The U.S. Department of Commerce’s preliminary review of Chinese solar cell imports for the year 2012/2013 led to big changes in anti-dumping and countervailing duty. This new result came in less than a month since the US International Trade Commission’s ruling on the anti-dumping and countervailing measures against Chinese and Taiwanese solar products. The revised rate for 2012 is now 17.5%, which is a significant reduction from the initial set rate of 30%. Most Chinese manufacturers would opt to use their own cells in response to the change, according to Jason Huang, Research Manager at EnergyTrend, a research division of TrendForce. Taiwanese solar manufacturers in turn would be negatively impacted as a result.

“If the imposed duties rate for Chinese import had remained at 30%,” said Huang, “Taiwanese solar cell manufacturer Motech would continue to have a cost advantage over its Chinese rivals, and this was the reason behind its year-end announcement to merge with Topcell Solar International Co. (TSi). The merger would expand the production capacity of the Taiwanese firm.

“However, with the drop in the tariff rate,” Huang noted, “the vertically integrated Chinese manufacturers will become more competitive in the US market than before due to their scale.”

Figure 1: Comparison of Solar Module Costs for Chinese and Taiwanese Manufacturers under the Revised Tariff Rate for 2012

With the rate rollback, it is estimated that the cost for Chinese solar modules is at US$ 0.5/W. In order for Non-Chinese solar manufacturers to stay competitive, their module cost must therefore be kept under the difference of US$ 0.03/W or lower. Taiwan local module manufacturers are unable to do so under their tariff rate for 2014. Even if they decided to outsource their production to achieve a slight cost advantage, practical market considerations and weak downstream sale channels would make such strategy unfeasible.

From her survey of Chinese manufacturers, EnergyTrend Analyst Corrine Lin noted that most first-tier firms will be able to earn over 15% gross profit with the revised rate of 17.5%, making their US market ever more profitable. Manufacturers such as Trina Solar and Canadian Solar will be able to increase their earnings with their existing large market share. However, those Chinese manufacturers that are excluded from the lower tariff rate will be facing a compound rate of 200% and likely be forced to shift production to a third country or withdraw from the US market completely.

Taiwanese firms, in contrast, are heavily affected by the tariff rate change as Chinese companies no longer depend on their partnership for circumventing trade duties. Not only prices will continue to suffer, but also the expected windfall in orders may not materialize. Only those firms that have taken the early steps to move their production capabilities to third countries, such as Tainergy and Solartech, may be able to bounce back from the ruinous situation presently confronting Taiwan-based solar manufacturers. The optimism surrounding the Motech-TSi merger dissipates as their combined production capacity now becomes a burden rather than a sound strategy. Likewise, those manufacturers intending to set up facilities in third countries will be expected to speed up and scale up their plans.

The reduction of tariff rate for Chinese solar manufacturers seems to signal a temporary cessation US-China trade war that is in fact a political contest between the two global powers. With the approaching changes to the US energy policies in 2017, EnergyTrend expects a higher demand in the US market for the cycle of 2015-2016. On another note, the US ITC hearing on Chinese and Taiwanese solar products import for 2014 will conclude at the end of January. It is unlikely that the ruling will change.