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PUBLIC RECORD

Ammonium Nitrate from Russia – Australian Industry Visit Report – CSBP Limited PUBLIC RECORD

INVESTIGATION 312

ALLEGED DUMPING OF AMMONIUM NITRATE

EXPORTED FROM THE RUSSIAN FEDERATION

EITHER DIRECTLY OR VIA ESTONIA

VISIT REPORT ‐ AUSTRALIAN INDUSTRY

CSBP LIMITED

THIS REPORT AND THE VIEWS OR RECOMMENDATIONS CONTAINED THEREIN WILL BE REVIEWED

BY THE CASE MANAGEMENT TEAM AND MAY NOT REFLECT THE FINAL POSITION OF ANTI‐

DUMPING COMMISSION

November 2015

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Table of Contents

Table of Contents ................................................................................................................................. 2

Abbreviations .......................................................................................................................................... 4

1. BACKGROUND AND PURPOSE......................................................................................................... 5

1.1 Background ............................................................................................................................. 5

1.2 Purpose of Visit ....................................................................................................................... 5

1.3 Meeting Details ....................................................................................................................... 5

1.4 Investigation Process and Timeframes ................................................................................... 6

1.5 Visit Report .............................................................................................................................. 6

2. THE GOODS ..................................................................................................................................... 6

2.1 The goods ................................................................................................................................ 6

2.2 Tariff classification of the goods ............................................................................................. 6

3. THE AUSTRALIAN INDUSTRY AND LIKE GOODS .............................................................................. 6

3.1 Australian Industry .................................................................................................................. 6

3.2 Corporate, Organisational and Ownership Structure ............................................................. 7

3.3 Accounting Structure and Details of Accounting Systems ...................................................... 7

3.4 Relationship with Suppliers and Customers ........................................................................... 7

3.5 Product Range and Manufacturing Facilities .......................................................................... 7

4. Production Process ......................................................................................................................... 8

4.1 Annual Turnover ..................................................................................................................... 9

4.2 Capacity ................................................................................................................................... 9

4.3 Like Goods ............................................................................................................................... 9

4.4 Conclusion ............................................................................................................................... 9

5. AUSTRALIAN MARKET ..................................................................................................................... 9

5.1 Introduction ............................................................................................................................ 9

5.2 Market Segmentation and End Use ...................................................................................... 10

5.3 Demand Variability................................................................................................................ 10

5.4 Substitutable Products .......................................................................................................... 10

5.5 Market Size and Share .......................................................................................................... 10

5.6 Marketing and Distribution ................................................................................................... 11

6. SALES ............................................................................................................................................. 12

6.1 General .................................................................................................................................. 12

6.2 Customers ............................................................................................................................. 13

6.3 Verification of sales data ....................................................................................................... 14

7. COST TO MAKE AND SELL .............................................................................................................. 16

7.1 General .................................................................................................................................. 16

7.2 Verification of cost to make data to audited financial statements ...................................... 17

7.3 Verification of production costs to source documents ......................................................... 18

7.4 Verification of selling, distribution and administration costs to source documents ............ 18

7.5 Costs to make and sell – conclusion ..................................................................................... 19

8. ECONOMIC CONDITION OF THE INDUSTRY .................................................................................. 19

8.1 Volume Trends ...................................................................................................................... 19

8.2 Price and Cost Trends ........................................................................................................... 20

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8.3 Profit and Profitability Effects ............................................................................................... 21

8.4 Factors Other Than Dumping ................................................................................................ 22

8.5 Conclusion ............................................................................................................................. 22

9. INJURY CLAIMS AND CAUSAL LINK................................................................................................ 22

9.1 Background ........................................................................................................................... 22

9.2 Effect of not renewing the measures ................................................................................... 22

9.3 Other Possible Causes of Injury ............................................................................................ 23

9.4 Conclusion ............................................................................................................................. 23

10. UNSUPPRESSED SELLING PRICE & NON‐INJURIOUS PRICE ....................................................... 23

11. APPENDICES AND ATTACHMENTS ............................................................................................ 24

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Abbreviations

$ Australian dollars

the applicants Orica Australia Pty Ltd (Orica) and CSBP Limited (CSBP)

the Commission Anti-Dumping Commission

the Commissioner the Commissioner of the Anti-Dumping Commission

CFR carriage and freight

China the People’s Republic of China

CTM cost to make

CTMS cost to make and sell

CTS cost to sell

EPR electronic public record

EU European Union

FOB free on board

the goods ammonium nitrate as per section 2 - the goods the subject of the application

QNP Queensland Nitrate

Russia the Russian Federation

WesCEF Wesfarmers Chemical, Energy and Fertilisers division

Wesfarmers Wesfarmers Limited

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1. BACKGROUND AND PURPOSE

1.1 Background

On 13 July 2015, in accordance with subsection 269ZHB(1) of the Act, a notice was published in The

Australian newspaper inviting certain persons to apply to the Commissioner for the continuation of

anti‐dumping measures on ammonium nitrate exported to Australia from Russia.

On 10 September 2015, Orica Australia Pty Ltd (Orica) and CSBP Limited (CSBP), members of the

Australian industry producing ammonium nitrate, lodged an application for the continuation of the

measures, which was within the applicable legislative timeframes.1

For further information please visit the Electronic Public Record (EPR).2

1.2 Purpose of Visit

The purpose of the visit was to:

obtain relevant information about the Australian market for ammonium nitrate;

gain a greater understanding of the company’s manufacturing, marketing and distribution processes;

verify information provided in the application;

obtain relevant financial data about claimed injury to the Australian industry; and

gather information relevant to assessing whether the resumption of imports would be at dumped prices, and would cause material injury to the Australian industry.

1.3 Meeting Details

1 Company CSBP Limited

Kwinana Beach Rd

Kwinana Beach, WA 6167

Dates of visit 10‐11 November 2015

The following representatives were present at various stages of the meetings:

CSBP Limited Barney Jones, Business Manager Ammonium Nitrate, CSBP

Heidi Mueller, Senior Accountant Chemicals, CSBP

Rick Colgan Commercial Manager Ammonia, CSBP

Leonardi Thamron Commercial Analyst, CSBP

Anti‐Dumping Steven Spears, Assistant Director Operations 1

1 In accordance with subsection 269ZHB(1)(b). 2 The EPR is available at http://www.adcommission.gov.au

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Commission Patrick Quiggin, Assistant Director Operations 1

George Katsoulis, Senior Investigator Operations 1

1.4 Investigation Process and Timeframes

For investigation timeframes and details please see the Electronic Public Record. The critical dates of

note are:

27 January 2016 – latest date for publication of Statement of Essential Facts

14 March 2016 – latest date for publication of Final Report

1.5 Visit Report

The visit team explained to CSBP that we would prepare a report of our visit (this report) and provide it to CSBP to review its factual accuracy, and to identify those parts of the report it considers confidential. The visit team explained that, in consultation with CSBP, we would prepare a non‐confidential version of the report, and place this on the investigation’s Public Record.

2. THE GOODS

2.1 The goods

The goods, the subject of the current anti‐dumping measures, are:

ammonium nitrate, prilled, granular or in other solid form, with or without additives or coatings, in packages exceeding 10 kg.

2.2 Tariff classification of the goods

Ammonium nitrate, whether or not in aqueous solution, is classified within sub‐heading 3102.30.00,

statistical code 05.

The current rate of duty for the goods exported from all sources is 0 per cent. There is currently a

floor price for imports of the goods from Russia and Estonia, which is subdivided into high density

and low density ammonium nitrate.

3. THE AUSTRALIAN INDUSTRY AND LIKE GOODS

3.1 Australian Industry

The Australian industry producing ammonium nitrate is comprised of CSBP, Orica, Queensland

Nitrates (QNP), and Incitec Pivot Ltd. Yara Pilbara Pty Ltd will commence production in 2016. QNP is

a joint venture between CSBP and Dyno Nobel, an Incitec Pivot company. Yara Pilbara is a joint

venture between Orica and Yara International ASA, a Norwegian chemical company.

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The applications for the continuation inquiry and review were lodged by CSBP and Orica. CSBP

advised that [other company] supports the application for the continuation and review of the

measures.

In the application by CSBP and Orica it was stated that CSBP and Orica accounted for approximately

75% of the Australian production of ammonium nitrate in 2014/15.

3.2 Corporate, Organisational and Ownership Structure

CSBP produces and markets broad acre fertilisers and chemicals for industry, mining and mineral

processing. CSBP is 100% owned by Wesfarmers Limited (Wesfarmers), a publicly listed company.

CSBP is part of the Wesfarmers Chemicals, Energy and Fertilisers division (WesCEF) formed on 1 July

2010 through the merger of the Wesfarmers Chemicals and Fertilisers and Wesfarmers Energy

divisions. The division incorporates CSBP and a number of other companies, including the share in

QNP.

CSBP does not publish an annual report; its results are incorporated in the Wesfarmers’ annual

report. Key financial indicators for CSBP are shown in the Wesfarmers annual report as part of the

WesCEF results.

A copy of these key financial indicators for 2010 (pp 44‐47 from Wesfarmers Annual Report) is at

Non‐Confidential Appendix 1.

Wesfarmers

[details of commercial

arrangement between CSBP and parent company]

3.3 Accounting Structure and Details of Accounting Systems

CSBP uses JDE Edwards as its accounting system and Cognos as its reporting tool, and its monthly

returns are then consolidated into the results for Wesfarmers. CSBP operates on a July to June

financial year.

CSBP’s accounts

. [Treatment of borrowing costs]

3.4 Relationship with Suppliers and Customers

CSBP has a range of customers including those on long‐term ‘foundational’ contracts, short‐term

contracts and opportunistic sales. Customer confidentiality provisions in some contracts prevented

CSBP from identifying any specific customers, except for internal sales to the fertiliser arm.

3.5 Product Range and Manufacturing Facilities

CSBP’s head office and main production facility is located at Kwinana in Western Australia. At the

Kwinana site it has:

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an ammonia plant with a capacity of 250,000 tonnes3 per annum used for supply to external customers and internally as a raw material in the production of ammonium nitrate, fertilisers and sodium cyanide;

three nitric acid plants;

three ammonium nitrate solution plants with a total capacity of 780,000 tonnes per annum;

two ammonium nitrate prilling plants (only one of which is currently operational;

two sodium cyanide plants; and

fertiliser plants that produce super phosphate, compound fertilisers and urea ammonium nitrate (UAN).

CSBP imports and markets fertilisers such as urea, potash, UAN and ammonium phosphate. CSBP

also has fertiliser distribution centres in Albany, Bunbury, Esperance and Geraldton and also

manufactures UAN at Esperance and Geraldton.

CSBP produces and sells ammonium nitrate in solution (ANsol) and in low density prilled form. CSBP

has two prilling plants, however the older prilling tower was closed in 2009 and all subsequent

production of prilled ammonium nitrate has been through the newer prilling plant. During the

investigation period all ammonium nitrate produced by CSBP was sold domestically for either the

explosives market or UAN manufacture.

4. Production Process

Ammonium nitrate is produced by neutralising nitric acid with ammonia.

The main raw material for ammonia production is natural gas. Natural gas is reacted with steam and

then air to produce hydrogen, nitrogen and carbon dioxide. The carbon dioxide is removed and the

hydrogen is reacted with nitrogen to produce ammonia.

Nitric acid is produced by reacting ammonia with oxygen in the presence of a catalyst. The reaction

produces oxides of nitrogen, which are then dissolved in water to produce nitric acid.

The nitric acid production process generates electricity which is transferred to other business

sections; this transfer is shown as a negative cost in the variable overheads for ammonium nitrate.

The reaction of ammonia with nitric acid produces an ammonium nitrate solution. This can be sold

in the solution state or solidified by either prilling or granulating.

To produce prills, the solution is sprayed into the top of a prilling tower. A rising air stream cools

and solidifies the falling droplets into spherical balls or prills.

The density of the finished product is governed by, amongst other things, the concentration of the

solution. Additives are introduced prior to prilling which changes the structure of the prills during

the prilling process to make it more of a hollow, honeycomb type structure that is the low density

product. It is the additives that increase the internal crystalline strength of the low density product.

Coating agents are applied to stop the product clumping together, and to improve handling and

storage properties.

3 The standard unit for measurement of ammonium nitrate is ‘tonnes’, a non‐Standard unit which equates to one megagram or 1,000 kilograms. This is equivalent to a ‘metric ton’ but not a ‘ton’, which is 2,000lb.

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CSBP stated that it sells ammonium nitrate solution and that it only produces solid low density

ammonium nitrate in the form of prills. CSBP does not have a granulation facility with which to

produce granulated ammonium nitrate.

The visit team inspected CSBP’s ammonium nitrate production facility including the newer plants

during the visit and observed the production process as described above.

4.1 Annual Turnover

CSBP’s total revenue for the 2015 financial year was approximately , of which about

was attributable to its ammonium nitrate business. This is consolidated with other

company reports to form the WesCEF number in the Wesfarmers annual report.

It operates 2 shifts per day seven days per week in the ammonium nitrate plant and employed about

people in respect of this business. In total, CSBP employs about people.

4.2 Capacity

Since the previous continuation inquiry in 2010 CSBP has invested circa $500 million into a new nitric

acid plant and ammonium nitrate solution plant, and upgrades to the prilling plant. The investment

increased its production capacity for ammonium nitrate from 520,000 tonnes to approximately

800,000 tonnes per annum. Currently the entire plant operates at % uptime.

The increase in capacity for ammonium nitrate has resulted in CSBP importing additional ammonia

as it cannot produce sufficient ammonia from its Kwinana plant for its requirements.

4.3 Like Goods

CSBP said that globally, high density ammonium nitrate, which can be in granular or prilled form, is

generally used in the agricultural sector as a fertiliser and is one of the most widely used nitrogenous

fertilisers in the world.

CSBP further advised ammonium nitrate can also be in a solution state, which is typically used in

manufacturing bulk emulsion explosives.

The Commission considered the issue of like goods during the original investigation, and in

subsequent continuations. This will be further considered in the Statement of Essential Facts.

4.4 Conclusion

CSBP is a manufacturer of the goods under consideration.

5. AUSTRALIAN MARKET

5.1 Introduction

In the current application CSBP and Orica estimated the size of the Australian market to be

approximately 2.0 million tonnes in 2014‐15, a 33% increase from the estimated 1.5 million tonnes

in 2009‐10. CSBP stated that the growth of the Australian market is due to expansion of the mining

industry, in particular the coal and iron ore industries. The taper in exploration does not affect the

requirements for the goods, which are predominantly used during the mining phase.

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In the application CSBP and Orica said that imports from the Ukraine, China and Russia accounted

for approximately 57,500 tonnes of the total approximately 142,300 tonnes imported in 2014/15.

Imports directly from Russia were at approximately 3,665 tonnes or 2.6% of the total import volume.

5.2 Market Segmentation and End Use

Ammonium Nitrate has two primary uses, being the manufacture of explosives and fertilisers.

CSBP advised that it did not supply ammonium nitrate in its original form to the fertiliser market due

to the inherent security risks. CSBP said that it uses some of the ANsol it produces to manufacture

UAN which is sold as a fertiliser. CSBP advised that finished UAN could not be used as an explosive.

CSBP used approximately 17% of the ANsol it produced in 2014/15 to manufacture UAN. CSBP said

that the returns on UAN were generally lower than the returns achieved on ammonium nitrate for

explosives.

5.3 Demand Variability

Demand has been steadily increasing since the imposition of initial measures in 2001 and this trend

is expected to continue into the future. CSBP uses modelling to determine both the demand in the

Western Australian market, and more broadly in the Australian and Indonesian market.

[basis of modelling for demand variability]

5.4 Substitutable Products

All of the like goods (as discussed in section 3.9) can be used for explosives with varying degrees of

suitability.

Prilled low density ammonium nitrate is the primary product manufactured by CSBP, and is the

primary ingredient for ANFO (Ammonium Nitrate Fuel Oil), the most common explosive for mining.

High density ammonium nitrate is used in Australia to produce emulsion explosives. These are a

mayonnaise‐like explosive which is more water resistant than ANFO. Emulsion explosives are made

from a mix of ANsol, diesel fuel, emulsifiers and sensitisers. The conversion process of solid high

density products to solution is done by heating the product at an emulsion plant.

While there are other explosives available, these are less suitable for the same purpose due to cost,

explosive properties such as blast speed, and difficulty in transport.

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5.5 Market Size and Share

The Australian market is supplied by local production and imports from a number of countries. CSBP

expects that the completion of the Yara Pilbara plant (due in 2016) will result in the capacity of the

Australian industry exceeding domestic demand requirements.

5.6 Marketing and Distribution

Given that ammonium nitrate is a commodity and CSBP do not provide the ‘full service’ offerings of

other manufacturers such as blasting, there are minimal opportunities to differentiate the product

from other sellers. As such, CSBP stated that they have built a reputation for high quality but do not

advertise their product.

CSBP stated that

[specific details of conditions of sale]

Due to the geographic separation between east and west coasts, the two sides of Australia almost

act as different markets. Due to this, CSBP almost exclusively services the west coast. While previous

investigations have found evidence of swaps between manufacturers on east and west coast, this

did not occur during the current investigation period.

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6. SALES

6.1 General

CSBP provided a detailed, line‐by‐line sales listing of its domestic sales of ammonium, ANsol and prill

for the investigation period (refer Confidential Appendix A4 of the application). This listing included

the following details:

De‐identified customer namecode;

model;

product code;

invoice details, including date, invoice number and order number;

payment terms;

quantity of goods (in tonnes);

gross invoice value; and

transport and handling costs.

From the Confidential Appendix A4, we calculated that for the investigation period, CSBP sales value

for ANsol and prill in the domestic market was $ million, with a sales volume of K tonnes.

We noted variances between the details in appendices in Confidential Appendix A4 and Confidential

Appendix A6. CSBP explained that these differences as follows:

ANsol sales in Confidential Appendix A4 are reported at a nomina % concentration whilst Confidential Appendix A6 and the contribution statement reports are at a concentration of 100%;

Adjustments relating to [condition of sales]; and

Internal transfers of ANsol to its fertiliser division [details of internal transfers].

CSBP provided the volumes of internal transfers of ANsol and the agreed price to allow a

reconciliation between the source data and the A6. These documents are at Confidential Appendix

4 – Sales Reconciliation.

As a result of the above differences, the adjusted CSBP sales value for ANsol and prill in the domestic

market is $ million against a sales volume of k tonnes.

Analysis of CSBP’s domestic sales for the investigation period showed that bulk prill was the largest

selling product, representing approximately per cent of all sales. Detailed analysis of CSBP’s sales

data is included in Confidential Appendix 2 – Sales Analysis.

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6.2 Customers

The majority of sales are sold to unrelated domestic customers. The customers have been de‐

identified and categorised using an alphabetical listing. As such, the Commission was not able to

identify CSBP’s domestic customers, but was informed that they are

[customer details].

6.2.1 Pricing

CSBP advised that ammonium nitrate pricing is based on

The majority of its sales are

[details of pricing mechanisms]

[details of pricing mechanisms]

6.2.2 Sales and Distribution

CSBP advised it could not provide copies of the agreements it had with its customers during the

investigation period due to confidentiality restraints. However, CSBP gave the following outline of

the terms and conditions of a supply and pricing agreement:

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[details of contract clauses]

6.2.3 Discounts and rebates

CSBP does not provide any discounts to its customers.

[details regarding rebate/s] This is discussed further below.

6.3 Verification of sales data

6.3.1 Verification to audited financial statements

To assess the submitted line‐by‐line sales data in Confidential Appendix A4 for completeness and

relevance, verification to the Wesfarmers audited 2014/15 financial statements was undertaken.

The visit team reconciled the total domestic sales value for ammonium nitrate listed in the

Confidential Appendix A4 against the turnover figure noted in the Confidential Appendix A3. This

was done after accounting for adjustments relating to offtakes/shortfalls and sales to the related

entity. The offtake/shortfall adjustments were verified against invoices and the sales to the related

party were verified through the general ledger that detailed the sales value and quantity.

The visit team then reconciled the Confidential Appendix A4 data against the postings in the general

ledger, and the accounting system’s annual report. The visit team noted a variance of 0.2% when

reconciling back to the A4 from the general ledger, which the team considered was not material.

Having verified the data on a year to date basis for the November data, The visit team verified the

integrity of the data in the Confidential Appendix A4 against the general ledger on a monthly basis

by reconciling the general ledger the against the sales records for the month of November 2014.

The visit team were able to reconcile Confidential Appendix A4 to the general ledger after

accounting for accruals/reversals. The visit team noted a variance of 0.2% when reconciling back to

the A4 from the general ledger, which the team considered was not material.

For the same month, The visit team also verified the sale of ANsol in the Confidential Appendix A4

against the general ledger. After accounting for accruals, the visit team were able to reconcile the

ANsol sales figures.

The visit team then tested ANsol sales for the same month to a particular de‐identified customer

against the general ledger. The ANsol sales in the Confidential Appendix A4 matched the transaction

listing in the general ledger.

Having reconciled the ammonium nitrate sales figure from the Confidential Appendix A4 to turnover

in Confidential Appendix A4 and then against the general ledger and the accounting system’s annual

report, The visit team were able to follow this figure into the consolidated income statement for the

‘chemical’ business of CSBP. This figure was then followed into the income statement for CSBP. This

CSBP figure was reconciled to the WesCEF Income statement, and is the figure noted in the

Wesfarmers annual report under WesCEF.

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Copies of the working papers and information provided for the purposes of verifying CSBP’s sales

data (recorded at Confidential Appendix A4) for completeness and relevance is at Confidential

Appendix 4 – Sales Reconciliation.

6.3.2 Completeness and relevance of sales data - conclusion

Having regard to the above, we consider that the sales data provided at Confidential Appendix A4

represents reasonably complete and relevant accounts of CSBP’s sales of ammonium nitrate during

the period from 1 July 2014 to 30 June 2015.

6.3.3 Verification of sales data to source documents

To assess the sales data for accuracy, verification to source documents was undertaken.

Prior to the verification visit, the Commission selected 14 sales transactions from CSBP’s Confidential

Appendix A4.

The selected transactions covered various quarters, models, customers, an inter‐company sale, an

import management charge and a negative sales value within the investigation period. CSBP

provided supporting documentation for each selected sale during the verification visit. The

Commission also requested additional transactions relating to a

[specific contractual transactions] for verification during the verification visit.

For the selected transactions, CSBP provided the following documents:

tax invoice;

purchase order;

general ledger extract;

supply agreement;

payment reconciliation; and

confirmation of payment (i.e. bank statement).

We consider the supporting documentation provided to be reasonable for verification.

These documents are at Confidential Appendix 3 – Sales Documents.

6.3.4 Invoice details

We noted that the invoice and despatch advice contained sufficiently detailed information, including

the de‐identified customer name, order number, invoice number, model details and the quantity of

the units of product that made up the order.

We were able to reconcile the transaction details recorded in Confidential Appendix A4, including

dates, volumes and values, to the details recorded in the relevant invoices.

6.3.5 Proof of payment

For the selected sales transactions, CSBP provided bank statements and a payment reconciliation

that identified the payments made in relation to the selected transactions.

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We are satisfied that the invoice amount as recorded in Confidential Appendix A4 is the amount

paid.

6.3.6 Rebates

[contractual basis of rebate/s] The source documentation

forms part of the documents at Confidential Appendix 3 – Sales Reconciliation.

6.3.7 Accuracy of sales data - conclusion

Due to the information materially reconciling to the source documentation, the visit team did not

make any adjustments to the data presented in the application. Having regard to the above, we

consider the sales data provided at Confidential Appendix A4 is a reasonably accurate record of

CSBP’s sales of ammonium nitrate during the period from 1 July 2014 to 30 June 2015.

6.3.8 Sales – conclusion

The Commission has verified the sales information provided by CSBP in Confidential Appendix A4 for

ammonium nitrate and is satisfied that the data is complete, relevant and accurate, and is therefore

suitable for the purposes of injury analysis.

7. COST TO MAKE AND SELL

7.1 General

As part of its application, CSBP provided cost to make and sell (CTMS) data for its domestic sales for

the period of 1 July 2014 to 30 June 2015 in Confidential Appendix A6. The data contained in the

CTMS related to CSBP’s production of ammonia, which is the major input into ammonium nitrate.

CSBP stated that it produces around [amount] of the ammonia used in the production of

ammonium nitrate at its Kwinana production plant, with the remainder being purchased from

Australian suppliers. CSBP stated that the ammonia it produces is transferred to the Ammonium

Nitrate business

. [details of internal transfers] The Commission accepted CSBP’s explanation of the separation

between the ammonia and ammonium nitrate businesses. However, the Commission informed CSBP

that the Commission’s preferred approach is to use actual costs of production and that it would be

substituting the transfer price with the actual cost of production of ammonia. This will be done when

investigating injury in the SEF.

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7.2 Verification of cost to make data to audited financial statements

To assess CTM data for completeness and relevance, the verification team sought to trace the CTM

data up through management reports to audited financial statements.

CSBP, as a part of Wesfarmers, do not have a separate audited financial report. CSBP’s accounts are

audited as part of the audit of Wesfarmers Group. CSBP provided its monthly performance report for

June 2015 (Confidential Appendix 7 refers). This report also contains year to date financials. CSBP

also provided their 2015 financial performance report for WesCEF. This report feeds into the

Wesfarmers Annual Report. These reports were provided to allow the Commission to be satisfied of

the completeness of the CTM data provided in Confidential Appendix A6.

7.2.1 Turnover

The A3 contains turnover figures, expressed as volumes and values for the total turnover of like

goods. That figure is subsequently broken down into figures for ammonium nitrate solution and

fertilizers and explosive grade ammonium nitrate, known as prill. The turnover figures broken down

by type contained in the Confidential Appendix A3 matched the turnover figures contained in the

June 2015 monthly performance report (Confidential Appendix 6 refers).

The Commission noted a slight variation in the total volume figure for all like goods contained in the

A3 to the figure that is contained in the June 2015 monthly performance report. CSBP explained that

the total figure for like goods contained in the report is inclusive of [other

product], which are not like goods. CSBP demonstrated in the report how the variance was

calculated. After deducting the sales of [product] the Commission accounted for the

variance between the monthly performance report and the A3 appendix.

7.2.2 Production volumes

The Commission noted that total production of ammonium nitrate contained in the June 2015

monthly performance report is broken down into transfers to prill and sales of ammonium nitrate

solution. The breakdown of sales volumes between transfers to prill and sales of ammonium nitrate

solution contained in appendix A6 also matched the production volume figures contained in the June

2015 monthly performance report.

7.2.3 Cost to make

The June 2015 monthly performance report provided by CSBP contained a breakdown of all fixed

and variable cost categories involved in the production of ammonium nitrate. The Commission

verified that the figures for each cost category and the total cost of goods manufactured contained

in the June 2015 monthly performance report matched the CTM figures contained in the A6

appendix (Confidential Appendix 6 refers).

7.2.4 Completeness and relevance of cost to make and sell data - conclusion

Having regard to the above, the Commission consider that the CTMS data in appendix A6 provided

by CSBP represents reasonably complete and relevant accounts of the fully absorbed costs to

manufacture ammonium nitrate during the period from 1 July 2014 to 30 June 2015.

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7.3 Verification of production costs to source documents

To assess production cost data for accuracy, verification to source documents was undertaken.

7.3.1 Purchase of natural gas

The visit team sought to verify CSBP’s purchase of natural gas used in the production of ammonia.

CSBP provided a natural gas reconciliation report for quarter four of 2015. The report contained the

total value and volume of natural gas purchased during that quarter and a breakdown of suppliers.

The total cost of natural gas purchases during the quarter matched the figure relating to purchases

of natural gas contained in the A6 appendix provided by CSBP (Confidential Appendix 5 refers).

CSBP also provided the visit team with the purchase orders and payment details for all their natural

gas purchases during quarter four of 2015. A sample was checked, and it was confirmed that these

matched the provided data. See Confidential Appendix 5.

7.3.2 Purchase of ammonia

The invoices for purchase of ammonia for the entire year were provided, including the

[specific source documents]. These matched the values

provided in the application.

7.3.3 Accuracy of production costs – conclusion

Having regard to all of the above the Commission considers the production cost data provided is a

reasonably accurate account of the actual costs to manufacture ammonium nitrate during the

period from 1 July 2014 to 30 June 2015.

7.4 Verification of selling, distribution and administration costs to source documents

To assess selling, distribution and administration (SG&A) cost data for accuracy, verification to

source documents was undertaken.

CSBP stated that SG&A costs are made up of selling, distribution, administration and freight costs.

Costs directly attributable to individual business units such as ammonia, ammonium nitrate, and

other products such fertiliser are attributed 100% to that unit. CSBP further stated that shared

administration costs are allocated

[method of attributing shared costs]

The SG&A categories and costs for each category contained in the A6 appendix matched the figures

contained in the June 2015 monthly management report.

7.4.1 Selling costs

The Commission noted that selling costs during the December 2014 quarter were

[explanation of

identified variance]

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7.4.2 Freight

CSBP stated that . [basis of sales] The total freight

cost contained in the June 2015 monthly performance report matched the figure allocated to freight

in the A6 appendix.

[details of freight costs]

7.4.3 Accuracy of selling, distribution and administration costs – conclusion

Having regard to all of the above the Commission consider SG&A cost data provided is a reasonably

accurate account of the actual costs to sell ammonium nitrate during the period from 1 July 2014 to

30 June 2015.

7.5 Costs to make and sell – conclusion

The Commission consider that CSBP’s CTMS data in Appendix A6 is a reasonably complete, relevant

and accurate reflection of the actual costs to manufacture and sell ammonium nitrate during the

period from 1 July 2014 to 30 June 2015.

Accordingly, we consider CSBP’s CTMS data in Appendix A6 is suitable for analysing the economic

performance of its ammonium nitrate operations from 1 July 2014 to 30 June 2015.

8. ECONOMIC CONDITION OF THE INDUSTRY

8.1 Volume Trends

CSBP’s sales volumes of ammonium nitrate are shown below.

Major upticks in production in 2015, both to prill and ANsol internal, reflect the additional capacity

from the new plant coming online which resulted in

[details of ammonium nitrate production].

2011 2012 2013 2014 2015

CSBP AN production

ANsol internal ANsol external Prill Total

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Capacity increases over the last 15 years have been driven by increased demand from the mining

boom, and the

[commercially sensitive information]

8.2 Price and Cost Trends

CSBP’s price and costs for ANsol shown below is for external sales only.

CTMS has continued on trend with increases to natural gas prices, and therefore ammonia prices,

with increases in FY 2014 and FY 2015 through two factors.

[factors increasing the price of ANsol] Prices have maintained a steady

margin relative to costs for the entire period.

2011 2012 2013 2014 2015

ANsol unit revenue and CTMS per tonne (EXW)

CTMS external sales

2011 2012 2013 2014 2015

Prill unit revenue and CTMS per tonne (EXW)

CTMS (EXW) Sales

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Similar to ANsol, margins on prill have remained fairly steady despite increases to base costs from

.[costs related to

ANsol production]

8.3 Profit and Profitability Effects

CSBP’s profits are shown for external sales only.

The increased capacity increased the ability to CSBP to sell prill has improved total profit, as noted

above, margins have stayed in line with prices so profit is almost entirely volume driven.

CSBP profitability for external sales is show below.

Profitability has remained very steady since 2012, with only a slight increase on 2011. This is related

to a minor uptick in prill profitability, while ANsol has slightly declined over the period.

2011 2012 2013 2014 2015

CSBP profit by product ($)

ANsol external Prill Total

2011 2012 2013 2014 2015

CSBP profitability by product (%)

ANsol external Prill Total

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8.4 Factors Other Than Dumping

[commercially sensitive information relating to prices]

8.5 Conclusion

CSBP has increased sales volumes and total profits over the period examined due to the expansions

undertaken, in line with increased demand. Profitability is slightly lower than historical highs but

steady across the period,

[costs relating to ANsol production].

9. INJURY CLAIMS AND CAUSAL LINK

9.1 Background

CSBP stated that the ammonium nitrate business is a highly competitive one due to it being a

globally traded commodity. As such, the market it easily influenced by even small volumes of trade

at below market prices.

CSBP state that they have

[details of contract structure]

9.2 Effect of not renewing the measures

CSBP stated that pricing for ammonium nitrate is done

[details of pricing]

CSBP referenced [independent data] relating to the FOB sale price of Russian

ammonium nitrate at the Baltic Sea and [commercially

sensitive information]. CSBP allege that this is due to government intervention in the Russian natural

gas market. CSBP stated that the goods produced in Russia are substitutable for Australian product,

with minor additional cost required to treat the product for the absorption of water which occurs

during shipping through the tropics.

Due to the trade exposed proportion of their contracts, plus all non‐contracted sales of ammonium

nitrate, CSBP allege that the sale and dumping of goods manufactured in an environment with

government intervention will materially injure Australian producers. Additionally, CSBP will be in a

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less competitive position to tender for renewal of their major contracts against Russian

manufacturers, and failure to successfully renew these could be disastrous for the business.

9.2.1 Volume Effects

CSBP reiterated that, as per the application and section 9.1, even small volumes of imports can have

material effects due to forcing down the price of major contracts. CSBP’s view is that this would have

already occurred if the measures were not in place, and will occur if the measures are not renewed.

CSBP holds the view that, while Russian production of low density ammonium nitrate is currently

low, it has the ability to rapidly scale up production and could displace up to one million tonnes of

locally produced low density ammonium nitrate.

9.2.2 Price Effects

CSBP alleged that current practice for users, particularly large users who have market power, is to

use the lowest available import price for leverage to drive down local prices.

[commercially sensitive information]

9.3 Other Possible Causes of Injury

CSBP alleged that no other factor would materially injure the industry in the short to mid‐term

beyond allowing low price ammonium nitrate into the market from any source with government

intervention of some sort. CSBP said the contraction of exploration will not affect the operations of

existing mines or their usage of explosives, and that only an unexpected closure of actives mines

would result in a reduction of mining industry demand. They further insisted that, following recent

closures at Orica’s Yarwun facility, and prior to the commencement of operations at Yara/ Orica’s

Burrup facility, the domestic market is not currently producing excess capacity.

9.4 Conclusion

The continued profitability and increased sales of CSBP despite

[information on costs] and the threat of new entrants shows the resilience in the industry against

international competition – both in the long term pricing and spot sales. As the Commission was

unable to be provided with any evidence which clearly demonstrated the impact of low‐cost

providers, and the applicants cannot possibly provide evidence of future loss of sales, this will be

considered against any other views provided.

10. UNSUPPRESSED SELLING PRICE & NON-INJURIOUS PRICE

CSBP had no further comment beyond what is included in the application, which is available on the

electronic public record.

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11. APPENDICES AND ATTACHMENTS

Non Confidential Appendix 1 Wesfarmers Annual Report 2015

Confidential Appendix 2 Sales Analysis

Confidential Appendix 3 Sales Documents

Confidential Appendix 4 Sales Reconciliation

Confidential Appendix 5 Gas Purchases

Confidential Appendix 6 Chemicals Performance Report

Confidential Appendix 7 WesCEF Division Income Statement

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