Loopholes likely to soften solar panel tariff war

As Beijing looks at tit-for-tat duties against the EU over alleged dumping of solar panel products, analysts say their impact may be limited

PUBLISHED : Saturday, 15 June, 2013, 12:00am
UPDATED : Saturday, 15 June, 2013, 4:03am

Beijing is tipped to launch retaliatory tariffs soon on European-made polysilicon, the raw material for solar panels, after Brussels slapped preliminary duties on mainland-made panels early this month.

However, analysts expect the impact of any tariffs to be limited by likely loopholes.

While the industry fretted that the retaliatory tariffs would hurt mainland panel makers, together with the world's largest producers of solar panels and parts, because they would have to pay more for imported materials, analysts said get-outs were likely to water down the impact. Panel makers have already been suffering from industry-wide losses because of oversupply and sharp falls in product prices.

Glenn Gu, a senior analyst at the American industry consultancy IHS, who is based in Shanghai, said: "IHS believes China is likely to impose anti-dumping tariffs with rates ranging from 30 to 50 per cent on polysilicon imported from the European Union, the United States and South Korea.

"However, the impact of the duties will be mitigated by factors [such as] efforts by buyers and sellers to bypass the tariffs."

Some kind of tit-for-tat move is expected after Brussels imposed a provisional 11.8 per cent import tariff on mainland-made solar wafers, cells and panels, saying that an investigation had found mainland producers had "dumped" products at below-cost prices. The tariff may rise to an average 47.6 per cent on August 7, and will stand for five years, if a mutually acceptable solution is not found.

The crystalline-silicon solar panel industry has a long supply chain, starting with polysilicon, which is processed into ingots, wafers, cells and panels.

EU producers said their mainland rivals have captured more than 80 per cent of the European market from almost zero a few years ago, exporting solar panels and parts worth €21 billion (HK$217 billion) to the EU in 2011.

The mainland imported about 83,000 tonnes of polysilicon last year, just over half the usage of around 150,000 tonnes, according to Ray Lian Rui, an analyst at the industry consultancy NPD Solarbuzz. Last year's import volume, worth US$2.1 billion, was 27.4 per cent higher than in 2011, according to China Customs figures.

The United States was the largest exporter of polysilicon to the mainland, accounting for 39 per cent of the total, followed by Germany with 25 per cent and South Korea with 24 per cent.

Lian said he expected Beijing to slap tariffs on European Union polysilicon some time this month.

Gu said likely loopholes included the possible exemption of the processing trade, where a EU firm supplied polysilicon to mainland firms for processing into solar panels, which will then be shipped back to the EU customer.

Another possible get-out is the outsourcing of the process to turn polysilicon to ingots to a third country not affected by the tariffs. Mainland producers could then import the ingots for further processing.

Already, in the case of US tariffs on mainland solar products, the duties were imposed only on cells. This saw mainland producers either send wafers to be processed into cells, or buy cells directly from Taiwan.

Gu estimated that the net impact of the US tariffs amounted to just "a few US cents" per watt on the price of mainland-made panels. This is small compared to current cell price of around 61 US cents per watt.

As well as Taiwan, Gu said, South Korea and Malaysia could also benefit from third-nation outsourcing if a trade war breaks out.

China, the US and the EU are in talks on potential price floors on mainland solar products, which would stem the flood of exports, and give some breathing space to struggling EU and US producers.

Meanwhile, Beijing is expected to launch regional subsidised power prices to solar farm operators, which would boost domestic demand for panels. The timing and degree of subsidisation will depend on the outcome of the Sino-EU negotiations.

China is projected to become the largest solar panel market this year, followed by Japan, the US, Germany and Italy, an IHS report said. No European nation is expected to rank among the top three markets for the first time, after the EU, still suffering from sovereign debt troubles, slashed subsidies for solar power.

IHS forecasts that EU solar panel installations will fall by more than a third, or 6GW this year, of which 1.3 GW is attributed to EU anti-dumping tariffs against mainland products.

However, it predicts global installation will grow at 11 per cent to 35GW this year, due to rising demand in Asia, which is expected to take up 45 per cent of the global market and exceed that of the EU for the first time.