The European Commission began an investigation last week into
whether Chinese manufacturers have been exporting solar panels to
the EU at prices that are below their production costs. The
investigation follows a complaint filed in July by a consortium of
25 European companies from countries including Italy, Germany and
Spain, alleging anti-competitive practices by Chinese
manufacturers. The investigation is expected to take 15 months.
Suntech Power (
STP
), China's largest producer of solar panels, is likely to be
impacted the most by the investigation. Around 45% of
Suntech's revenues in 2011 came from Europe.
We currently have a
price estimate of $1.17 for Suntech Power
which represents a 39% upside from its market price.
Europe, The Principal Market for Chinese Solar
Exports
China is the world's largest producer of solar panels,
accounting for almost two thirds of overall global shipments.
Europe on the other hand, has been the primary driver of demand in
the solar industry. In 2011, Europe imported about $26.5 Billion
worth of Chinese solar products or 80% of China's solar
exports.
Chinese manufacturers have invested heavily in building their
manufacturing capacity, supported by bank borrowing and lines of
credit provided by the Chinese government. They compete primarily
on price, acting as panel assemblers, unlike their European
counterparts who position themselves based on technology and
product differentiation.
See our complete analysis for Suntech Power
Implications Of Tariffs On The Chinese Solar
Industry
Given the global supply glut of PV modules, depressed prices and
middling manufacturing capacity utilization, the European
investigation couldn't have come at a worse time for
Chinese manufacturers.
The EU's move comes on the heels of a similar
investigation in the United States. In May, the US Department of
Commerce, in a preliminary ruling, imposed an anti dumping tariff
of 31% to 250% on Chinese solar products.
If the EU finds manufacturers guilty of predatory pricing
practices, Chinese solar products would attract significant
tariffs. We believe that an imposition of tariffs will have a
severe impact on Chinese manufacturer's profit margins and capacity
of modules sold, further impacting their already precarious cash
flow situation. Moreover, given the high levels of debt that most
Chinese Solar manufacturers carry, their ability to service debt
will be affected. In this scenario, we could see bankruptcies of
smaller companies providing scope for consolidation within the
Chinese Solar energy space.
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