Solar Trade War Intensifies With Anti Dumping Complaint Filed in EU

A group of companies led by German player SolarWorld have filed a complaint with the E.U. alleging that the Chinese companies were dumping panels at prices below the market value. ^[1] A similar complaint in the U.S. led to tariffs of up to 32% on the sales of solar products from some of the major Chinese manufacturers such as Trina Solar (NYSE:TSL) and Suntech (NYSE:STP). The European Commission has 45 days to decide whether it will start an investigation to look into the matter. Europe is the biggest market for Chinese solar panels and the imposition of tariffs on panel sales could have a lethal impact on Chinese solar equipment manufacturers. Many of these companies are already struggling because of a sharp decline in panel prices over the last year.

We have a $6.20 price estimate for Trina Solar, which is at a 20% premium to the current market price.

Click here for our full analysis of Trina Solar.

Potentially lethal

According to industry reports, the E.U. sales accounted for about 60% of the solar exports from China. ^[1] Players have warned that if the E.U. follows the U.S. in imposing anti-dumping duties on Chinese solar equipment, manufacturers could go out of business. SolarWorld and a few other companies filed a similar complaint in the U.S. in December last year and preliminary rulings have imposed a 5.81% tariff on Trina’s sales in the country and 31.14% in countervailing duties. A final decision on the matter will be made in October. Suntech has also been subject to similar tariffs. SolarWorld and other companies allege that Chinese manufacturers unfairly benefit from government subsidies and cheap loans, prompting the investigation.

The imposition of similar tariffs in Europe could have a disastrous impact on Trina Solar. We estimate that sales in Germany and other major European markets contribute about 31% of our price estimate for the stock. Sales in these markets are already declining because of a drop in government subsidies for solar electricity.

Panel manufacturers are already focusing on markets such as China and Japan, where panel sales are set to grow because of government backing. However, a tariff on Chinese solar equipment sales in the E.U. could result in a further drop in panel prices as manufacturers struggle to sell their products. Margins in the business have already seen a sharp drop since 2011 because of overcapacity and declining government support in key markets.

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1. UPDATE 1-China’s solar companies warn of trade war with EU, Reuters [↩] [↩]