China’s Investigation Into EU Polysilicon Imports Could Impact Yingli And LDK

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The trade battle between China and the European Union over solar power equipment escalated on Thursday with China’s Ministry of Commerce announcing that it will investigate the EU’s export of solar-grade polysilicon. [1] Polysilicon, which is a highly refined form of silicon, is a key raw material used to manufacture polycrystalline solar panels. The outcome of the investigation is likely to have a mixed impact on China’s beleaguered solar industry as polysilicon manufacturers will stand to benefit from an imposition of tariffs on European polysilicon while certain cell and module manufacturers could be negatively impacted by tariffs as they would increase their input costs.

The Chinese investigation on EU manufacturers will be two pronged: one, examining whether European firms have been selling polysilicon in the Chinese market at prices below what they sell at in Europe and, two, probing whether European companies received subsidies from their governments. Last year China imported around $870 million worth of polysilicon (both solar and non-solar grade) from the EU.

The investigation comes on the heels of the Chinese government’s move in July to investigate US and Korean manufacturers for dumping polysilicon into the Chinese market. (See: LDK May Benefit From Chinese Move to Investigate Polysilion Imports)

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Rising Number of Trade Cases

The number of trade cases related to solar power equipment has increased this year as governments across the world are beginning to stand up for their domestic solar industries that continue to grapple with excessive capacity and mounting losses.

The United States took the lead in investigating Chinese solar firms for dumping and is now in the process of imposing anti-dumping and countervailing tariffs on Chinese solar products. (See: A Rough Road Ahead For Chinese Solar Firms As US Upholds Tariffs) In September, the EU initiated an  investigation against Chinese solar firms, which is the largest anti-dumping probe ever carried out by the Union. (See: Suntech Power Faces The Heat From EU Anti-Dumping Investigation)

Mixed Impact On Chinese Solar Firms

Chinese firms entered the polysilicon game relatively late but have come to dominate the landscape, accounting for almost 40% of global production. [2] However, Chinese manufacturers have been unable to realize the same quality or cost advantages that their European and American peers have achieved. This, coupled with difficult solar market conditions, has caused a turmoil in the Chinese polysilicon industry with many small manufacturers going out of business. For now, Chinese panel manufacturers continue to import a significant portion of their feedstock.

We believe that an imposition of tariffs on European polysilicon imports is likely to have a mixed effect on Chinese firms. LDK Solar (NYSE:LDK), which rapidly ramped up its polysilicon capacity last year, posted deep losses due to low polysilicon prices. The firm is likely to benefit from the investigation and any potential implication of tariffs as its polysilicon becomes more competitive compared to European imports.

Yingli Solar (NYSE:YGE), on the other hand, imports most of its polysilicon feedstock due to concerns of poor quality of locally sourced polysilicon. [3] The firm could see its raw material costs rise if tariffs are imposed on imports of the commodity.

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Notes:
  1. China to probe EU solar imports, FT []
  2. NPD Solar Buzz []
  3. China Solar: Who Survives China’s Polysilicon Shakeout?, PV Group []