Biodiesel from Argentina and Indonesia Inv. No. 701-TA-571-572 and 731-TA-1347-1348

(Preliminary)

April 13 th, 2017 Presentation at the

United States International Trade Commission

Andrew Szamosszegi

aszamosszegi@captrade.com

202-955-6817

Conditions

Price

Mandate + Blenders5 Tax Credit Increases Domestic Production and Imports

P r B i o

Diesel

Q

Supply, including imports

Demand + Tax Credit

Demand

NoCredit NaxCredit Quantity

Conditions

Mandate + Tax Credit Impact on Volumes

4.0

3.5

3.0

2.5

2.0 H

1.5

1.0

0.5 A

0.0

U.S. Monthly Biodiesel Production

Millions of Barrelss

Tax Credit Enacted or

Reauthorized

Tax Credit Expired or

Uncertainty about

Reauthorization

T 1

o o o o o o o o o o o o c -=; c -=; c -=; c ' fD —, ro — , ro — , ro ro ^ ro ^

r ^ i ^ o o o o c n o ^ o o r H T H r N i r s i M f Y ^ ^ ^ L n L O < X ) v D I I I I I I I I I I I I I

c - 5 c - 5 c 3 c - 5 c - 5 £ = 3 c - 5 c - 5 c - 5 c - 5 ro ro ro ro -z; ro sz, ro j z ; ro ^ ro ro .z; ro j t .

Source: U.S. Energy Information Administration (EIA). Monthly Energy Review, March 2017. Red lines show when the tax credit was set to expire: "The swinging pendulum of US biodiesel policy." Biodiesel Magazine. Nov. 20, 2013.

Conditions

Imports Are Needed to Meet the Biodiesel Mandate

• EPA foresees imports playing an important role in the market.

"In this final rule we have not projected biodiesel and renewable diesel imports separately from domestically produced biodiesel and renewable diesel, since these fuels are subject to the same potential limitations (e.g.,

feedstock availability, distribution and use constraints, etc.). We do believe, however that the standards in this final rule will result in an increase in biodiesel and renewable diesel imports consistent with the general trend observed in previous years, and our projection of the supply of these fuels in 2017 includes this expected increase."

Source: U.S. Environmental Protection Agency. "Standards for 2017 and Biomass-Based Diesel Volume for 2018." Federal Register, Vol. 81, No. 238, Dec 12,2016. At 89789. 4

Conditions

Domestic Industry Faces Significant Logistical Challenges: EPA

• Practical constraints on domestic supplier capacity utilization

• Competing demand for biodiesel feedstocks

• Distribution infrastructure

"The net result is that the expansion of terminals and bulk plants selling biodiesel and biodiesel blends, and the distribution infrastructure necessary to transport biodiesel to and from these facilities, is a significant challenge facing the rapid expansion of biodiesel."

- EPA Update to Renewable Fuel Standard, December 2015

• Feedstock mismatch - Not all existing capacity has economical access to that appropriate feedstock at all times.

• Price of feedstock vs. price of Ultra-low Sulfur Diesel: compression makes other uses of feedstock more attractive.

Source: EPA. "Standards for 2014, 2015, and 2016 and Biomass-Based Diesel for 2017." Federal Register, Vol. 80, No. 239. Dec. 14,2015. At 77471.

Conditions

Domestic Industry Faces Significant Logistical Challenges: NBB

Stephen J. Levy, previous Chairman of the National Biodiesel Board, commenting on the shortage of railcars after a severe winter: "Railcars at times were extremely delayed or could not be located.. ..This seemed to be more prevalent on the coasts. If it weren't for imports and increased biodiesel inventory at the expanded storage terminals, this could have been a supply issue." {emphasis added}

On the need to improve the infrastructure supporting domestic distribution: "Today, infrastructure investment expansion and improvements have slowed due to the uncertainty of the tax credit and the RFS. Both of these policies are essential for continued growth and stability to incentivize more companies to continue to invest in distribution and blending infrastructure, according to Levy, to reduce costs and make biodiesel competitive economically."

Ron Kotbra. "U.S. Biodiesel Supply Kings." Biodiesel Magazine, July 25, 2014.

6

1

Conditions

Conditions of Competition: Renewable Diesel

• Renewable diesel (RD)

• Produced from vegetable oil and animal fats, but in a similar manner to petroleum.

• Fully substitutable for regular biodiesel at the same price points, but RD is currently more expensive.

• Can be used to meet the same renewable volume obligations as conventional diesel and generate D4 RINs.

• RD has many advantages over nonrenewable biodiesel

• "Drop-in" substitute for conventional diesel—Biodiesel is not. • Transportable by pipelines

• Useable as jet fuel

• In high demand in California due to its Low Carbon Fuel Standard

• Production and imports of RD have expanded over the POI.

7

Conditions

Biodiesel Retail Prices Track Diesel Retail Prices

6.00 i Dollars per gallon

5.00

4.00 -

3.00 -

2.00 -

1.00 -

0.00

—Diese l —B99/B100

T T T" T" T " 1 I i i i 1 1 1 1

i £ v o r ^ i ^ c o c o c r i c n o o ^ r H r \ i r \ i < Y ) r n ^ ^ L n p p p p p O O O < H r H ^ ^ r H T H < H , H < - l , H < H , H T - - | ^ - H > r J > o © Q o o o o o o o o o © o o o

^ — o - \ \ - \ o ^- o o «st o O r-i ffl 00 Ol H r-\ r-\ rH

Source: Clean Cities Alternative Fuel Price Reports, (http://www.afdc.energy.gov/fuels/prices.html)

Conditions

Conditions of Competition: Other Demand and Supply Considerations

• Demand for biodiesel is set by government mandate.

• Used primarily in blends with diesel fuel.

• Biodiesel is highly substitutable with diesel fuel.

• The retail price of B99/B100 tracks diesel prices, which is not surprising given that wholesale contracts for biodiesel are pegged to the price of petro diesel.

• The widening gap between diesel and biodiesel prices reflected the anticipated expiration of the tax credit.

• Retroactive application of the tax credit applies an additional benefit.

Conditions

Biodiesel Producer Prices Are Highly Sensitive to Policy

7.00

6.00

5.00

4.00

3.00 -

2.00 -

1.00 -

0.00

$/ Gallon Producer prices for biodiesel generally exceed those of on-the-highway diesel and frequently diverge due to policy uncertainty and changing feedstock prices.

Price increases associated with the reinstated tax credit.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan-16 Jan-17

— B 1 0 0 , FOB at IL, IN, and OH — D i e s e l , On-highway average

Source: USDA Economic Research Service. U.S. Bioenergy Statistics, Table 17. February 2017. 10

Conditions

Production is Concentrated in the MidWest

USDAI Regional Imbalance: Biodiesel Production is Centered in Midwest but Not Diesel Consumption

Biodiesel Production in 2015 T Biodiesel production capacity = 2.1 BGs (RD adds 275 MGs) Biodiesel plant locations (94 plants) Source Energy

% = proportion of total US biodiesel production by PADD (green zones) Information Agency

Source: USDA, U.S. Biodiesel/Renewable Diesel Market, Slide 14.

Conditions

Imports are Concentrated in Coastal Markets

3.0 -i Billions of Gallons

East Coast Gulf Coast Midwest Rocky Mountain West Coast

• Production • Imports

Source: U.S. Energy Information Administration. Petroleum & Other Liquids Reports: "Renewable Fuels Except Fuel Ethanol." Note that these figures include renewable biodiesel.

Volume Effects

Subject Imports Were Depressed in 2014 Due to Advanced Buying in 2013

Mil. gallons 557.3

175.81 Subject imports, non-subject imports, and imports of renewable diesel declined in 2014.

313.4

151.31 46.9

| 9 4 . 4 |

i

2013

• Renewable

i

• Nonsubject Argentina

2014

• Indonesia

Source: USITC Trade Dataweb for HTS 3826.00.1000 and 3826.00.3000; and USDA, U.S. Biodiesel/Renewable Diesel Market, Slide 12.

Volume Effects

Subject Imports and Renewable Imports Expanded in 2015

Mil. gallons 557.3 557.4

2013

313.4

Renewable

2014

Nonsubject Argentina

2015

Indonesia

Source: USITC Trade Dataweb for HTS 3826.00.1000 and 3826.00.3000; and USDA, U.S. Biodiesel/Renewable Diesel Market, Slide 12.

Volume Effects

Subject Imports Expanded in 2015:H2 after Heating Oil Prices Reached Low Levels

Source: USITC Trade Dataweb for HTS 3826.00.1000 and 3826.00.3000. 15

Volume Effects

Policy Uncertainty in 2014-15

Dropping Anchor

EPA Failure to Provide RVO created Chaos

Sequestration going on in late 2013. EPA leaked a proposed change to the RVO volumes for 2014 to 2016.

Biodiesel Tax Credit

*Blenders Tax Credit was retroactively renewed in late Dec 2014. It was only in place for approximately 10 days.

2014 the industry ran with a hope based on promises that the RVO would be released soon and it never was released.

•Blenders Tax Credit was not in place in 2015. It was passed in retro for 2015 & the current year. The credit has not been extended. Maybe in the lame duck session or retro if at all in 2017..

Jk WESTERN DUBUQUE

&BICDIESEL LLC F A R L E Y , I O W A

Source: Western Dubuque Biodiesel, LLC, 2016 Annual Shareholders Meeting at 14.

Volume Effects

U.S. Production of Biodiesel Also Expanded in 2016

Mil. gallons

1,359 +23% 1,279 1,263

1,556

2013 2014 2015 2016

Source: Monthly Energy Review (March 2017), Table 10.4 (MER's production data excludes RD). 17

Preliminary Pricing Product Data Do Not Accurately Represent Biodiesel Prices

In a commodity market, significant price differences are not sustainable.

Import and U.S. producer prices are contractually pegged to petro diesel.

Daily price series shows comparable prices for SME Houston and SME Midwest.

Product mix—Aggregate quarterly data do not capture daily fluctuations in price and volume.

Prices Are Similar in U.S. Markets Despite Varying Presence of Imports

6.00 - i

5.00 -

4.00 -

3.00

$/Gallon

2.00 A

1.00 A

0.00

sy SP

sy

v sy sp SP

— H o u s t o n SME

A ? V

MW SME

sy sy

sy

sy SP V

Source: Daily price series: Biodiesel SME Houston B-100, Biodiesel BlOO SME Chicago.

Price

Indonesian PME Should Undersell SME Because PME Carries a Less Valuable D6 RIN

Figure 2: Daily D4 Biodiesel and D6 Ethanol RINs Prices (9/29/2015 to 4/19/2016)

- EPA Final Ruling on Biodiesel RVOs for 2014-2017

9/29/2015

S o u r c e : D e c i s i o n I n n o v a t i o n S o l u t i o n s

10/29/2015 11/29/2015 12/29/2015 1/29/2016 2/29/2016

Daily D4 Biodiesel RINs (B16) Daily D6 Ethanol RINs (E16)

3/31/2016

Source: Sampath Jayasinghe, Update on U.S. Biomass-Based Diesel Production and the D4 RINs Market. 20

Producer Price of SME Recovered in 2016

2.00 H

1.50

1.00

0.50

B-100 (SME) FOBatIL, IN, and OH Soybean Oil Margin

Source: USD A Economic Research Service: U.S. Bioenergy Statistics, Table 17, February 2017; Oil Crops Outlook, Jan

2015, Dec. 2015, and Mar. 2017.

# J& • ^ •$> j / '

^ ^ ^ ^

21

1.20

1.00 A

0.80 A

0.60

0.40

0.20

$/gal.

Subject Imports Did Not Cause a Cost-Price Squeeze

Biodiesel FOB Price - Soy Oil Price*7.5

i i i i i i i i i i 1 1 1 1 \ 1 1 —

<f # ^ ^ ^ * ° ^ ^ ^ ^ * ° s»* # # A ^ * °

Margin

Source: USDA Economic Research Service: U.S. Bioenergy Statistics, Table 17, February 2017; Oil Crops Outlook, Jan 2015, Dec. 2015, and Mar. 2017. 22

Subject Imports Did Not Cause a Cost-Price Squeeze

150

100

Biodiesel Margins

Historical Cash Biodiesel Margins

/ 1M 61.1835

i

A 1 / } K V » -62.3275

-120.737 C r u d f i D e g u m m e ( J B 0

Platts Chicaeo BlOO - (Jacobsen Crude Deeummed BO *7.50 + 45)

50 A

-50

-100 A.

-150

4 -V* v / ' -V* v * y V 7 « * y * * T V ~ \ f ~ « f ~ V* « f~ w» T < * y \ f

f ^ ^ *s <J d* ^ & 4 4 + d* ?a # d5" # & <P f # $

10/4/2016 W E S T E R N D U B U Q U E

(£>BICX>IESEL . L L C FARLEY, IOWA

37

Source: Western Dubuque Biodiesel, LLC, 2016 Annual Shareholders Meeting at 37.

Impact

The Increase in Subject Import Volumes Coincided with Increased Production & Prices

140 -i

120 A

100 A

80

60

40

20

Mil. gallons /mo.

Change in Producer FOB Biodiesel Price: -$0.84/gal.

Change in Producer FOB Biodiesel Price: +$1.04/gal.

Jan-14 to Aug-15 Sep-15 to Dec-16

• Production • Subject Imports

Source: USITC Trade Dataweb for HTS 3826.00.1000 and 3826.00.3000; and USDA Economic Research Service: U.S. Bioenergy Statistics, Table 17, February 2017. 24

1.20 -. Dollars/gal.

1.00 A

Subject Imports are Positively Related to the Margin

Subject Imports versus the Biodiesel Price - Soy Oil Price

0.80 A

0.60

0.40

0.20 A

- i 1 1 1 1 1 1 i i i

10 20 30 40 50 60 70 80 90 100

Monthly Subject Imports (Mil. gal.)

Source: USITC Trade Dataweb for HTS 3826.00.1000 and 3826.00.3000; and USDA Economic Research Service: U.S. Bioenergy Statistics, Table 17, February 2017; Oil Crops Outlook, Jan 2015, Dec. 2015, and Mar. 2017.

Impact

Financial Analysis Should Include All Revenue Streams Associated with the Product

The tax credit exists to encourage consumption, which drives production. That producer operating incomes decline / are negative in the absence of the tax credit is to be expected.

Therefore, it is appropriate to include the tax credit when assessing the financial performance of the domestic industry.

• Net Income, Cash Flow, Return to Equity are all appropriate measures to consider

The price of the RIN is also tied to the sale of the product. I f the product is sold without a RIN and the RIN is sold independently, that revenue should also be counted as the value of the RIN captures a portion of the product's value.

26

Impact

Net Income on Biodiesel Sales Rose over the POI

Net income includes reported

2015

2016

• Operating income (loss)

Source: US Producer Questionnaire Compilations

Net income on biodiesel sales

27

The Biodiesel Industry is Not Threatened with Material Injury By Subject Imports

• 2017 w i l l improve as blenders work o f f inventories accumulated in 2016.

• Demand exceeds year-earlier levels through February.

• The RFS target for biodiesel has been set for 2017 and 2018, eliminating that source of policy uncertainty.

• Crude oil and ULS diesel fuel have firmed.

• The current price and the spread between the D4 and D6 RINs are limiting entry of imports from Indonesia for the foreseeable future.

• Indonesia faces grandfathered limits to the amount of biodiesel it can send to the United States each year.

23