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UPDATE 2-Argentine biodiesel industry says U.S. duties will halt exports

(Adds comments from Argentina, market reaction, byline)

Aug 22 (Reuters) - Argentine biodiesel exports will be priced out of the U.S. market, its leading industry body said, after Washington decided on Tuesday to impose steep duties on imports that it said were unfairly subsidized.

The countervailing duties on soy-based Argentina biodiesel could be as much as 64.17 percent, according to a statement from the U.S. Commerce Department. Duties of up to 68.28 percent will be imposed on palm oil biodiesel imports from Indonesia.

"Any duty of more than 15 percent leaves Argentine biodiesel out of the market," an Argentine biofuels industry source said.

Argentina accounts for two-thirds of U.S. biodiesel imports, which totaled 916 million gallons (3.5 billion liters) in 2016, according to U.S. government data. Total U.S. biodiesel consumption is about 2 billion gallons.

The Commerce Department's decision comes after the U.S. National Biodiesel Board (NBB) asked the government in March to impose duties, claiming the imports were below market value and undercutting U.S. biodiesel producers.

Argentine biodiesel association Carbio, which represents producers including Cargill Inc and Louis Dreyfus Co , denied there were subsidies on the country's biodiesel exports and called the duties protectionist.

The compensatory duties imposed result in an immediate stoppage of sales to the United States, with a clear detriment to the entire soybean chain in Argentina, Carbio President Luis Zubizarreta said in a statement.

NBB, whose members include Archer Daniels Midland Co , said any supplies lost due to a halt in imports could be made up by increased production in the United States, where total capacity is more than 4 billion gallons.

FUEL PRICE EFFECT

Rival U.S. trade group Advanced Biofuels Association (ABFA) said the duties would raise fuel prices.

The duties could mean U.S. industry would have to replace 250 million gallons of biodiesel for this year and up to 500 million gallons for 2018, Arlan Suderman, chief commodities economist with INTL FCStone, said in a daily note.

"This is expected to be bullish soyoil and canola oil near-term to incentivize processing of soybeans and canola," Suderman said in the note.

The duties need to be upheld by the International Trade Commission, which would lock them in place for five years.

Prices for the biomass-based diesel fuel credits (D4) known as RINs surged to the highest levels of the year in the wake of the decision, climbing to $1.17 each, up from $1.11 earlier on Tuesday, according to two traders. Fears of decreased imports boosted prices for the credits earned by U.S. fuel blenders.

(Additional reporting by Eric Walsh in Washington, Jarrett Renshaw in New York, Maximiliano Rizzi and Caroline Stauffer in Buenos Aires and Julie Ingwersen in Chicago; Editing by Sandra Maler and Leslie Adler)