22 April 2009 00:00 [Source: ICB]
New EU tariffs on US biodiesel cause a major shake-up. EU highlights unfair US subsidies, while US producers cry protectionism
THERE'S A big fight brewing in biodiesel. Last month, the European Union (EU) slapped temporary antidumping duties on US biodiesel for six months, and could extend them further.
Subsidized US biodiesel suppliers hurt their European competitors by undercutting EU material by up to 33%, the European Commission said, following its months-long trade investigation.
"The pressure exercised by the surge of low-priced subsidized imports did not allow the [EU] industry to set its sales prices in line with market conditions and cost increases. The [EU] industry was only able to pass to its customers a price increase limited to 4%, while its full costs increased by 20% over the same period," the Commission stated in its findings.
The investigation's findings led the EU to impose temporary antidumping and countervailing duties on all US biodiesel.
Antidumping duties ran from €211/tonne ($280/tonne) for distributors Peter Cremer, Vinmar and World Energy Alternatives to €237/tonne for US producer ADM. The duties are in place for six months, after which the EU is scheduled to vote whether to extend them for five years.
Only blends higher than B20 (80% mineral diesel, 20% biodiesel) were included in the investigation, leaving some traders ideas for ways to avoid the new fees.
The duties come after the Commission investigated complaints the European Biodiesel Board (EBB) filed in June 2008.
EBB Secretary General Raffaello Garofalo celebrated the decision, saying "it will reestablish the level playing field that our producers have long hoped for."
The commission avoided the issue of "splash-and-dash," saying US export statistics did not differentiate between domestic suppliers and those from outside countries who brought material to the US to claim the $1/gal blending credit before reexporting it to Europe.
But the investigation found that subsidized US suppliers undercut their European producers' prices by 19-33% during the investigation period. US suppliers grew their market share in Europe to 17% from 0.4% in 2005, according to commission statistics.
Although EU suppliers saw their sales volumes increase to 2m tonnes during the investigation from 1.2m tonnes in 2006 and their average sales price grow by 23%, discounted US imports kept them from passing increased feedstock costs through to customers, the commission said.
US MAKERS CLAIM PROTECTIONISM
US producers, who expected the temporary duties, still called the decision "protectionist." The lack of US biodiesel will make it more difficult for the EU to meet its renewable fuel mandates, they said.
The new import duties will not be good for European biodiesel buyers, said Gene Gebolys, president and CEO of World Energy Alternatives, one of the US firms investigated.
"As prices rise in Europe, Europeans will be paying more for less biodiesel, putting even more pressure on their already dwindling diesel stocks," said Gebolys. "I am confident that the Europeans will soon have all the evidence they need to conclude that their protectionist impulse must give way to more enlightened policies."
US suppliers are contemplating ways to get around the duties and continue selling in a key market.
Facing up to €260-420/tonne in antidumping and countervailing duties on blended product sent across the Atlantic, some US biodiesel sellers are considering options such as routing Europe-bound shipments through third-party countries or selling lower blends of renewable fuels.
"That can be doable," one broker said of the possibility of sending material to Latin America or Asia and then reexporting it to Europe. "Let's see if the freight costs won't penalize them too much. And it depends on where they would export it to - taxes could be smaller [than duties on US material], but there would still be taxes."
Other traders said any exploiting regulatory loopholes would be short-lived, lasting only as long as it took the EU to sort them out. US exports to Europe are still expected to fall, with many traders saying they are moving their focus to the domestic market.
Another broker is exploring selling B20 directly to Europe, as the lower blend was not covered in the EU's investigation.
"That would make it more of a diesel export," the broker said. "I could definitely see people looking into that."
While European producers hailed the commission's decision, Manning Feraci, vice president of federal affairs for the US National Biodiesel Board (NBB), called it "flawed."
"The imposition of provisional duties is nothing more than a politically expedient effort to appease the protectionist whims of the European biodiesel industry and is inconsistent with the European Union's World Trade Organization obligations. This sets a dangerous precedent for global commerce," he said.
US biodiesel major Imperium Renewables cut 24 workers from its payroll in March and suspended refining operations earlier in the year, laying much of the blame on the EU tariffs.
Imperium announced the layoffs at its 100m gal/year Grays Harbor refinery in Washington state after the EU said it would impose the temporary duties.
Imperium founder and CEO John Plaza said that while lagging domestic demand, tight credit markets and volatile petroleum prices also plagued the company, the tariffs played a major role in the layoffs.
"Until recently, the soft US biofuels market had been offset by demand in the European market. This advantage ended when the European Union enacted tariffs on imported US-produced biodiesel," the company said in the statement.
Company spokesman John Williams said the layoffs represent "over half" of its staff.
Imperium is the second-largest biodiesel refiner in the US. It started commercial operations in Seattle in 2005 and opened the Grays Harbor plant in 2007.
FINANCING SHORTFALL TRIPS US BIODIESEL INDUSTRY
CASH FLOW issues are hammering US-based biodiesel producers, causing them in turn to have problems financing their operations.
US renewable fuel producer Athens Biodiesel said a financing shortfall caused it to miss payroll for its employees.
Melvin Kilgore, who owns the Huntsville, Alabama-based Athens with his sister Beverly, said investors failed to deliver on $1.5m (€1.2m) in financing, leading the company to suspend payroll for 13 of its employees as it looks for new capital.
"They got nervous about the economic times and current oil prices. It was a surprise move, and now we're scrambling," Kilgore said.
The business started production at its 40m gal/year Athens refinery in Alabama in July 2008, using animal fats and soy methyl ester (SME) as feedstocks. The company is currently not producing.
While a scarcity of capital has starved many companies throughout the business world, it is proving especially fatal to many in the biodiesel industry. Life for the market's roughly 170 refiners was already difficult as crude oil prices below $60/bbl reduces demand for alternative fuels, and trade arguments have cut access to key customers in Europe. US biodiesel refining rates are down by more than half compared with last year, sources said.
In February, investors fled Nova Biosource, forcing the Butte, Montana-based producer to idle its 30m gal/year refining capabilities. The company filed for Chapter 11 bankruptcy protection on March 30.
Jonathon Wolfson, president and CEO of Solazyme, a California-based company researching the use of algae as a raw material for biodiesel, told the audience at the National Biodiesel Conference in February that lack of financing "may be a bigger hurdle than anything else" in developing second-generation feedstocks. "A lot of those folks have turtled, and they are hiding in their shells."
Ben Lefebvre is markets editor with ICIS pricing. Based in Houston, Texas, US, he covers the US biodiesel industry. He previously reported on immigration issues for the Sun-Times News Group.
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
Sample issue >>
My Account/Renew >>
Register for online access >>
|ICIS Top 100 Chemical Companies|
|Download the listing here >>|
Asian Chemical Connections