Analysis: Solar trade war promises order bonanza for Taiwan

Business has been booming for Taiwanese solar companies since they became the middlemen in a trade war between the United States, China and Europe over the multi-billion dollar solar power equipment market.

Green Energy Technology Inc <3519.TW>, which makes wafers used in solar cells, is receiving so many orders from Chinese firms seeking to circumvent U.S. import duties that the company is considering renting extra capacity.

If, as expected, the European Union also introduces punitive tariffs on Chinese-made solar equipment, Taiwanese companies may inch back toward profitability after posting losses for at least the last six quarters.

"There could be short-term investment opportunities in Taiwanese solar stocks," said Edward Guinness, co-portfolio manager at Guinness Atkinson Asset Management.

A supply glut and a sharp drop in demand from Europe, the No. 1 solar market, have led to a 75 percent decline in panel prices since 2008. European and U.S. manufacturers have accused Chinese competitors of flooding the market with low-cost panels.

For Taiwan, the story gained momentum in November.

This is when the U.S. International Trade Commission approved double- and triple-digit duties on imports of some Chinese solar products for the next five years, in a case filed by SolarWorld Industries America .

The tariffs, considerably higher than preliminary duties approved in March and May, have effectively halted deliveries to the United States of panels that use Chinese-made cells.

China, however, is not ready to quit a market that bought $3.1 billion worth of its solar cells and panels in 2011.

To circumvent the duties, mainland Chinese panel makers are outsourcing cell manufacturing to Taiwan ��� even as their own cell production lines lie unused ��� to make panels that can be sold to the United States.

Although Beijing claims Taiwan as its own, the island is considered to be an independent entity in trade issues.

Glenn Gu, a China-based analyst for business information provider IHS, said Chinese solar panel suppliers cornered as much as 55 percent of the 4-gigawatt (GW) U.S. market in 2012. About 90 percent of these panels used cells made in Taiwan.

This has created an order bonanza for Taiwanese solar cell makers such as Neo Solar Power Corp <3576.TW>, Motech Industries Inc <6244.TWO>, Gintech Energy Corp <3514.TW>, Solartech Energy Corp <3561.TW> and E-Ton Solar Tech Co Ltd <3452.TWO>.

"We've seen a shift of orders since the fourth quarter (of 2012), as China has increased outsourcing from Taiwan," said a Neo Solar official, who declined to be identified by name.

Neo Solar's Taipei-listed stock has risen nearly 33 percent in the last six months, vastly outperforming a 7 percent rise in the main TAIEX index . Shares of Green Energy are up 38 percent and E-Ton has gained 10 percent.

Chinese solar stocks have also been propped up by Beijing's subsidies to the industry, which totaled 13 billion yuan ($2.1 billion) in 2012, according to the official Xinhua news agency.

But the next chapter of the trade war - the European Union's case against China - is beginning to exert pressure on stocks of companies with solar manufacturing operations in China.

One of these companies, Canadian Solar Inc , posted its sixth consecutive quarterly loss on Monday. Its shares fell 10 percent. New York-listed peers Yingli Green Energy Holding Co and Trina Solar Ltd also fell.

Canadian Solar Chief Executive Shawn Qu said on a conference call with analysts that European solar demand had "the potential to become choppy due to the strong hints that the European Commission may consider implementation of retroactive duties".


The European Commission ordered EU customs officials to begin registering imports of Chinese solar panels from Wednesday in a move suggesting duties could be imposed retroactively. The commission has until June 6 to make a ruling.

"Assuming the European Union will levy tariffs on cells, and potentially wafers, a pretty strong argument emerges for better prospects for Taiwanese manufacturers in 2013," said Shyam Mehta, analyst with renewable energy consultancy GTM Research.

China, which has denied any wrongdoing, may be planning its own retaliation. Beijing is investigating whether U.S., European and South Korean imports of polysilicon, a key component in solar panels, breached anti-subsidy rules.

The three jurisdictions under investigation supplied more than 80 percent of the polysilicon consumed by China in 2012. If China were to impose duties, suppliers could send polysilicon to Taiwan for conversion.

Wafer makers such as Green Energy and Sino-American Silicon Products Inc <5483.TWO> would reap the benefits.

"There are some shifts in business models because of the trade war," said Green Energy's acting spokeswoman Christine Chen. "We may rent capacity depending on the result."

While most Taiwanese solar companies have been making losses since the second quarter of 2011, these losses are narrowing.

Green Energy reported a loss of $779.3 million in the third quarter of 2012, its last reporting period, compared with its biggest ever quarterly loss - $1.84 billion - in the fourth quarter of 2011.

In mainland China, Trina Solar's losses are much smaller - $87.2 million in the fourth quarter. But they are also rising - up 33 percent from a year ago.

Trina Solar and Yingli Green are among those Chinese companies to have moved cell operations to Taiwan, according to information provided by sector analysts.

Suntech Power Holdings Co Ltd , Jinkosolar Holding Co Ltd , JA Solar Holdings Co Ltd and ReneSola Ltd were also using Taiwan-made cells, analysts said.

IHS analyst Gu said he expected Taiwanese solar cell shipments to increase by 1.0 GW to 1.5 GW this year from 5.5 GW shipped in 2012.

The increased demand might also lead to a longer-term shift in manufacturing. Some analysts said they expected companies to install more production lines in Taiwan.

"If this tariff is imposed by Europe, I can see manufacturers in China, provided they are able to raise the money, actually building capacity offshore," said Mehta. "The obvious prospect is Taiwan."

With margins having vanished, however, debt-ridden companies such as LDK Solar Co Ltd and Suntech Power may struggle to find the cash for such an expansion.

($1 = 6.2147 Chinese yuan)

(Additional reporting by Krishna N Das; Editing by Robin Paxton and Nichola Groom)