US import tariff could create nightmare for Argentinian biodiesel
You’ll have to forgive Argentinian biodiesel producers if they’re feeling a bit down. After seeing a market resurgence in early 2016, one of the world’s top biodiesel-exporting countries seems to be getting nothing but bad news in the last few months.
The bad news came to a climax in late March, when a US biodiesel trade group and several US biodiesel producers asked the federal government to impose a tariff on imports from Argentina and Indonesia. It was the latest in a litany of negative developments that could leave Argentinian biodiesel producers in dire straits.
Popular and not-so-popular biofuel
The US is Argentina’s largest export market for biodiesel. Of the country’s 1.626 million mt of exports in 2016, 1.474 million mt went to the US, according to the country’s energy ministry.
Argentinian biodiesel exports to the US more than doubled in 2016, as gasoline refiners and importers looked to meet the US government’s mandate to blend 1.9 billion gallons of biodiesel into transportation fuel supplies.
The need for biodiesel in the US was further exacerbated by a lack of sugarcane ethanol from Brazil, the primary fuel that qualifies as an advanced biofuel under the US Renewable Fuel Standard.
Biodiesel, however, can also satisfy the government’s advanced biofuel mandate, due to the nested nature of the RFS, making biodiesel even more sought after last year.
But the rise in Argentinian imports to the US has drawn the ire of domestic producers, who argue the Argentinian export tax scheme subsidizes feedstocks and allows the resulting biodiesel to be sold in the US at a substantial discount to US-produced biodiesel.
US producers were already ticked off at the US Environmental Protection Agency streamlining the process for land-use recordkeeping for Argentinian producers in 2014, a decision US producers said would allow South American producers to flood the US.
In late March, the top US biodiesel industry group, the National Biodiesel Board, and several producers filed a petition with the US Department of Commerce seeking a 20% anti-subsidy and anti-dumping tariff against Argentinian imports as well as those from Indonesia.
Representatives of the biodiesel industry in both countries have said they would fight the petition vehemently.
Prior ill winds
The government of Peru, the second-biggest export market for the Argentinian biodiesel industry, imposed anti-dumping tariffs in late October 2016 on imports of the biofuel from Argentina.
The tariffs are already having an impact: in January and February 2017, Argentina’s share of biodiesel Peruvian imports fell to 29% from 93% in 2016. Peru used the imposition of the tariff as an impetus to find other countries to fulfill its biodiesel needs. Peru is also expected to see its own domestic production, dormant since 2014, restarted in 2017.
The news only worsened in December, when the US Congress let the $1/gal blenders tax credit expire.
The lapsed credit did not put Argentinian biodiesel at a disadvantage to its US counterpart, however, blending economics in the US without the credit declined so greatly that US biodiesel markets have been sluggish all year.
Taken as a whole, the impact of these various turns of the screw is expected to have quite an impact on the Argentinian biodiesel industry.
According to S&P Global Platts analysis, Argentinian biodiesel exports are projected to decrease to 1.15 million mt, a 26% year-on-year drop compared with 2016. Production is expected to drop 18% to 2.17 million mt.
The National Biodiesel Board also has lobbied Congress for the last two years to change the nature of the tax credit. The NBB wants the credit to only apply to biodiesel produced in the US, rather than biodiesel blended in the US. Such a move would put Argentina’s biodiesel at a substantial cost disadvantage to US-produced fuel.
This potential change would most likely have to be part of a tax reform package that has long been sought by Republicans in Congress and by President Donald Trump.
But with no timetable on when such a package will reach Congress, there appears to be no immediate threat on the tax front.
President Trump built a substantial portion of his campaign on trade rhetoric, promising to negotiate deals and use whatever tools at his disposal to bolster American companies, even at the expense of overseas competitors. So a substantial tariff that would help domestic biodiesel producers and reduce competition from abroad — such as that sought by US biodiesel producers in their petition against Argentina and Indonesia — seems tailor-made for Trump.
And such move could not come at a worse time for Argentina’s biodiesel producers. Already facing dwindling demand from Peru, representatives of Carbio, Argentina’s biofuels industry trade group, said shortly after the petition was filed that imposing such a tariff would effectively kill off all the country’s biodiesel exports.
Meanwhile, the US mandate for biodiesel blending in 2017 rose to 2 billion gallons. Add in another 949 million gallons needed for the advanced biofuel mandate, and the US could have a potential need for more than 2.5 billion gallons of biodiesel this year.
According to the US Energy Information Administration, US biodiesel refineries produced 91 million gallons of biodiesel in January, down from 105 millions gallons in January 2016.
Analysis by Kingsman, an agricultural analytics unit of Platts, projects US producers will create 1.93 billion gallons of biodiesel in 2017, and 732 million gallons will be imported.
That is a lucrative market that Argentina could find itself locked out of. And that’s more than just another piece of bad news. That’s a nightmare scenario.