China Solar Stocks Hit by New Tariffs & Sinking Oil Prices - Analyst Blog

Washington is planning to impose new import duties on solar panels and other related products from China and Taiwan. The new duties would further escalate trade tensions between the two countries at a time when the two nations were planning to work together in the common fight against global warming and carbon emissions. The U.S. believes that the Chinese manufacturers have hitherto benefited from unfair subsidies offered by their government.

Tariffs

Anti-dumping duties, as determined by the U.S. Department of Commerce (“DOC”), will range from 26.71% to 78.42% on imports of most solar panels made in China. Rates of 11.45% to 27.55% will be imposed on imports of solar cells made in Taiwan.

Moreover, the department announced anti-subsidy duties of 27.64% to 49.79% for Chinese modules. This move is intended to close a gap in which Chinese companies could use solar cells made in Taiwan to avoid paying higher tariffs. However, the final decision on the tariffs will be made by the U.S. International Trade Commission, which will be revealed next year on Jan 29.

Gainers & Losers

Stocks of major Chinese solar companies, namely, Yingli Green Energy Hold. Co. Ltd. (YGE), ReneSola Ltd. (SOL) and JA Solar Holdings Co., Ltd. (JASO) dropped yesterday following the announcement from the DOC.

As they say, one man's loss is another man's gain. While Chinese solar stocks – already weighed down by plunging crude oil futures − suffered in yesterday's trading session, the news pushed the stock prices of U.S. solar companies First Solar Inc. (FSLR), SunPower Corp. (SPWR) and SunEdison Inc. (SUNE) higher by 3.6%, 3.2% and 5.5%, respectively, yesterday.

Trade Conflict

The latest move from the DOC could escalate the U.S.-China trade conflict that has already been simmering since 2012. The decision addresses one of the main charges in a petition brought by SolarWorld Industries America, a German solar manufacturer with major operations in the U.S. A complaint lodged by SolarWorld brought to the fore a loophole that the Chinese solar product makers were exploiting to evade duties imposed by the Department of Justice in 2012.

The continuous invasion of low-priced Chinese solar products had pushed many American manufacturers out of business. In 2012, the commerce department therefore implemented anti-dumping duties of effectively 25.96% and countervailing duties of 15.24%. Tariffs were only applied on Chinese-made cells that were used to make panels.

Many Chinese solar manufacturers were able to dodge the hefty levies by assembling panels from cells produced elsewhere, especially in Taiwan. Yet those cells were derived from components − ingots and wafers − from China.

Though the recent proposal from the DOC, if implemented, will prove to be unfavorable for Chinese solar companies, Malaysia could emerge as a major beneficiary. Malaysia now stands out as the second-largest exporter of solar panels to the U.S., following China. This Southeast Asian country is a little ahead of Taiwan.

The U.S., Japanese and Korean solar companies are investing heavily in Malaysia. First Solar is mostly reliant on its facilities in the country to manufacture solar panels. Other companies like SunPower and Hanwha SolarOne Co. Ltd (HSOL) also own facilities there.

To Sum Up

End 2014 has turned out to be a nightmare for solar stocks in the wake of plunging oil prices. The decline in oil prices has made renewable energy stocks unattractive, dragging down U.S. as well as Chinese solar stocks on the whole.

ReneSola fell 22%, Yingli Green dropped 19%, JinkoSolar Holding Co., Ltd. (JKS) retreated more than 16%, Trina Solar Inc. (TSL) fell 11%, JA Solar Holdings was down 3.2%, First Solar dropped 7.5% and SunPower declined over 5% so far this month.

Crude oil prices dropped more than 45% since this year's peak in late July, given sluggish consumption growth, OPEC's decision to maintain production at the current level as well as robust production from North American shale fields.

However, demand for solar energy is strengthening at a rapid clip and analysts see no fundamental co-relation between the oil plunge and solar share losses. It is important to remember that 39.1% of U.S. electricity is coal-generated, 27.4% comes from natural gas, 19% from nuclear, 7% hydro, 6% renewables and 1% oil.

Hence, the recent losses suffered by some of the fundamentally strong solar stocks can be good buying opportunities. The U.S. solar market continues to grow as it registered 41% year-over-year growth in the third quarter 2014, as per the Solar Energy Industries Association and GTM Research.

As per the research firm GTM, U.S. solar installations were worth $13.7 billion last year. Of these, about 50% of the solar equipment installed in the U.S. were made in China while, in the rooftop solar sector, another booming area, the Chinese share was 71%. The additional tariffs if implemented will unfortunately put a hold on the entire U.S. solar industry, as prices of solar power on the whole will move north.

So, if we are to expand renewable manufacturing infrastructure worldwide to fight the climate crisis, the two nations should try to settle their dispute before the industry is hurt at large.