ITC questions COFANT over Ukraine AN imports
Traders will be more concerned with market share and volume than with their margin of profit, and will import ammonium nitrate from Ukraine in amounts that will threaten the viability of the two remaining U.S. manufacturers of the fertilizer.
That’s the prediction from the Committee for Fair Ammonium Nitrate Trade (COFANT), which represents domestic producers El Dorado Chemical Co. and Terra Industries Inc., if the U.S. International Trade Commission does not join the Department of Commerce in recommending a five-year extension of antidumping duty orders imposed on ammonium nitrate from Ukraine.
The DOC determined on Dec. 5, 2006, that revocation of the duties would likely lead to a continuation or recurrence of AN imports from that country selling at below fair market value in the U.S. (GM Jan. 1, p. 10). The ITC ruling will focus on whether those imports will cause material injury to the domestic industry. An affirmative ruling from both bodies is needed for the duties to remain in place.
COFANT pleaded its case at an April 17 hearing before the ITC in Washington, D.C. The hearing was part of a full sunset review process that was initiated by the ITC in November 2006. The Embassy of Ukraine also sent economists with their Trade and Economic Mission to the ITC hearing as observers.
ITC Chairman Daniel Pearson questioned whether trading companies would be willing to do something “that undermined their business,” especially since some of them have become AN distributors. COFANT Counsel Valerie Slater responded that traders would focus on making profits in the short term. Traders would likely realize a greater profit by importing Ukrainian AN, added Daniel Klett, a principal with Capital Trade, than by bringing in AN from countries not subject to antidumping duties.
Terra Industries consultant Gary Elliott also reminded commissioners that Russian AN imports first appeared in significant quantities in the U.S. market in 1997-1998, and the result was “prices that were so low that U.S. producers were stunned.” All of the material was offered by trading companies wanting to move as much volume as they could, Elliott said. “We had always had imports in our market, but never imports priced like the Russian product in such large and growing quantities,” he said. “For them, any margin represented a profit and underselling the market was irrelevant.”
U.S. producers thought that an antidumping case brought against Russia would solve the problem, Elliott noted, but were “doubly stunned” when Ukrainian AN imports, previously not a presence in the U.S. market, “literally flooded the market in 2000.” Elliott said domestic producers “were truly amazed at how quickly global trading companies simply switched from Russian product to Ukrainian product.”
What followed, he said, were shrinking markets, higher gas prices, concerns about security regulations, and the U.S. industry consolidating down to two producers.
Elliott presented commissioners with an analysis of what Ukrainian producers get on average for AN in non-U.S. markets from the port of exportation, and compared it with the uniformly higher price they could receive for their product in the U.S., based on Green Markets reports of New Orleans price levels minus freight.
“As the commission correctly noted in its sunset review involving Russia, this is a strong financial motivation for Ukrainian companies to redirect their shipments from non-U.S. export markets to the U.S., particularly with the large potential export volumes involved,” Elliott said. Ukrainian producers face increasing competition from Russian exports in their own country, he added, and have sharply reduced exports to European Union markets because of restrictions there.
ITC commissioners also pressed COFANT witnesses about whether the two remaining domestic AN producers were able to meet demand in the U.S., along with imports from countries not subject to antidumping controls. Noting that El Dorado Chemical President Paul Rydland had testified earlier that U.S. demand for AN was declining, ITC Vice Chairman Shara Aranoff asked why Russian AN imports to the U.S. have declined if COFANT claims that the U.S. market is attractive. “I continue to struggle with that a little bit,” Aranoff said. “It doesn’t all quite fit.”
In response, Klett offered that Russian imports are controlled by reference price and volume provisions under the current suspension agreement, while imports from countries not subject to controls increased 60 percent from 2005 to 2006. Slater also added that Russian AN imports are increasing this year.
Commissioners also asked if producers were seeing a rise in AN demand due to an expected increase in corn acreage this year. There could be a moderate increase in demand, COFANT witnesses said, as farmers attempt to get a jump on the growing season for forage grasses and grains.
In earlier testimony, however, Phil Gough, senior vice president of marketing for El Dorado Chemical, said USDA data shows that major corn-growing states are not big consumers of AN. As a result, Gough said the increase in demand for nitrogen fertilizer has not affected the price of AN. “A few weeks ago, Green Markets called AN ‘the dog’ and the ‘quiet nitrogen’ and that is a pretty good example of what the market looks like,” Gough said, adding that the use of other nitrogen products such as urea and UAN had escalated rapidly over the past several months.
The ITC also asked COFANT if domestic producers were in better shape now after the loss of competitors through downsizing. Slater responded that the domestic industry has seen significant improvement since antidumping orders were put in place, but said this is also due to the producers’ ability to raise prices in response to higher natural gas costs. “Vulnerability remains because of gas prices,” she said.
The ITC then asked how Ukraine had conducted business under the current trade restrictions. Ukraine still has excess AN capacity but is not consolidating its facilities, even with competition from Russian AN producers, responded Klett. He noted as well that the Russians are pushing Ukrainian product to other markets.
Commissioners also asked what impact evolving homeland security regulations will have on AN prices. “The rulings will have a significant cost impact on ammonium nitrate” in terms of volume, Rydlund predicted, and also because of its potential use as an explosive.
“How do we look at this picture and find some significant effect of Ukrainian imports?” Commissioner Pearson concluded, noting only limited improvement for U.S. producers after the Ukrainian order was first implemented. “Still your industry did lousy,” he said. “How should we see any relationship between this order and conditions of the market?”
The condition of the industry would have been much worse, Gough responded.
Post hearing briefs from the parties are due April 27, closing arguments are due May 23, and final comments are expected by May 29. A ruling from the commission is expected some time after that.