TrendForce：Europe’s anti-dumping tariff about to finalize, Chinese PV manufacturers’ three contingency plans

Apart from the rumor which says that China’s going to impose anti-dumping tariffs on the imported polysilicon, the Chinese government continues to communicate with Europe’s major member countries through diplomatic ways, hoping the member countries can encourage Europe to adopt a more moderate standpoint. The German government officials have spoken in succession lately indicating their disagreement with any regulations that may raise the possibility of a trade war. This made the market believe there might be a change to the double reverse policy (anti-dumping and countervailing). With the situation constantly changing, the double reverse policy is likely to lead to three possible scenarios, according to EnergyTrend, a green energy research division of TrendForce: 1) As originally intended, Chinese manufactures still have to pay high punitive tariffs. 2) The case is overturned. The punishment towards Chinese manufacturers will be toned down or cancelled. 3) A compromise is reached. The alternative solutions so far include the possible control on total capacity and the limitation on the lowest sales price.

According to EnergyTrend, the initial conclusion of the case will not have to be agreed on by the member countries. The final ruling, however, will have to be approved by them. The critical focus for now is whether the final result in December will be in China’s favor or not. And which one of the three scenarios above will be adopted? The result will depend on the negotiations among the European Investigation Council, the European member countries, and China. We believe that the possibility for cancelling the punishment won’t be high in the initial stage in June. Based on this, EnergyTrend believes there won’t be major problems with the purchase orders for Q2/Q3. The market will be ready to enter into the off-peak season in Q4, which is also when the final announcement is set to take place. The status and effects of the double reverse case can be further observed through Europe’s solar energy exhibition in October. This will allow us to better evaluate the impact on next year’s purchase orders.

On the other side, the range of products affected by Europe’s anti-dumping tariff includes not only the modules but also the Chinese PV cells that are exported to Europe. Assuming the anti-dumping tariff is put into practice (as scenario 1 suggests), we believe Chinese PV manufactures may come up with the following three strategies:

Strategy 1 : Direct export of China’s module production to Europe
Based on the supply and demand price model shown on EnergyTrend, if Europe imposes anti-dumping tariffs on the PV cells and modules, and if China announces countervailing measures on imported polysilicon as well as adopts different tax rates per region, the price of polysilicon in the Chinese market may increase to 19.5~24.5USD/kg. If Chinese manufacturers choose to assemble and model the PV cells in China and then sell them to Europe, then once the module taxes are levied, the cost will be at least 0.741USD/W, which is 30% higher than that of the current products exported to Europe. The price is almost comparable to the lowest price of other brands (from Europe, US, Japan) sold in Europe. EnergyTrend believes Chinese manufacturers won’t adopt this strategy given the lack of a brand premium and advantage on cost.

Strategy 2: China’s PV cells will be exported to Europe or other regions to be assembled into modules
The processing cost is around 0.13~0.16USD/W for China’s top PV cell factories. The lowest cost per PV cell is above 0.399USD/W, considering the tax rate that might be imposed as the silicon wafers and PV cells are exported to Europe. If using the local module factories in Europe, the cost will be around 0.28USD/W~ 0.34USD/W, considering the mainstream cost structure in the current market and the possible tax rate margin. It is forecasted that once the module production of China’s PV cells is completed in Europe, the cost will be around 0.75USD~0.83USD/W.

Strategy 3: Have a third party country produce PV cells in Europe or export PV modules to that region
When a PV cell made in a third party country is assembled into a module in a non-China factory, the lowest cost it can get is 0.666USD/W. But as the demand increases, the price of the PV cells made in the third party country may also increase. In addition, the price of Europe’s end module may rise by more than 10~15%. When such a business model is adopted, the strategies of the Chinese factories operating in Europe will no longer be about clearing out gigantic PV cells and module capacity, but rather about strengthening their brand visibility in the European market. This is similar to how Western countries (Europe, USA) and Japan promote their products through their own brand image, and how they leave manufacturing tasks to regions that are not affected by tariffs.

EnergyTrend indicates that while products in China are confronted with high tax rates, the market demand for Taiwan’s PV cells and modules has increased rapidly. Compared with the related China-produced solar products that are exported to Europe, Taiwan’s solar products hold a notable advantage on cost. With the cost of assembling China’s PV cells in Europe being 0.75USD/W, Taiwan’s PV cell manufactures have the chance to increase the price to $0.44~0.47USD/W in the short run, which is at least a 10% rise. Therefore, in the second quarter, Taiwan’s PV cell business might turn profitable under the international trade wars.

As for this week’s spot price, there could be changes because Europe’s member countries will hold a discussion regarding the double reverse policy on 25th of May. As the atmosphere in the market becomes tense, purchasing momentum is likely to shrink. Some of the manufacturers indicate that inventory will be controlled carefully in the short run due to the unpredictable market news and the upcoming semi-annual reports. Big moves, however, are unlikely to take place until the results of the double reverse case becomes clear. Therefore, the spot price for this week is about the same as that of last week. Regarding thin-film, due to the increasing demand and the price comparison effect, the price for this week has slightly increased to an average of 0.63USD/Watt, a 0.16% rise.