Compromise needed in China, EU solar dispute
CHINA’s threatened solar duties on European Union (EU) products would harm the country’s own industry, and appears more likely to be rhetoric in a dispute where both sides will gain from compromise.
The European Commission, the EU’s executive, has accused Chinese firms of selling solar panels at below cost in Europe, a practice known as “dumping”, and plans to impose duties. Dumping is made possible by cheap labour and state aid to the respective industries.
Following Chinese reminders of its significance as a trading partner, however, the EU remains divided and Germany has come out in support of China, a key export destination for German-made polysilicon producers, machines and vehicles.
Beijing has also wielded a stick, last year launching a study on imposing its own tit-for-tat duties on imports of European polysilicon, the raw ingredient of solar panels. China’s commerce ministry said this month the study was near completion but the timing depends on the EU’s decision on punitive duties.
Chinese officials ratcheted up their rhetoric on Monday night, saying it “would take necessary steps to defend its national interest”. But polysilicon duties would raise costs for China’s module makers, just as EU duties would make solar panels more expensive and so harm its downstream solar installation industry.
Compromise, however, may favour both sides.
Polysilicon is the main material in the manufacture of solar panels or modules. It is first melted into ingots and the sliced into wafers which are then printed with electrodes to make solar cells, in turn welded and framed into finished modules.
China has steadily developed a polysilicon industry which may be aided further by import duties. In February last year, the ministry of industry and information technology issued a fiveyear plan for the photovoltaic industry, which specified goals for the end of 2015 and included promoting polysilicon producers with annual output of at least 50,000 tons.
Last November, China’s ministry of commerce launched an investigation on whether duties should be levied on imports of polysilicon from the US, South Korea and the EU.
China has not yet filed a complaint with the World Trade Organisation, the first step in a formal trade dispute.
Major polysilicon producers include Germany’s Wacker Chemie, US-based Hemlock Semiconductor, South Korea’s OCI Company and China’s GCLPoly Energy Holdings and Daqo New Energy Corporation.
Notwithstanding China’s attempts to build a local industry, leading Chinese module makers, including Hanwha SolarOne, Yingli and JA Solar, have contracts with Wacker and/or Hemlock. Both Yingli and JA Solar state that some of these contracts extend beyond this year. Trina Solar refers to contracts with German and US suppliers.
In their latest annual reports, Hanwha said it “may be adversely affected” by Chinese polysilicon import duties, Yingli said “a large portion of polysilicon is from the countries subject to investigation”, and JA Solar said “the prices of our raw materials may increase”.
The companies have options for evasive action. One such would be a so-called tolling arrangement, whereby Chinese module producers continued to take delivery of western polysilicon under contract, but only after this had been processed into an intermediate product by an offshore third party such as a wafer manufacturer in Taiwan, as referred to by Hanwha.
“We are currently negotiating with some Taiwan suppliers to establish a polysilicon tolling business to replace the current supplier mentioned above to reduce our exposure to potential polysilicon tariffs,” Hanwha said last month.
Such toll arrangements would raise costs, however.
Chinese import duties would have a wider effect beyond direct buyers of polysilicon from western producers, if the effect was to hike prices for the raw material. That risk depends on whether domestic manufacturers and tolling arrangements could keep pace with Chinese demand.
Limiting polysilicon costs is vital in an industry that is struggling with global overcapacity, weaker power demand in developed countries and shrinking subsidies. Partly due to China’s anti-dumping and antisubsidy investigations, polysilicon prices have already rebounded slightly since December last year, although they remain below $20/kg, Yingli reported last month.
Polysilicon market prices declined especially sharply last year as a result of new manufacturing capacity and pressure from falling module margins, reaching a historical low price of $14/kg in November last year, module makers report. Reuters