Europe Hasn't Dropped the Hammer on Chinese Solar ... Yet

Europe didn't drop a hammer on the Chinese solar industry with its preliminary anti-dumping tariff, but it announced to the world that it's ready to swing if China doesn't play ball. The European Commission announced that starting tomorrow, an 11.8% duty will be charged for imported PV products from China, but that number jumps to between 37% and 67% on Aug. 6 if the EU and China can't reach an alternative agreement.  

A few weeks ago, European and Chinese officials sat down to discuss a way to raise prices on Chinese panels so they weren't "dumped" on the European market at a loss, but the discussions quickly broke down, and tariffs were expected to be the alternative. The 37% to 67% number had been reported by The Wall Street Journal, but apparently Europe is willing to give a two-month extension while still displaying that it means business.

Impact on manufacturers
Yingli Green Energy   (NYSE: YGE  ) and Trina Solar   (NYSE: TSL  ) have already come out against the tariffs, which shouldn't surprise anyone. Yingli says it would be hit with a 37.3% duty if we get to Aug. 6 without a deal, and Trina will be at a very onerous 51.5%.

No doubt it would be bad for Yingli and Trina, but it's lower quality and highly leveraged manufacturers that have the most to lose. LDK Solar (NASDAQOTH: LDKYQ  ) is basically insolvent without Europe and will continue to deteriorate financially. Suntech Power has already defaulted on bonds and sent its largest manufacturing subsidiary into bankruptcy, and if Europe slaps even a 37% duty on imports, it will be in even more trouble.

The timing of tariffs couldn't be worse for Chinese manufacturers. Last month, JA Solar (NASDAQ: JASO  ) CEO Xie Jian told the Financial Times that solar prices were beginning to stabilize and supply and demand would balance out long-term. If Europe puts hefty tariffs on imports, the demand could take another hit, and Chinese manufacturers would have to rely on China and Japan for even more demand. 

A trade war erupts
There are also questions as to how China will react if major tariffs are implemented from Europe. There was little reaction when the U.S. imposed anti-dumping tariffs, but these were largely ineffective because of loopholes manufacturers could use to subvert them.

Europe is a bigger source of demand, and there have already been threats of tariffs on polysilicon imports into China and even a probe into imports of European wine in the past day.

The problem is, China would be hurting its own solar industry by implementing solar-related duties, and extrapolating to other industries is dangerous for an export nation.

Are there winners out there?
So are any companies happy about tariffs on Chinese panels headed for Europe? I talked to SunPower (NASDAQ: SPWR  ) CEO Tom Werner recently about potential tariffs, and he called them an incremental positive. Europe is SunPower's worst operating region, and it's far more cost-sensitive than the U.S., so the company could gain some share there.

European manufacturers would also benefit, although many have already been forced into bankruptcy. In the end, the best thing for everyone would be a negotiated agreement, but it appears both Europe and China aren't willing to compromise, and the solar industry will be the one hurt in the long run.

A deep dive into one of the solar industry's biggest players
Investors and bystanders alike have been shocked by First Solar's precipitous drop over the past two years. The stakes have never been higher for the company: Is it done for good, or ready for a rebound? If you're looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must know side of this stock. To get started, simply click here now.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2474315, ~/Articles/ArticleHandler.aspx, 12/20/2014 4:33:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement