Major players have filed prehearing briefs as the U.S. International Trade Commission (ITC) plans a June 16 hearing on CF Industries Holdings Inc.’s antidumping (AD) and countervailing duty (CVD) case on imports of UAN from Russia and Trinidad and Tobago. The case was initially filed on June 30, 2021 (GM July 2, 2021).
While the parties reiterated arguments advanced last year after the case was filed (GM July 23, 2021; July 16, 2021), they also added new items on the case record, including research and industry questionnaires, as well as soaring fertilizer prices and producer profits. Higher prices have caused farm groups and their bipartisan representatives in Congress to call for a withdrawal of fertilizer tariffs (GM March 25, p. 1; Dec. 31, 2021).
Gavilon Fertilizer LLC, Savannah, said in its latest brief that the domestic UAN industry is not injured. “The domestic industry, led by CF, is experiencing record profits and is unafraid to celebrate – loudly and publicly – its massively successful 2021 to its investors and the market,” said Gavilon, which cited a February 2022 earnings call by CF President and CEO Tony Will in which he said 2021 was a “fantastic year,” and that CF is “very bullish” and the “party is just beginning.”
Gavilon noted that CF celebrated a record year by buying back billions of dollars of shares and that CF’s stock prices skyrocketed during the period of investigation, from $22 per share to over $100.
Despite its more recent performance, CF reiterated that from 2019-2020, the domestic industry suffered significant declines in net sales values, net sales average unit values, gross profits, operating income, and net income. CF said the bulk of improvements did not occur until after CF filed its petitions.
CF said that the relevant evidence demonstrates that further dumped and subsidized Russian and Trinidadian imports are indeed imminent, and that cumulated and Trinidad imports will continue to materially injure the domestic industry unless orders are issued.
CF noted that the Department of Commerce (DOC) found that the Russia and Trinidad governments subsidize UAN producers’ natural gas, the predominant material input for UAN. It also found that “particular market situations” exist with respect to Trinidad’s natural gas and electricity markets.
It said DOC is also conducting a changed circumstances review to assess whether Russia should be designated as a nonmarket (NME) country for purposes of U.S. antidumping law “in light of the recent developments within its economy that have, to a large degree, been associated with Russia’s 2022 invasion of Ukraine.”
Russian producer Acron Group, Moscow, said DOC only found one Russian program that incentivized exports, and that it contributed a tiny 0.14% to Acron’s countervailable subsidy rate and 0.0% to EuroChem’s. Acron said this program is not likely to increase UAN exports to the U.S., was in place during the period of investigation, and that UAN exports from Russia declined during the period and pose even less threat in the future due to Acron’s shifts in product mix away from UAN.
Gavilon said all of the positive market indicators were occurring “before” CF filed the case. “Indeed, CF filed these petitions on June 30, 2021, just months after proclaiming that ‘global nitrogen dynamics today with low-cost producers like CF are the most positive they have been since 2014.’” Gavilon noted that before the case was filed, domestic prices for UAN and all fertilizers had already shot up and domestic producers, led by CF, were enjoying improved performance.
Gavilon said if the domestic industry experienced problems in 2020, it was a function of CF’s reaction to the imposition of dumping duties by the European Union, as it pumped its exports to the E.U. back to the U.S., and that CF is the “undisputed price leader.”
“Almost every purchaser that submitted a questionnaire response – 31 of 32 – pointed to CF as the price leader,” said Gavilon, citing ITC’s prehearing report.
“Most of the industry will wait until CF announced a price, and then other suppliers sell at the same price as CF,” said one purchaser. “When CF exits the market and is unwilling to price for a given period of time, the industry is unsure what to do and prices move higher because there are fewer alternatives.”
“I would call CF the UAN price leader 99% of the time,” said another purchaser. “They establish the UAN summer fill value along with new offers, both up and down; everyone else falls in line.”
CF’s response is that importers will offer CF’s price minus $5/st.
However, Gavilon said that the accumulated record demonstrates a predominance of overselling by subject imports in 65 instances (3.6 million st), and underselling in 43 (2.9 million st), with overselling margins averaging 12% and underselling 7%.
“Plainly,” said Gavilon, “subject imports materially oversold, not undersold, domestic product. This is because CF is the price leader. Imports do not lead, they follow.”
And unlike The Mosaic Co.’s case against Russian and Moroccan phosphate imports, in which much of the product was imported into New Orleans to compete head-to-head with the domestic market, UAN imports served coastal regions, which had been traditionally underserved by domestic production.
“Today, prices are at a record high, and have been consistently increasing since the beginning of 2021,” said Gavilon. “CF has been just as aggressive in increasing prices in 2021 as it was keeping prices low in 2020, in both cases to serve its business interest. There are serious concerns regarding fertilizer pricing, suggesting unfair tactics in the domestic market.” Gavilon noted that the high prices are attracting government scrutiny from the USDA and the Iowa Attorney General.
Gavilon said that U.S. UAN consumption increased from 2019 to 2020, which is a period of time that CF focused on as the alleged source of injury. However, Gavilon said that during that time, domestic UAN shipments increased 818,000 st, outpacing the total increase in apparent consumption, and gained market share of 3.7%, from 78.6% to 82.3%. The company said that during 2021, CF sold out and enjoyed record profits.
However, CF maintains that subject imports increased by 32.7% from 2018 to 2019. CF said the U.S. distribution system was saturated with UAN beginning in mid-2019 and this continued throughout 2020, and that the price-depressing effects of this oversupply impacted the market in both 2020 and the first quarter of 2021.
International Raw Materials (IRM), Philadelphia, which put forth many of the same arguments as Gavilon, told the ITC that the Commission has previously found no material injury to a domestic industry where that industry has gained market share over the period of investigation. IRM, like Gavilon, attested that CF has refused to sell to it in the past.
“This loud chorus of American purchaser voices is clear – they largely buy imports because the domestic industry, led by CF, will not serve their needs,” said Gavilon, citing results from purchaser questionnaires, which said 25 of 28 purchasers reported that availability differed by region and “typically reported that on the coasts, there was little availability of U.S.-produced UAN.”
The Agricultural Retailer Association was also quoted as saying that coastal markets are “typically supplied by 75%, maybe even 85% imported product for UAN in a normal year.” Gavilon reiterated that CF’s production facilities are in the U.S. heartland, far from the coastal regions, and that CF’s Donaldsonville, La., UAN expansion was aimed at the export market.
Methanol Holdings (Trinidad) Ltd. (MTHL) and Helm Fertilizer Corp. added to Gavilon and IRM’s many arguments, noting CF’s “staggering 66% gross profit on sales of UAN” during first-quarter 2022. “While MTHL recognizes that even a profitable industry can in theory be suffering material injury, it is difficult to understand how the Commission could reach an affirmative determination with respect to the domestic UAN industry in view of this current performance.
“As the Commission’s reviewing courts have repeatedly recognized, the AD and CVD duties are not penal, retaliatory, or compensatory,” said MTHL. “Instead, they are intended to equalize particular aspects of “future” competitive conditions between foreign exporters to the United States and the domestic industry.”
On another point, MTHL said the ITC’s Office of Industries concluded that Trinidad and Tobago actually exported “more” UAN to the E.U. in 2019 and captured a greater share of the remaining market. “Petitioner’s claims that imports from Trinidad and Tobago flooded the U.S. market after the imposition of this order are belied by the Commission’s own data showing Trinidad & Tobago’s consistent import volumes year over year.”