Major U.S. UAN importers and distributors Gavilon Fertilizer LLC, Helm Fertilizer Corp. (HFC), and International Raw Materials Ltd. (IRM), as well as Russian producer Acron and Trinidad producer Methanol Holdings Trinidad Ltd. (MHTL), submitted testimony this past week disputing CF Industries’ antidumping and countervailing duty claims (GM July 16, p. 1; July 2, p. 1).
They argued that CF had run up its own production capacity to export product, and when it was hit by E.U. duties in 2019 it wound up dumping that product back onto the U.S. market. They also argued that it is well known that CF is the UAN price setter, not the offshore producers or importers.
Gavilon, Helm, and IRM all noted that imports play a larger role in the U.S. along the East Coast, West Coast, and Gulf Coast, as CF and other domestic producers have inland facilities and logistics and transportation costs weigh on their margins to these outer regions.
Gavilon President Brent Harlander added that the domestic industry’s failure to serve major parts of the U.S. market has forced farmers to rely upon imported product. He added that in CF’s recent summer fill program, CF refused to even quote Gavilon prices for locations on the Gulf and East Coasts.
“To be clear, CF has told Gavilon that it will not sell any product to Gavilon at any price to certain U.S. geographies,” said Harlander. “On top of that, we have offered to buy large volumes at the prices CF asked for, but CF will only supply us a fraction of the volumes we have requested. CF is again forcing Gavilon to look elsewhere for our UAN supply – likely at higher prices than CF is offering.”
Harlander said CF is the price leader in the U.S. market and kicks off the summer fill campaign by announcing its prices and making offers, with the remainder of purchases made as needed throughout the year to meet customer needs.
“One particular story about CF illustrates its role in the U.S. market,” said Harlander. “By way of background, CF keeps secret when it will open up the summer fill season for UAN. CF’s surprise announcement will always cause a mad scramble to secure supply of UAN. In 2018, Gavilon’s representative to CF was out of contact when CF announced opening up the summer fill campaign. By the time the dust settled and a few hours had past, CF was essentially out of product to provide Gavilon for that summer fill. Gavilon would have bought a lot more product for the 2019 planting season had CF been willing to sell to us.”
Harlander said generally, CF’s arguments do not support what is actually happening in the market. “First…CF refuses to supply our needs, which forces Gavilon to buy imports to supply American farmers. Second, CF is the price leader, and its prices are not materially impacted by import prices. Finally, CF is not a reliable supplier. But it gets away with putting customers on allocation, missing delivery windows, and leaving customers in the lurch because of its outsized market power.”
On the other hand, Harlander said foreign producers have been more reliable. “They supply the promised quantities at the promised time. Reliability of supply is very important to our business, and to the businesses of farmers that can only fertilize their crops in a narrow window of time.”
“We are having difficulty, to say the least, understanding CF’s claim of injury,” said IRM President William O’Neill Jr., whose company trades UAN in California, Oregon, and Washington. “If there are any wounds at all, it seems they are self-inflicted. CF misjudged the global growth of the UAN market and expanded its production too quickly. The antidumping duties imposed on CF’s exports to the European Union effectively eliminated one of CF’s target markets and left it with substantial excess production, but that wound too, was self-inflicted.”
O’Neill said while Acron decreased UAN production by 633,000 st, or nearly 37 percent between 2019 and 2020 in response to the E.U. tariffs, CF only decreased production by about one percent of its U.S. production capacity.
“Finally, CF could have reduced or shifted its overall production of UAN in response to the E.U. tariffs to mitigate its damages, but instead it chose to dump its product into a geographic market 2,000 rail miles and a formidable mountain range away; markets that it had previously abandoned because of the costs of getting there,” he said.
O’Neill said after being found to have dumped product in the E.U., CF began unloading its excess capacity into an area of the domestic market it historically relinquished because of the difficult and expensive logistics.
“Just recently, we lost a significant piece of business with a long-term customer to CF’s ‘fill’ program discounts. CF is trying to capture West Coast market share no matter the cost, and it simply has too much volume and market share for other wholesalers or retailers to exert any upward pressure on domestic prices,” said O’Neill.
“It is CF’s behavior – not imports – that sets the bar for UAN pricing in the domestic market,” he added. “The consolidation of the UAN market, and CF’s substantial production capacity, have led to CF having significant pricing power in the domestic market.”
Due to major consolidation, he called the nitrogen industry an oligopoly. He noted that two of the markets largest buyers, The Mosaic Co. and CHS Inc., shelved plans to build their own greenfield plants in favor of long term supply contracts with CF.
Like Gavilon, O’Neill said CF had restricted supply of UAN to IRM.
Helm Fertilizer President and CEO Michael Peyton said his company has been a very consistent supplier to the U.S. UAN market for a long time, with long-term contracts and prices set to reflect the prevailing market prices at the time.
“In the U.S. market, the price of UAN is established by CF Industries, who is the dominant/largest supplier throughout the U.S. and is the undisputed price leader,” said Peyton. “CF Industries sets the price of UAN, and other parties, including HFC, must react to it. We are frequently advised by our customers of the CF Industries price, and are then given a short period of time, often just 24 hours, to meet that price or lose the sale.”
Peyton, whose company markets imports from Trinidad, said those imports constitute an extremely small share of the U.S. UAN market and Trinidad producer MTHL made no efforts to increase its exports to the U.S. relative to its exports to Europe.
Like Gavilon and IRM, Peyton said Helm’s targeted commercial and distribution strategy minimizes the extent to which it has to compete with CF on a head-to-head basis. He noted Helm facilities at Houston, Stockton, Calif., and Theodore, Ala., as examples.
Russian producer Acron argued that its own exports to the U.S. significantly declined during the period of investigation and the interim period. The company noted that in 2018 it implemented a long-term capital investment plan to modernize and diversify its nitrogen fertilizer capabilities, with the ultimate goal of commercializing production of granulated urea and expanding ammonium nitrate capacity at a cost of over $140 million.
Acron said during the first phase it modernized its plants producing AN and urea solution, and in the second phase, completed in 2020, it installed granulation facilities to transform urea solution into granulated urea and expand prilled AN production.
Acron said that Russian exports of UAN to the U.S. declined over 3 percent between 2018 and 2020, and over 22 percent during the interim period. It said that any suggestion that the E.U. antidumping duty order actually resulted in more Russian UAN in the U.S. market is completely false.
Acron said that between 2018 and 2020, U.S. UAN exports to the E.U. evaporated and total U.S. exports declined by 755,000 st. It said those tons were redirected to the U.S. market, which put pressure on prices as CF is the price setter in that market.
MTHL said its exports must be viewed in the context of its production issues early in the period of investigation. The company said it suffered from significant operational challenges in 2018 – gas curtailments and a pipeline failure and other problems at its urea plant, which reduced UAN production and exports that year.
Those issues were largely resolved in 2019 and brought the company back closer to historical production levels. MTHL said this accounted for the increase in exports to the U.S. and Europe in 2019, which it said have been consistent since the facility first started in 2010.