SR2 2019 IN
Certain Sucker Rods
Statement of Reasons

[14] The complainant, Alberta Oil Tool (AOT) is a manufacturer and supplier of steel products for the oil and gas sector. AOT is the only producer of solid steel sucker rods in Canada. The company’s production facility is located in Edmonton, Alberta. AOT’s product range includes conventional sucker rods, specialty Drive Rods® for progressing cavity pump applications, polished rods, sinker bars, pony rods and sucker rod/polished rod couplings. The company also manufactures other oil tubular products, including pup joints at another facility in Edmonton, Alberta.^{Footnote 1}

[15] The complainant accounts for all production of like goods in Canada.

[16] The name and address of the complainant is as follows:

Apergy Canada ULC–Alberta Oil Tool Division
6939 – 68th Avenue
Edmonton, Alberta, T6B 3E3

[17] At the initiation of the investigation, the CBSA identified 3 potential exporters/producers of the subject goods located in Argentina, Brazil, and Mexico from CBSA import documentation and from information submitted in the complaint. The potential exporters located in Argentina, Brazil, and Mexico were asked to respond to the CBSA’s Dumping RFI.

[18] The three identified exporters/producers provided a response to the Dumping RFI: Metalmecanica S.A.^{Footnote 2} (Argentina), Tenaris Confab Hastes de Bombeio S.A. (Brazil),^{Footnote 3} and Tubos de Acero de Mexico S.A. (Mexico).^{Footnote 4} Tenaris Global Services S.A. Uruguay,^{Footnote 5} a logistics facilitator and intermediary on sales between the exporters and importer in Canada also provided a response to the Dumping RFI. All parties are part of the “Tenaris Group” of companies and thus associated persons for the purposes of SIMA.

[19] At the initiation of the investigation, the CBSA identified one potential importer of the subject goods based on both information provided by the complainant and CBSA import documentation. The CBSA received a response to the Importer RFI from Tenaris Global Services (Canada) Inc. (TGS Canada).^{Footnote 6} TGS Canada is a related party to each of the exporters/producers of subject goods from the named countries.

[20] For the purpose of this investigation, subject goods are defined as:

[21] Sucker rods are lengths of steel, usually with externally threaded ends, connected by couplings to form a rod string. In an oil or gas well, the rod string connects the above-ground drive to the down well pump(s). Sucker rods are usually produced to 25 feet in length but can be longer.

[22] Pony rods are shorter lengths of sucker rods used to obtain the proper length of a rod string when a full sucker rod would make the string too long. Pony rods are connected to each other, or to sucker rods, with couplings. They are usually produced in lengths of 1, 2, 4, 6, 8, 10 or 12 feet. Pony rods are usually made in the same diameters as sucker rods in the rod string.

[23] Sucker rods are “semi finished” at any point following the forming of the ends of the material input (i.e. solid bar) into the essential sucker rod shape (e.g. forging) which typically creates the pin shoulder, wrench square and transition/upset of the sucker rod.

[24] The diameter of the sucker rod always refers to the outer diameter of the rod body, rather than any part of the forged end.^{Footnote 7}

[25] Special grades of steel referred to in the product definition include steel grades which may not meet standard industry specifications including proprietary grades.

For greater clarify, the product definition does not cover:

• Polished rods, which are above ground connections to the rod strings;^{Footnote 8}
• Sinker bars, which are used to add weight to the rod string;^{Footnote 9}
• Fiberglass sucker rods (Fiber reinforced plastic);^{Footnote 10}
• Hollow sucker rods;^{Footnote 11} and
• Continuous sucker rods.^{Footnote 12}

[26] A “polished rod” connects the rest of the rod string to the above-ground drive. A polished rod is a special rod required to endure exposure to the surface conditions, unlike sucker rods which remain below ground the entire time they are being used. The polished rod’s placement requires particular sizing and characteristics which make it quite different from a sucker rod.

[27] A “sinker bar” is at the opposite end from the polished rod, as it connects the sucker rod string to the pump. The bar provides weight so that the tool will lower properly into the well.

[28] A fiberglass sucker rod or pony rod is typically manufactured in three pieces and assembled by a process that provides connection of two metal end-fittings connected to a non metallic fiber reinforced plastic rod body.

[29] A hollow sucker rod is made of seamless steel pipe, and the screw thread joint is connected with the rod body through friction welding and heat treatment. Hollow sucker rod is used for the exploitation of heavy oil, high freezing point and waxy crude oil. The hollow rod presents the ability to inject diluents through the hollow rod in progressive cavity pumping (PCP) operations. There is no indication that these goods are manufactured in Canada.

[30] Continuous (coiled) sucker rods have an entire rod string in one piece with only two connections; one at the top and one at the bottom. These rods are available in either round or elliptical configurations. Continuous rod eliminates all the couplings along the entire wellbore except for the top connection to the polished rod and the bottom connection to the pump itself.

[31] The subject goods are produced world wide using materially similar production processes.

[32] Steel bars are the raw material for sucker rods. In North America, suitable steel bars are typically referred to as special bar quality (SBQ), however this is not a rigidly standardized term. In some cases, including in other countries, the input material could be referred to as engineered bar or merchant bar. Ultimately, any steel bar that meets the relevant requirements (chemical, mechanical, dimensional and so forth) can be used as input material.

[33] AOT’s sucker rods are manufactured from micro alloyed, modified SBQ hot rolled carbon or alloy steel bar. The raw material for sucker rods is generally of a significantly higher quality than most concrete reinforcing bar, for example, and with much lower chances of defects or flaws.

[34] SBQ is supplied as long steel bars and arrives at AOT’s facility where it is inspected and received into inventory. The SBQ is cut to length for 25 foot sucker rods. The SBQ is transferred to a straightener, where it is straightened by being passed through straightener rollers. Bars then get passed through an eddy current tester to check for any surface quality defects. All acceptable bars are collected to form a bundle and rejected rods are kicked out in reject pockets.

[35] Usable bars are then transferred to forge machines. Each bar end (between 8 – 14 inches of material) is induction heated to 2300°F ±50°F and upset forged to dimensions specified by the drawing for one end. The bar end is measured and documented on AOT’s quality plan. After one end is completed, the bar is rotated 180 degrees and the same processes are performed on the other end. During the forging process, the sucker rods are stamped with: AOT’s name as the manufacturer, the size, pin type, grade, heat code and date of manufacturing.

[36] After forging, the rod is transferred to the normalizing furnace. Forged bars are put on conveyor chains which take them through the furnace at a pre set speed and furnace temperatures above the critical transformational temperature (1550F – 1675F, depending on the desired finished grade) where it undergoes beneficial microstructure changes. Essentially, this heat treatment or normalizing allows for the re crystallization of steel to offset any defects arising from the working of the metal (particularly the prior forging).

[37] Upon exiting the normalizing furnace, the rods will be brittle and have poor ductility, so the rods are then tempered. When the rods come out of the normalizing furnace, they are then slowly moved (to allow air cooling for a certain time) to the tempering furnace at pre set speed and temperature. Again the speed and temperatures are governed by the finished grades, but are approximately 500°F lower than normalizing temperatures. Tempering improves the ductility and toughness of the steel.

[38] The rods are then transferred to another conveyor which takes them through the shot peener. In this process, the rods are blasted with tiny metal balls which produce compressive residual stresses on the rod surface, which improves the fatigue life of the rod making them a superior quality product over non peened rods.^{Footnote 14}

[39] Rods are then settled in output table pockets to allow for cooling to room temperatures. Once cooled, rod bundles are moved to computer numerical control (“CNC”) machines where they are machined and threaded on the ends. AOT uses cold-formed rolled threads on its sucker rods. The cold formed process displaces, rather than removes metal, to maintain consistent steel grain follow. This strengthens the shear, yield, and fatigue resistance of the threads. As necessary, couplings are attached on one end and pin protector plastic caps are added to the others.

[40] Machined rods are then sent to paint tables where they are inspected for straightness. Rods that are out of straightness are straightened. The rods are then dipped into a paint vat. Painted rods are then arranged in a stack for bundling and strapping. Rods are covered in an oil soluble coating to reduce atmospheric corrosion in storage. Rods are bundled to prevent handling damages during transportation. Bundled rods are then moved to the storage area from where they get loaded onto trucks for shipping out to distributors.

[41] Sucker rods are used in oil and gas extraction by forming a rod string that connects the above-ground drive to the down well pump(s). In extracting oil and gas from a well, some form of drive is required to provide the motive force and power to extract the oil and gas. Although drives may be located above ground or down well, sucker rods are only used with drives that are located above ground.

[42] An above ground drive is physically connected to the down well pump(s) by a rod string. The rod string is primarily composed of a series of interconnected sucker rods. The number and length of sucker rods may vary widely from well to well, depending on the various requirements established by engineers of the purchasing end-users. A string of sucker rods could consist of dozens or even hundreds of sucker rods and have a total length of thousands of feet. Rod strings in Canada are typically in the range of 2,500 to 7,500 feet, which is roughly 100 to 300 sucker rods of 25 feet in length.

[43] A down well pump will either be a reciprocating pump or a progressive cavity pump, and suckers rods are used in both types of pumps. Reciprocating pumps which are the more traditional type of pump require the rod string to move up and down to extract oil and gas out. For these kinds of pumps, the drive will connect to a “walking beam” and “horse head,” which will then reciprocate by pulling the rod string up and then pushing it down.

[44] The allegedly dumped goods are normally classified under the following tariff classification number:

• 8413.91.00.10

[45] The tariff classification number is for convenience of reference only. Refer to the product definition for authoritative details regarding the subject goods.

[70] In an effort to support their undertaking proposals, the Tenaris exporters submitted a narrative explanation of their rationale, and a price grid for each exporter, representing their minimum price commitment on sales to purchasers in Canada.^{Footnote 30}

[71] The Tenaris exporters’ proposals were identical, focusing on an appropriate target profit for the Canadian industry,^{Footnote 31} recent trends in input costs,^{Footnote 32} market conditions in Canada and competing imports from non subject sources.^{Footnote 33}

[72] Each of the three Tenaris exporters is offering to increase its minimum selling prices to a level equal to its average selling prices to Canada in May/June 2019 plus 16.5%.

[73] Certain detailed information submitted by the Tenaris exporters cannot be disclosed in this document given the confidential nature of the material. A public summary of their submission follows in the section below.

[74] The Tenaris exporters built their proposals around a target profit they believe the complainant would need to earn in order to alleviate the injury caused by the dumping of the subject goods. The Tenaris exporters provided a detailed calculation of the price increase required to achieve this profit.^{Footnote 34}

[75] Counsel for the Tenaris exporters argued that AOT is able to command a price premium for sucker rods within the domestic market. They attribute the price premium to factors such as: customer relationships, perceived differences in characteristics and customer preferences for a domestic producer.

[76] Counsel for the Tenaris exporters concluded that a price increase which eliminates the injury suffered by AOT will ultimately result in AOT obtaining or exceeding their required level of target profitability.^{Footnote 35}

[77] Counsel for the Tenaris exporters argued that they are not solely responsible for the injury suffered by the complainant. They stated that imports from the United States became aggressively priced following the measures imposed on China in Sucker Rods I.

[78] AOT is the complainant and sole producer of sucker rods in Canada.

[79] On March 9, 2020, the complainant provided its support and requested that the CBSA accept the three undertaking proposals submitted by the Tenaris exporters.^{Footnote 36}

[80] While counsel for AOT disagreed with some of the rationale provided in the undertaking and supporting documentation, they believe that the proposed price increase in the undertakings will eliminate the injury sustained by AOT in respect of the dumped goods.

[81] The CBSA notes that while counsel for AOT disagreed with the target profit established by the Tenaris exporters and strongly favoured AOT’s own target profit, they still concluded that the resulting proposed increase in prices established by the undertakings was sufficient to eliminate the injury caused by the dumped imports.

[82] The CBSA does not view any single factor or fixed benchmark as conclusive in establishing whether prices in an undertaking are sufficient to eliminate injury sustained by the Canadian industry from dumped goods. The submissions from both parties in fact support the CBSA position that numerous factors are relevant and they are not independent of one another. A broad perspective which considers the history of the market, well-reasoned demand and sales projections with consideration to current market trends and realities is required in order to establish acceptable price levels.

[83] Consequently, while the CBSA may consider a target profit, that target profit need not be static but may change as other factors change as well.

[84] It is also worth noting that the legislative framework through SIMA and the SIMR do not provide specific criteria for establishing whether the observance of an undertaking will eliminate the injury caused by the dumping. SIMA does make the linkage, however, between the price level in the undertaking and the elimination of the injury caused by the dumping.