European polysilicon under investigation

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5 November 2012, Electricity, Nuclear, Solar, Wind

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The Chinese government's new anti-dumping and anti-subsidy investigation is simply a continuation of a growing trade war between China and the West that is harming the solar photovoltaic (PV) industry. After the US levied significant duties on imports of Chinese solar panels in October, Chinese solar panel producers have been struggling to stay in business. The European Commission is also conducting similar investigations, and is likely to follow suit by imposing import duties on Chinese solar products, potentially raising the average cost of solar PV as a result.

Polysilicon is one of the main components of solar PV panels. China imported around 9,300 tons of polysilicon from the EU in the first half of the year, which is an increase of nearly one-third over the same period in 2011. In the first half of 2012, the average price of polysilicon imports to China dropped by nearly a half compared to the previous year, due to global overcapacity. Chinese polysilicon manufacturers believe that this is due to subsidies that EU firms have received from the German government, as well as favorable loans from the European Investment Bank.

As a result, Chinese polysilicon manufacturers are forecast to reduce output by at least a quarter next year, according to the China Nonferrous Metal Industry Association. Only seven or eight Chinese polysilicon manufacturers are still operating and many have stopped production.

Levies that increase prices will reduce the level of imports to China and stimulate domestic demand, which could be easily met by the current overcapacity of the Chinese manufacturers, therefore leaving European polysilicon manufacturers with overcapacity instead.

Last year, the European solar PV industry complained about large reductions in feed-in tariffs for solar PV generation across Europe but, as a result, solar panel manufacturers have endured heightened competition and costs have been forced down dramatically. Average prices of solar PV panels fell by around 30% in 2009, 5% in 2010, and around 45% in 2011. In the first half of 2012, prices fell by a further 12%.

However, this is only half the picture, as manufacturing costs have not fallen by the same margins as prices. Since the start of 2011, solar PV prices have fallen by over 50% but costs have only fallen by around 40% over the same period. The margin between the average cost and the average price of solar PV panels has fallen by over 80% as a result of increased competition, leaving very narrow margins for manufacturers.

Punitive tariffs on trade between China and the US, and China and the EU, will erode the price differentials between solar PV panels and reduce international competition. After a heightened period of intense competition in the industry, the effect of this will be a slowdown of price reductions and possible short-term price rises that will be almost entirely passed on to consumers. Other than a handful of Chinese polysilicon manufacturers, there will only be losers in this new dispute.

Source: MarketLine

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