US International Trade Commission Testimony Regarding Supplies of Ammonium Nitrate

7/30/2019 US International Trade Commission Testimony Regarding Supplies of Ammonium Nitrate

1/6

T E S T I M O N Y O F DA V ID H O P K I N SGoo d morn ing. My name is Dav id Hopk ins, and I am the Director of Sales for CF

Indu stries, Inc., the larges t U.S. produc er of fert i l izer grade am mo niu m nitrate. My roleas Sales Director puts me in charge of the CF sales team, including our sales ofam mo niu m n i t rate, wh ich we produce only in Yaz oo Ci ty, Mississippi . My accent , ofcourse, is not f rom Mississippi . I hold a degree in Agricul ture f rom Read ing Universityoutside of London. Af ter f in ishing Universi ty, I then became a farmer and actual ly usedam mo nium n i tra te to grow win ter wheat in Wa les. I have been sel l ing fert i l izers since1998 and, s ix years ago, I moved to the United States to work for Terra Industries' U.S.fert i l izer business. When CF purchased Terra in 2010 , I continued my work in fert i l izersales wi th CF Industr ies. In total, I have been involved wi th ammonium ni t rate sales for25 years and wi th the U.S. ammonium ni t rate market for the last s ix years.

There is no quest ion that the Yazoo Ci ty ammonium ni t rate business is facingdi f ferent condi t ions today than i t was when I f i rst cam e to this country in 20 06 . At thatt ime , very high and volat i le natural gas pr ices we re extremely cha l lenging to us. Theadvent of shale gas has lowered and moderated the pr ices of our natural gas input , but ,of course, gas pr ice f luctuat ions alwa ys rem ain a risk for us. Natural gas can accountfor about 40 to 60 percent of the cost of producing ammonium ni t rate, depending on thecost of the gas. But the cha nge in the gas si tuation does not mean that the ant idumpingorder is not needed, and I want to discuss some of the factors that I hope wil l help youto unders tand why.

First, I want to discuss what has happened to the ammonium ni t rate market overthe last s ix years . Se co nd , I wa nt to discuss the operat ions at our Yaz oo Ci ty plant .

1


2/6

Finally, I wo uld l ike to take a few m inutes to descr ibe the current s tate of the amm oniumnitrate market and what is happening, especia l ly with respect to imports.

In the United States, ammonium nitra te has a lways been a n iche fert i l izer.Beca use of the prop ert ies that Mr. Go ugh descr ibe d, th is fer ti l izer is very ef fect ive andpreferred in temperate c l imates, especia l ly when no t i l l farming pract ices are used.Even though i t has a lways made up a smal l part o f to ta l U.S. n i t rogen fert i l izer usage,over the last decade, and especia l ly over the last s ix years, the ammonium nitra temarket has contracted substant ia l ly . The pr inc ipal reason for th is is that new secur i tyregulat ions govern ing the handl ing of ammonium nitra te by d is tr ibutors and dealershave led many of them to decide not to carry it.

In those regions where ammonium nitra te is not s trongly preferred, manydistr ibutors and dealers have stopped buying the product. Tod ay, the U.S. market isdow n to aro und a mi l l ion short tons, a lmo st hal f o f wh at i t w as just a few yea rs ago.You might not th ink that would be such a bad th ing, g iven that there are only twoproduc ers le f t in the U.S. Yet even with the reduced dom est ic supply, the market hascontracted so much, and imports cont inue to f ind th is market so attract ive, that ourYazoo City p lant - which is very wel l s i tuated to serve the key ammonium nitra tema rkets - rema ins underut i l ized. W hy is that?

At Yaz oo City , we have two pri l ling towers. Before CF purcha sed the p lant, Terrahad entered in to an agreement in 2006 to produce explos ive grade AN on one tower fora part icu lar custom er. Ter ra made the decis ion to produce explos ive grade because thehigh density A N m ark et was not allowing us to use all of our capacity. Retrofitt ing theplant to a l low one tower to produce the explos ive grade AN was a b i t o f a "hedge"

2


3/6

agains t the cont inuing s hrinkage of the fert i lizer market . At least for the next few years,that tower is l ikely to only produce industrial grade product, given our contractualcom mitm ents . The other tower, howev er, is and remains ful ly dedicated to product ionof high densi ty AN, but as you know f rom the data we suppl ied you, even that capaci tyis not ful ly ut i l ized, but not for the rea son s argu ed by the Uk rainia ns. Th at capacity isunde rut i l ized bec ause w e current ly are un able to sel l a l l that we could produce .

Th e U krainian prod ucers wo uld te ll you that our capaci ty is underut i l ized becausewe are choosing to make other products instead of ammonium ni t rate. This is notcorr ect. W hile the CF f inan cial reports no ted by the Ukr ainian s refer to our abi l ity toshi f t produ ct ion in certain c i rcum stance s, these reports ref lect CF's system -wide abi li tyto shif t betw ee n pro duc ts. How ever, this flexibi l ity is in fac t very l imited at our Yaz ooCi ty plant . Th e pr i ll tower that produce s high densi ty amm onium ni t rate cannot producelow den si ty produc t . Our abi li ty to switch f rom prod ucing high densi ty AN to producingurea ammonium ni t rate solut ion is also extremely l imi ted based on operat ionall imitat ions . Ac cord ingly, al th oug h the spec if ic f igures are con fidentia l , we hav e very li tt leabi l i ty at Yazoo City to shif t high density AN capacity to other products.

I t is also important for you to understand that even i f we could physical ly shif tf rom product ion of h igh densi ty ammonium ni t rate to other fert i l izer products, we haveno incent ive to do so based on the netbacks we achieve on our HDAN sales f romYa zoo Ci ty. W e wou ld l ike to be mak ing and sel ling more a mm oniu m n i t rate. This is akey point , and br ings me to the present market s i tuat ion.

In the past sev eral years , we have had mo re fert il izer grade AN capaci ty than wehave bee n able to use. In 2 0 1 3 , this has been especial ly true, as our agricultural grade

3


4/6

AN sales did not keep up with production in the f i rst quarter, for several reasons that Ibel ieve are important to exp lain. In 2012 and so far in 2 0 1 3 , there has been asigni f icant increase in imports. The imp orts, source d largely f rom the country ofGe org ia, are impo rted by global trading com pan ies. The y have fi lled our histor icalstorage posi t ions in Flor ida and elsewhere, leaving CF to dial back i ts HDAN product ionat Ya zo o City in the f irst qua rter of this yea r from p lann ed leve ls. Trad it ional ly, over 10percent of our annual sales have been to customers in Flor ida. When we brief ly hadprod uct ion di f ficul ties at our plant last year, impo rts imm ediately steppe d in, and thens o m e . As Mr. Gough explained earl ier, when the of f -season storage is f i l led by imports,U.S. producers have no choice but to reduce product ion, which cannot be made up laterin the season and the volume is lost . I would be pleased to provide you detai ls on theserecent production cutbacks on a confidential basis, but suff ice i t to say, i t is not a goodsi tuat ion for a plant that wa s al ready not operat ing a t capaci ty. Keep in mind that wi ththe con tracted m arket , w e also have muc h less storage in the system. This mean s ittake s m uch less in the wa y of imports to congest the dist r ibut ion system tha n i t d idwhen the market was larger .

In this regard, i t is important to consider the role of global trading companies inthe am mo nium ni t rate ma rket . During my 25 years in the am mo nium ni t rate businesson both sides of the At lant ic, I have seen the sam e pat tern t ime and aga in. Globalt raders brought large volumes of aggressively pr iced imports f rom Russia and thenUkra ine into the EU, resul t ing in ant idum ping m easu res there. Th e t raders then shif tedto the U ni ted States, g iv ing r ise to ant idum ping orders in th is country. The t raders'modus operandi is to move as much product as they can as long as they make some

4


5/6

marg in on every ton, even i f they undersel l the ma rket . Th at wa s true when theyf loode d the U.S. mark et wi th Ukrainian produ ct in 2000 , and i t remains t rue today. Thetraders love this ma rket and are wel l -establ ished here. The y know they wi l l get paid.Th e ports are ef f ic ient comp ared to other countr ies. A nu mbe r of t raders have set upof f ices and storage in Tampa and have thei r own market ing capabi l i t ies and evendist r ibut ion system s. Ukrainian prod ucers cont inue to sel l thei r other ni trogen productsto the Uni ted States through wel l -establ ished global t raders.

In addit ion, the U.S. market offers central Gulf port locat ions with easy access tothe r iver syste m an d other form s of t ranspo rtat ion. There 's no quest ion that UkrainianHDAN exports could quickly be diverted to the Uni ted States by the t rading companiesthat han dle it . Final ly, the current and future U.S. secu ri ty regu lat ions on am mo niumni t rate simply do not imp ose signi f icant burde ns on importers. The increase in importsover the past 18 months speaks for i tsel f .

CF is doing wel l and natural gas pr ices have moderated. But there are a numberof reasons w hy this order cont inues to be important to us. Fi rst, the U.S. HDA N m arketis curren t ly facing u ncertain t imes. Th e al ready contract ing market is st ressed by theprospect of new securi ty regulat ions that could further reduce demand. As more andmore retai lers abandon HDAN, al ternat ive products, such as coated urea, are marketedin compet i t ion wi th HDAN, placing addi t ional pressure on an al ready diminished market .S e c o n d , CF Industries is the largest U.S. producer of HDAN and is wel l-si tuated inMississippi to serve the largest AN consuming markets. We compete wi th imports dai lyand do so s ucces sful ly whe n they are fa i r ly t raded . But in a one m i ll ion ton ma rket , itwi l l not take much in terms of sudden increases in import volumes and price

5


6/6

undercutting to lead to production cuts and reduced uti l ization rates. This is especiallythe case i f the U.S. m arket decl ines even further once the new secur i ty ru les areimposed . As the market grows smal ler , the negat ive impact of unfa ir ly t raded Ukra in ianimports would only be magnif ied. We have seen how the massive Ukra in ian exportvo lumes can quick ly f lood a market at low pr ices. We have seen i t here and in Europe,and again in the EU after the order was l i f ted there last year, when Ukra ine sent100,000 tons in the s ix months immediate ly af ter the order was removed. Their exportprices to the EU we re signif ica ntly belo w the pricing of all othe r imports. Tha t is the onlyway that t raders quick ly move large volumes in th is industry.

You can understand, with the uncerta int ies we are fac ing, and a market that isa lready in decl ine, why we are asking you to a l low th is order to cont inue.

I thank you for the opportunity to appear before you today and would be happy toanswer any ques t ions you may have .

6

US International Trade Commission Testimony Regarding Supplies of Ammonium Nitrate

Documents