy has been seen as a response to Brussels’ offensive on Chinese electric vehicles, with an investigation having been opened by the European Commission as early as November 2023.

Moreover, Rémy Cointreau shares fell on Thursday after the Brussels announcement, losing 1.2%. The stock lost another 1% this Friday around 10:30. Pernod Ricard held up better, losing 0.3% on Thursday and gaining 0.04% this Friday.

“In China, cognac represents, in proportion to turnover, three times more at Remy Cointreau (25% of the group’s turnover) than at Pernod Ricard (8% to 9% of the group’s turnover),” explained Pierre Tegner, analyst at Oddo BHF, to News Bulletin 247 in May.

Sales still suffering

A Chinese sanction on cognac imports, even if it is perhaps already integrated into the prices, would in any case constitute a severe blow.

“The global cognac market represents 50 billion dollars, of which 20% in China in volume and 23% in value. If China decided to implement tariff barriers, the potential of the geography would be heavily penalized,” writes Sarah Thiron.

“If we had to take a reference case, we would cite the anti-dumping measures implemented in 2020 by China on Australian wines which resulted in customs duties of 107 to 212% and led to a cumulative destruction of 99% of imports over the following two years according to data from Global Data,” adds the strategist.

In addition to the political risk in China, alcohol producers are having to deal with low volumes, following strong post-Covid demand, and high inventories in the United States. Rémy Cointreau anticipates a gradual recovery in its 2024-2025 financial year, which began on April 1.

However, this will probably not be the case for the first quarter, the activity of which will be published on July 24. Deutsche Bank is counting on a drop in comparable sales of 11.6%, while UBS is anticipating a plunge of 19.2%.