EU and China’s June Verdicts Critical for PV Industry Future

The anti-dumping and anti-subsidy sanctions from both China and the EU against each other, set to take place in June, leave interested parties dangling in the air, as hope still remains for a mutually beneficial compromise

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The anti-dumping and anti-subsidy sanctions from both China and the EU against each other, set to take place in June, leave interested parties dangling in the air, as hope still remains for a mutually beneficial compromise. The June verdicts will have far-reaching implications for the solar PV industries in both regions, as well as for trade relations between the EU and China.

In June, the EU is set to deliver its final determination on the dumping of China's solar PV enterprises in the European market, which is predicted to be a positive one. In response, the Chinese government has postponed a similar verdict against EU polysilicon export in China, along with the US and South Korea, from April to an unspecified date, which is, however, speculated to immediately follow the EU's decision. A solar PV trade war valued at 20 billion USD is on the horizon, an unwelcome move for industries on both sides.

Despite ongoing attempts from both parties at negotiation for possible compromises, the two economic powerhouses are held at a stand-off as industries from both sides watch on for hints of the industry's future direction. Alternative development plans are actively forming should compromises fail to materialize. The EU has plans to strengthen native PV module production while China seeks to diversity its export markets, both in attempts to reduce reliance on each other.

Attitudes of EU and Chinese Industries

Despite the high likelihood of the EU's verdict being a positive one, interested European solar PV enterprises are putting effort into averting the course of events ahead. Europe’s Alliance for Affordable Solar Energy has sent a public letter on behalf of some 700 PV enterprises across more than 20 countries in Europe to Karl de Gucht, EU Commissioner for Trade, appealing against sanctions on Chinese PV products. 

On the one hand, costs will rise significantly for Chinese PV products after sanctions are imposed, subsequently resulting in the loss of 242,000 jobs in Europe in the next three years. This is according to Thorsten Preugschas, CEO of Germany’s Soventix GmbH, citing the study conducted by consultancy firm Prognos. At the same time, China's retaliatory sanctions on the EU's polysilicon export will hinder Europe's increasing dominance in the Chinese polysilicon market. 

Meanwhile, another alternative proposed by the EU Commissioner for Trade is to be self-reliant by increasing the EU's domestic PV module production. 

Although sanctions on EU polysilicon can be potentially beneficial to China's ailing domestic polysilicon manufacturers, the move is deemed unwelcome on the whole by the Chinese PV industry as well as by the Chinese government. On the one hand, the upstream PV module manufacturers' presence in the European market will suffer setbacks should the EU sanctions take effect, hindering China's strategic push for leadership in the new energy sector. On the other hand, in the bigger picture, friction of any kind with the EU market is against China’s interest in the long run. Maintaining an overall balanced trade relation with the EU is of bigger concern for China's decision makers, according to Zhao Yonghong, Secretary-General of Zhejiang PV Industry Technological Innovation Strategic Alliance. 

According to an industry insider, China has been repeatedly extending its olive branch toward the EU. Initially, China's anti-dumping probe was only targeted at the US and South Korea - a covert message from the Chinese side that China will not retaliate should the EU's anti-dumping probe be terminated. The recent postponement of China's preliminary ruling on EU dumping is also interpreted as another sign that China's EU verdict will be a strategic reaction toward the EU's decision, more than anything else.

At the moment, the Chinese polysilicon market is dominated by foreign exports from the US, EU and South Korea who offer prices that average at 20 USD, 10 USD cheaper than their Chinese counterpart, pushing 90% of Chinese polysilicon makers into bankruptcy.

The already-battered Chinese polysilicon manufacturers, in an act of self-sacrifice, have been cutting long-term deals with their domestic upstream partners, so that PV modules from China can remain cost competitive in the world market.  

At the moment, 70% of Chinese solar module production is absorbed by the European market. 

China Diversifying its Market

Amid great uncertainties about prospects in the European market, Chinese PV enterprises are turning their eyes toward the domestic market and other parts of the world for sustained growth.

Zhejiang Province currently is highly reliant on the European market for its PV module production. Of the products from the province’s 46 PV enterprises, 75% are sold in the European market. In 2011, total export value to Europe reached 2.5 billion USD. But, according to Zhao Yonghong, many Zhejiang enterprises are already on an active move to expand elsewhere. Zhe Jiang Sunflower Light Energy Science&Tech (SHE:300111) is steadily gaining market share in Japan.  Zhejiang Chint Electrics Co., Ltd (SHA:601877) is making headway in building PV power stations domestically. Many other Zhejiang enterprises are increasing investment into domestic projects across provinces like Qinghai, Ningxia and Tibet.

Nationwide, major downstream PV enterprises are doing the same. According to Zhu Zhiguo, Senior VP of Trina Solar Limited (ADR) (NYSE:TSL), his company’s export to Europe in Q4 of 2012 has decreased from 50% to 25% of total export value, as it refocuses on emerging markets inside China and elsewhere. Twenty percent of the company’s export now goes to Australia. The company also aims to reach over 15% of share in the domestic market this year.

While it is unlikely that either side will drop its charges at the moment, “a comprise is the best hoped-for resolution wherein the EU tariffs on Chinese export will only be ceremoniously exacted or trade-offs can be made between the EU and China on other export products. Still, the future is full of uncertainties,” says Gao Jifan, Trina’s chairman.