The European Union looks set to impose provisional anti-dumping duties on Chinese solar imports according to an official from the bloc.  The duties will range from 37.3% to 67.9% and should come into effect from early June after the formal decision is published. While the imposition of duties were largely expected, we believe that the rather large magnitude of the duties could come as a blow to the Chinese solar panel manufacturing industry, which counts the European Union as its single largest market.
Timeline of The Case
The rise of Chinese solar companies in Europe has been rapid. According to trade group EU ProSun, Chinese companies held as much as 80% of the European solar panel market and exported as much as $27 billion worth of solar products to the bloc in 2011, up from almost nothing a few years ago. The flood of cheap Chinese solar panels has hit European manufacturers hard, leading to several failures and bankruptcies.
This prompted complaints in 2012 from European panel manufacturers represented by EU ProSun alleging unfair trade practices by Chinese manufacturers. In response, the European Commission began two separate inquiries - one investigating into whether Chinese manufacturers had been dumping panels into the European markets at prices that were below their manufacturing costs and another investigating into whether Chinese firm’s received unfair subsidies from their government.
While the current outcome pertains only to the provisional anti-dumping tariffs, the complete dumping probe is set to end in December, by which time individual E.U. governments will decide on whether to impose definitive anti-dumping duties that would last for a period of five years. The European Commission is expected to decide on the provisional countervailing tariffs (which are levied against the subsides received) by August.
Impact On Chinese Solar Companies
Although the outcome was largely expected we believe that it still comes as a blow to Chinese solar companies primarily due to the magnitude of the duties. The average duty in Europe is expected to be around 47%, in comparison large Chinese solar firms only face duties of between 24% and 36% in the United States. (Related Read: US Finalizes Tariffs On Chinese Solar Firms, But Benefits For American Firms Dubious) Trina Solar (NYSE:TSL) , for instance, could face a provisional tariff of around 51.5% on its panels in the E.U, in comparison, the firm faces tariffs of only around 24% in the U.S.  These tariffs could significantly drive up the landed costs of Chinese panels in the European market and potentially impact their sales and market share.
In order to offset the uncertainties in Europe, Chinese solar firm’s have been looking towards their domestic market as well as markets such as Japan to boost growth. China is expected to become the worlds largest market for solar panels this year while Japan is also likely to figure in the top three largest solar installers. However, given that the E.U. as a whole accounted for the largest portion of Chinese solar exports last year, companies could feel the pinch in the near term. Among the Chinese solar companies that we cover, Yingli Green Energy (NYSE:YGE) has the largest exposure to the European market deriving over 50% of its revenues from the region. Trina Solar derives around 48% percent of its sales from the bloc.
Chinese companies have been moving towards a more differentiated product strategy off-late focusing on higher efficiency panels. Yingli Green Energy , for instance manufactures the ‘Panda’ line of monocrystalline panels which are ideal for rooftop applications and compete with more high end offerings from manufacturers such as SunPower (NASDAQ:SPWR).Notes: