Speculation over the Provisional Ruling on Anti-dumping Duties of Lysine by the EU Against China

On December 17, 2024, the European Union disclosed the preliminary results of an anti-dumping investigation on lysine from China. The investigation covers lysine hydrochloride and lysine sulfate. Anti-dumping duties will range from 58.3% to 84.8% based on the CIF price. Notably, Meihua Group faces an 84.8% duty, Fufeng Group and CJ Liaoning 71.6%,  Eppen Group 58.3%, and all other lysine producers and suppliers an 84.8% duty. This investigation was prompted by a submission from EU producer METEX NOOVISTAGO on April 8, 2024.

II---Lysine Supply and Demand Layout

Lysine, chemically named 2,6-diaminocaproic acid, is one of the essential amino acids for humans and mammals and is widely used in livestock feed as a nutritional supplement and a growth promoter.

The global supply of lysine is significantly concentrated, with 19 major global production enterprises by the end of 2023. The lysine output stands at around 3.46 million tons against a demand of 3.32 million tons, maintaining a delicate balance since 2016. China plays a pivotal role, contributing 2.825 million tons to the global output, with key producers like Meihua Bio leading the industry with an annual capacity of 1 million tons, capturing 26% of the global market share. Following closely is Eppen Bio.

China's dominance in lysine production is further solidified with Henan Jinyufeng's successful project initiation, pushing the country's operational production capacity to 4.31 million tons, representing over 78.9% of the global market. With continual expansion in new production facilities, China's share is expected to surpass 85%, reinforcing its monopoly in the global lysine supply chain.

Noteworthy global suppliers outside China include EVONIK, CJ, AJINOMOTO, and ADM, the latter specializing in liquid and microencapsulated lysine production.

In 2023, the Asia-Pacific region dominated the global lysine market, holding a substantial 51% market share with a notable increase in demand. Conversely, the United States and Europe maintained relatively stable demand, collectively representing about 47% of the market. While regions like Latin America, the Middle East, and Africa currently hold a smaller share, they exhibit significant growth potential.

According to data from the EU Trade Database website, the EU imported a total of 390,600 tons of lysine in 2023, with China being the primary source at 234,000 tons. Other significant contributors included Indonesia, the United States, South Korea, and Brazil, totaling 156,600 tons. Notably, China exported 1,008,400 tons of lysine to various destinations from January to November 2024, with an estimated 26% of this volume, equivalent to 262,000 tons, destined for the EU market.

The EU primarily receives lysine imports at ports in the Netherlands, Spain, Lithuania, Poland, and Italy, facilitating this essential commodity's distribution and supply chain.

III---Speculation Over Supply-Demand

1/ Demand

After the EU's anti-dumping provisional ruling, the immediate impact is a significant surge in import costs for lysine from China. The industry expected a duty rate of around 33%, but the actual rate is much higher, catching downstream users off guard with the sudden cost spike. This unforeseen expense poses challenges as companies are unprepared to manage such elevated costs. Uncertainty looms over the final ruling, set for announcement in July 2025, prompting a cautious approach in the market. Consequently, the EU's demand for Chinese lysine is anticipated to plummet in the interim.

The long-term outlook for lysine demand in the feed industry remains stable despite the current circumstances. Should the final ruling align with the provisional decision and anti-dumping measures persist, the EU must internally absorb the increased costs before gradually resuming imports from China. Exploring alternative supply sources becomes imperative, including overseas production facilities established by Chinese investments or new manufacturing sites within the EU itself. This strategic shift aims to mitigate dependence on Chinese imports and diversify the sourcing landscape for lysine in the EU market.

2/ Supply

In the short term, Chinese production suppliers have halted exports to the EU market, impacting the supply of lysine. Meihua Group and Wanli Runda have adjusted their production and export plans, leading to a significant drop in lysine export volume from China to the EU. Other suppliers are likely to follow suit, exacerbating the shortage in the EU.

Looking ahead, the EU faces a challenge in meeting industry demand for lysine. Even with full utilization of METEX NOOVISTAGO's production capacity serving the local market, there remains a substantial external demand gap exceeding 150,000 tons. In 2023, apart from China, key lysine suppliers to the EU include Indonesia, the United States, South Korea, and Brazil.

Considering the average import prices (see below table in EUR/KG based on the data from the EU trade database) from different sources, the EU can redirect its lysine imports from China to these countries not subject to anti-dumping duties. However, calculated by the same standard, wouldn't the damage to the European Union be even more intensified?

The European Union and China are planning strategic moves to mitigate risks in response to trade conflicts. Chinese companies are looking to relocate production abroad, while EU businesses aim to diversify their supply chains beyond China. This shift signals a proactive approach to safeguarding operations amid uncertain trade dynamics.

IV---Speculation over the Price

The situation regarding the anti-dumping duties on lysine exported by China presents various possibilities for pricing resolution within the European Union's regulations.

1, maintaining current export prices to the EU in alignment with non-antidumping regions is envisioned. However, the status quo may not suffice under antidumping pressures. The key lies in upholding benefits while making necessary concessions to sustain business continuity and cater to both supply and demand interests.

2, the second scenario suggests selectively lowering export prices for antidumping markets to prevent substantial local price hikes due to imposed duties. Yet, this strategy, with varying prices across tariff zones, raises concerns about market fairness and challenges the essence of antidumping measures, posing an issue deemed unacceptable by the European Union.

3, Adopting a uniform price reduction across markets to prevent excessively high prices in antidumping areas. It’s really crucial to find a balance in pricing strategies amidst challenges like punitive tariffs and thin profit margins. However, determining the extent of this reduction that satisfies both parties remains a critical question. The current scenario, with antidumping duties based on CIF prices, unfairly impacts not just lysine but also freight costs, intensifying the challenge. Price concessions may lead to a situation where production becomes unsustainable due to production losses.

4, Exploring a strategic price increase for lysine to align with the European Union's expectations. Offsetting this increase with adjustments in other amino acids like threonine, methionine, and valine could present a viable solution. The success of this approach hinges on accurately gauging the magnitude of the price hike and ensuring industry-wide coordination to navigate these changes effectively. Balancing pricing dynamics in the lysine market demands thoughtful deliberation and strategic alignment across various stakeholders.

5, One potential scenario is for Chinese producers and exporters to adjust the price commitment of lysine to align with the anti-dumping duties, effectively eliminating the price discrepancies that lead to dumping. This adjustment requires Chinese enterprises to meet specific criteria, such as obtaining market economy status or individual tax rates. In this case,only Eppen Group  is a potential candidate for such preferential treatment.

6, The most workable option involves a potential reduction in the final ruling on anti-dumping duties. The EU's anti-dumping regulations mandate that specific conditions must be satisfied to impose such measures, including proving dumping, demonstrating damage to EU industries, establishing a causal link between dumping and damage, and ensuring no harm to the European Community's interests. Balancing these requirements is crucial to protect the initiating enterprise (e.g., METEX) while also considering the broader impact on industries from feed to animal farming and animal-product processing industries within the EU.

While beneficial to certain enterprises, the current high anti-dumping duties have raised concerns about fairness and the competitiveness of EU animal farming industry. The potential long-term effects on downstream industries necessitate a comprehensive review of the provisional ruling to address industry feedback and ensure a balanced outcome. Ideally, the final ruling should aim to reduce anti-dumping duties significantly, striking a balance between protecting EU lysine producers and safeguarding the interests of the broader feed and livestock and related sectors in the EU.

V---Impact from Soybean Market

In the European Union, the mainstream feed formula revolves around corn-soybean meal, with soybean meal being a key protein source and corn providing essential energy. Soybean meal contains approximately 2.5%-3.0% lysine and trace amounts of tryptophan and methionine. Lysine is identified as the primary limiting amino acid in the corn-soybean meal mixed feed for growing and finishing pigs. It is theorized that by adding 0.15% lysine (equivalent to 0.192% lysine-HCL), the protein component in the diet can be reduced by 2%, illustrating a crucial balance between lysine and soybean meal, particularly as soybean meal prices surge.

In scenarios where the import cost of lysine escalates while soybean meal prices decline, feed mills may opt to elevate soybean meal content and diminish lysine levels in the feed formula. This adjustment curtails lysine usage and diminishes the requirement for other amino acids, notably threonine. However, the heightened demand for soybean meal, which is a consequence of this shift, is likely to lead to an increase in its price until feed mills perceive the formula alteration as economically impractical. The intricate interplay between lysine and soybean meal underscores the strategic dynamics at play within feed formulation, particularly amidst fluctuating market conditions.

VI---Sub-conclusion

Currently, two possibilities stand out as relatively reasonable:

1. The European Union may continue to depend on China for lysine supply in the future. Chinese lysine companies exhibit significant concentration, empowering sellers with strong bargaining positions. This dynamic could shift anti-dumping duties to EU breeding industry, thereby elevating their breeding expenses.

2. Escalating risks like trade tensions compel Chinese businesses to establish overseas operations, hastening the global expansion of local enterprises. Concurrently, European firms are ramping up investments in production facilities beyond China to mitigate risks associated with overreliance on the Chinese market.

The validity period of provisional measures in anti-dumping cases is typically six months, extendable for an additional three months. Upon implementation, importers of the relevant products must provide a deposit for provisional anti-dumping duties. This deposit will only be collected if a final measure is confirmed; otherwise, it will be refunded once the case concludes. Stakeholders are invited to comment on disclosed case facts, with the European Commission reviewing these inputs to formulate a final proposal.

Here is the schedule for the upcoming anti-dumping ruling:

- January 14, 2025: Provisional measures are enforced.

- February 6, 2025: Collection of comments on the provisional ruling and measures.

- April 7, 2025: Collection of comments on the final ruling.

- July 12, 2025: Announcement of relief measures in the final ruling.

Let's stay tuned for updates.