Solar equipment manufacturer LDK Solar (NYSE:LDK) could benefit from the anti-dumping probe started by the Chinese government to investigate whether American and South Korean exporters sold polysilicon below market prices.  Polysilicon is the main raw material used in the production of solar panels. LDK is among the four companies that filed the complaint with the Chinese government to investigate the issue. LDK Solar has been hit hard by the drop in polysilicon spot prices, which have dropped to about $22/Kilogram (KG) following a decline in global demand for solar panels. The company’s cost of production is estimated to be around $41/KG.
We are looking to revise our $2.3 price estimate for LDK Solar, which is at a significant premium to its current market price.
LDK Solar reported a negative operating margin of 65.5% in Q1, losing heavily in the polysilicon business. (See: Trina Solar, LDK Solar Estimates Revised Lower On Tariffs And Weak Demand) Last year the company ramped up its production capacity and was hit hard by a steep decline in the price of the commodity because of high cost of production. LDK is now receiving help from local government bodies to help it pay back its debts as it continues to struggle in the weak market for solar equipment. (See: LDK Gets A Life Line From Its Home City) The probe could offer some hope for the company’s polysilicon business, if the Chinese government announces tariffs on polysilicon imports, which could raise the price for the raw material in the country.
In addition to the probe, the Chinese government is also starting a countervailing duty investigation on polysilcion imports from the U.S. The move is seen as a retaliation against the preliminary imposition of tariffs and duties of about 35% on Chinese solar equipment sales in the U.S. China is a major market for polysilicon sales and the country accounts for 60% of the supply of global panel sales. The escalating trade battle in the solar industry can have a significant impact on players such as LDK. (See: Chinese Reaction to U.S. Solar Tariffs Could Boost LDK’s Silicon Business)Notes:
- China Probes U.S., South Korea Solar-Grade Polysilicon, Bloomberg [↩]