China Hiking Tariffs on U.S. DDG and Ethanol, Imports Down to Trickle

March 7, 2017 03:39 PM
 
 

China increased its tariffs on both U.S. ethanol and dried distiller grains (DDG) products. It’s a move that’s already impacting U.S. market prices and exports, bringing shipments of ethanol and DDGs to China to a near halt.

Trucks are running smoothly at Marquis Energy in Hennepin, Ill., one of the largest ethanol and DDG facilities in the U.S. What isn’t seen are the high fees China put on those U.S. products.

“It’s reduced the price of DDGs to probably $60 to $80 a ton,” said Mark Marquis, CEO of Marquis Energy.  

Local DDG suppliers in China said corn subsidies in the U.S. flooded their market, launching an anti-dumping investigation by the Chinese government.

Duties were implemented despite China’s investigation rejected evidence that disproved any dumping or injury to domestic industries by U.S. producers.

As a final ruling, the Chinese Ministry put a number of fees on U.S. DDG products that ranges by company. Most are seeing hefty tariffs. When the tariffs are added together, some even top 90 percent.

However, China is the United States’ top buyer of DDGs. The U.S. Grains Council says the country’s imports are down to a trickle.

“We’re seeing less than 10,000 tons in a market that was a $1.6 billion market for us and well over 3 to 4 million tons,” said Tom Selight, president and CEO of the U.S. Grains Council. “It has slowed down. I wouldn’t say absolutely shut off but virtually shut off.”

China is also cancelling shipments and putting tariffs on U.S. ethanol as well.

“China stopped purchasing around September and hasn’t really picked up again,” said Sleight.

Sleight says the U.S. Grains Council is working at solving both problems and there are a couple of possible solutions.

The U.S. could work out an agreement with China that could potentially be a trade deal, or the U.S. could challenge China in the World Trade Organization (WTO). However the DDG policy is in place for five years. A challenge at the WTO could take years.

“We followed their mathematics and we don’t believe they’ve used the WTO standards or that their math to set the tariff is accurate,” said Marquis. “I would blame the WTO policy. It’s set up where they can implement the tariff.”

Sleight says the tariff hike with ethanol is legal but some like Marquis believe the DDG tariffs violate the WTO rules.

“We’re encouraged the Trump administration could deal with it directly and get it resolved more quickly,” said Marquis.

In the meantime, the agricultural industry is looking for more buyers. Sleight says other markets are chewing through demand, but it’s not going to replace the number one DDG importer overnight.

“North Africa, southeast Asia, Japan, Korea, Latin America and Mexico are buyers of DDGs,” said Sleight. “Mexico has started to be an aggressive buyer of DDGs, as well as other places like Colombia.”

“If it doesn’t go to China, it will find a home,” said Marquis. “It just may be for a timeframe at a lower price.”

Both say the DDG industry is hit hardest, since a larger portion is exported. Ethanol is different.

“If you think about ethanol, it’s a 15 Billion gallon a year supply and 14 Billion is used in the U.S. and one billion is exported,” said Marques.

“I think we’re on pace to have a record year in 2017 on ethanol exports,” said Sleight. “Brazil is coming on strong. Canada is buying more. Other markets we are working on are getting close to having breakthroughs like Japan, India and Mexico. Colombia is another one where we can pick up volume.”

Until then, Marquis Energy is continuing on while urging Washington for help.

Sleight says the U.S. needs to engage and press but have a good conversation with China since the country is still a key market for U.S. agriculture.

China’s Tariffs on U.S. DDGs at a glance:

  • Anti-dumping
  • Countervailing
  • Value Added
  • Tariff percentages differ with U.S. companies
  • Most companies are seeing tariffs around 90 percent

China’s Tariffs on U.S. ethanol at a glance:

  • China upped it from 5 percent
  • 30 percent for denatured
  • 40 percent for unnatured 
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