(Reuters) - Chinese solar companies are being forced to speed up plans to move a big chunk of their manufacturing offshore as Europe looks increasingly likely to join the United States in implementing duties on imports of Chinese-made solar equipment.
The timing could not be worse for the Chinese firms, whose balance sheets are already being strained by nearly two years of weak prices and slowing demand for solar energy products.
The risk now is that they will lose much of the cost advantage that has been the basis for their dominance of global solar industry, analysts and investors say.
At stake in Europe is a market that was worth $27 billion to the companies in 2011 -- about a third of their production and about 7 percent of all Chinese exports to the European Union.
The European Commission is investigating whether Chinese solar companies are selling below cost, or "dumping", in the world's biggest solar market.
European companies have complained that their Chinese rivals benefit unfairly from subsidies.
China's state-run banks have extended billions of dollars of credit to solar companies. And even on the day the EC subsidy complaint was announced last week the China Securities Journal reported that China Development Bank Corp would prioritize loans to 12 top solar companies.
Some experts expect Europe to go further than the United States, which imposed a preliminary duty of about 30 percent on panel imports from China in May.
The U.S. measure is considered to have been largely ineffectual because it applied only to solar cells, not the completed panels.
This means Chinese companies can import cells to China from third countries and then export the completed panels in the United States free of anti-dumping duties.
The United States takes about 7 percent of Chinese solar product exports, worth about $2.8 billion in 2011. Of more immediate concern is Europe, and Chinese companies are already hedging their bets.
China Sunergy Co Ltd plans to move some panel assembly lines to Turkey by the end of the year, regardless of the outcome of the current EC investigation. "...Our production in Europe will hedge the potential imposed duties," company spokeswoman Elaine Li told Reuters.
Trina Solar Ltd said in August that it could build a partnership in Europe, among other options, if the duties were implemented.
The parent of Hanwha SolarOne Co Ltd has gone another route, announcing plans to buy German solar group Q-Cells for about $50 million, an acquisition that Hanwha has said will help it sidestep tariffs.
COST ADVANTAGE
Trina and Yingli Green Energy , among the companies that the China Securities Journal said were potential beneficiaries of new loans, reject the subsidy allegation, saying they receive financing at usual market rates.
"If the (EU) tariff is applied to both cells and modules or all three (including wafers used to make cells), then a large part of the Chinese cost advantage is factored out of the equation, which becomes highly problematic," said Shyam Mehta of GTM Research in Brooklyn, New York.
"And locating manufacturing for upstream components like wafers and cells in Europe is not an answer, given how much higher costs are," he said. It costs about 40 percent more in Europe than in China just to assemble panels from cells, according to industry experts.
That means production could shift to cheaper countries, in Asia or Africa, analysts and investors say.
Edward Guinness, co-portfolio manager at Guinness Atkinson Asset Management in London, said manufacturing could shift to countries such as Thailand, India and Sri Lanka.
"If (Chinese) loans are provided at the company level rather than for specific manufacturing plants, then state support could absolutely help move manufacturing out of the country," said Guinness, whose firm held shares of LDK Solar Co Ltd and Suntech Power Holdings Co Ltd as of June 30, according to Thomson Reuters data.
Guinness and Leopold Quell, a fund manager at Raiffeisen Capital Management in Vienna, are among investors who think Europe will take a tough stance against the Chinese companies.
"My feeling ...is that regulators in Europe will make life very difficult for Chinese companies trying to bypass the tariffs," said Quell, whose fund held JA Solar Holdings Co Ltd shares until last year.
STRAINING BALANCE SHEETS
In less than three years, fast-expanding Chinese companies led by global market leader Suntech have made China the world's biggest producer of solar products.
In the process, they have taken on huge debts and flooded the market with solar equipment, leading to a steep fall in prices and bankruptcies in Europe and the United States. Demand was also hit when Europe scrapped subsidies aimed at encouraging consumers to switch to solar power.
Share prices in the sector, dominated by U.S.-listed Chinese companies, have fallen by at half over the past two years, and they could fall further if costs rise because of new tariffs.
"As long as the overall demand situation is not improving, any individual moves of the companies won't be sufficient to really improve their situation," said Thiemo Lang, a senior portfolio manager at Sustainable Asset Management in Zurich.
Lang, whose fund has $900 million in cleantech assets under management, said companies were better off saving capital in times of deteriorating balance sheets and oversupply.
The likelihood is growing that the United States could broaden the scope of proposed duties after eight lawmakers argued that the current duty would allow Chinese solar panel makers to escape U.S. duties by outsourcing cell production to another country, even if the materials for the cells come from China and the final solar panels are assembled there.
Some Chinese companies have already started sourcing cells from Taiwan and elsewhere in Asia. It costs about 15 percent more to produce in Taiwan compared with China. The U.S. Commerce Department is scheduled to release its final determinations in the case on October 10.
yahoo.com
The timing could not be worse for the Chinese firms, whose balance sheets are already being strained by nearly two years of weak prices and slowing demand for solar energy products.
The risk now is that they will lose much of the cost advantage that has been the basis for their dominance of global solar industry, analysts and investors say.
At stake in Europe is a market that was worth $27 billion to the companies in 2011 -- about a third of their production and about 7 percent of all Chinese exports to the European Union.
The European Commission is investigating whether Chinese solar companies are selling below cost, or "dumping", in the world's biggest solar market.
European companies have complained that their Chinese rivals benefit unfairly from subsidies.
China's state-run banks have extended billions of dollars of credit to solar companies. And even on the day the EC subsidy complaint was announced last week the China Securities Journal reported that China Development Bank Corp would prioritize loans to 12 top solar companies.
Some experts expect Europe to go further than the United States, which imposed a preliminary duty of about 30 percent on panel imports from China in May.
The U.S. measure is considered to have been largely ineffectual because it applied only to solar cells, not the completed panels.
This means Chinese companies can import cells to China from third countries and then export the completed panels in the United States free of anti-dumping duties.
The United States takes about 7 percent of Chinese solar product exports, worth about $2.8 billion in 2011. Of more immediate concern is Europe, and Chinese companies are already hedging their bets.
China Sunergy Co Ltd plans to move some panel assembly lines to Turkey by the end of the year, regardless of the outcome of the current EC investigation. "...Our production in Europe will hedge the potential imposed duties," company spokeswoman Elaine Li told Reuters.
Trina Solar Ltd said in August that it could build a partnership in Europe, among other options, if the duties were implemented.
The parent of Hanwha SolarOne Co Ltd has gone another route, announcing plans to buy German solar group Q-Cells for about $50 million, an acquisition that Hanwha has said will help it sidestep tariffs.
COST ADVANTAGE
Trina and Yingli Green Energy , among the companies that the China Securities Journal said were potential beneficiaries of new loans, reject the subsidy allegation, saying they receive financing at usual market rates.
"If the (EU) tariff is applied to both cells and modules or all three (including wafers used to make cells), then a large part of the Chinese cost advantage is factored out of the equation, which becomes highly problematic," said Shyam Mehta of GTM Research in Brooklyn, New York.
"And locating manufacturing for upstream components like wafers and cells in Europe is not an answer, given how much higher costs are," he said. It costs about 40 percent more in Europe than in China just to assemble panels from cells, according to industry experts.
That means production could shift to cheaper countries, in Asia or Africa, analysts and investors say.
Edward Guinness, co-portfolio manager at Guinness Atkinson Asset Management in London, said manufacturing could shift to countries such as Thailand, India and Sri Lanka.
"If (Chinese) loans are provided at the company level rather than for specific manufacturing plants, then state support could absolutely help move manufacturing out of the country," said Guinness, whose firm held shares of LDK Solar Co Ltd and Suntech Power Holdings Co Ltd as of June 30, according to Thomson Reuters data.
Guinness and Leopold Quell, a fund manager at Raiffeisen Capital Management in Vienna, are among investors who think Europe will take a tough stance against the Chinese companies.
"My feeling ...is that regulators in Europe will make life very difficult for Chinese companies trying to bypass the tariffs," said Quell, whose fund held JA Solar Holdings Co Ltd shares until last year.
STRAINING BALANCE SHEETS
In less than three years, fast-expanding Chinese companies led by global market leader Suntech have made China the world's biggest producer of solar products.
In the process, they have taken on huge debts and flooded the market with solar equipment, leading to a steep fall in prices and bankruptcies in Europe and the United States. Demand was also hit when Europe scrapped subsidies aimed at encouraging consumers to switch to solar power.
Share prices in the sector, dominated by U.S.-listed Chinese companies, have fallen by at half over the past two years, and they could fall further if costs rise because of new tariffs.
"As long as the overall demand situation is not improving, any individual moves of the companies won't be sufficient to really improve their situation," said Thiemo Lang, a senior portfolio manager at Sustainable Asset Management in Zurich.
Lang, whose fund has $900 million in cleantech assets under management, said companies were better off saving capital in times of deteriorating balance sheets and oversupply.
The likelihood is growing that the United States could broaden the scope of proposed duties after eight lawmakers argued that the current duty would allow Chinese solar panel makers to escape U.S. duties by outsourcing cell production to another country, even if the materials for the cells come from China and the final solar panels are assembled there.
Some Chinese companies have already started sourcing cells from Taiwan and elsewhere in Asia. It costs about 15 percent more to produce in Taiwan compared with China. The U.S. Commerce Department is scheduled to release its final determinations in the case on October 10.
yahoo.com
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