* Industry expects China import duty by end-February
* Retaliatory duty to curb U.S., European, S.Korean imports
* Only biggest Chinese makers to benefit, shares already up
By Swetha Gopinath
Jan 17 (Reuters) – After a year of inactivity, China’s
biggest polysilicon plants are resuming output to meet a demand
recovery anticipated when Beijing imposes a retaliatory tax on
U.S. and European imports of the material key to solar panel
production.
Shares of the Chinese producers that stand to benefit most,
Daqo New Energy Corp and GCL Poly Energy Holdings Ltd
, have risen by 64 percent and 44 percent,
respectively, in the last month.
But the rally might be nearing its end, investors said, as
foreign suppliers find ways to circumvent any duties and Chinese
plants compete with each other in a crowded market.
“There may be a short-term bounce in these stocks but I
don’t think it will be a long-term differentiator, because there
is enough polysilicon supply in China,” Edward Guinness,
co-portfolio manager at Guinness Atkinson Asset Management,
said.
China, the world’s biggest energy consumer, will more than
double its installed solar power capacity this year. More than
80 percent of the polysilicon consumed by its panel makers in
2012 was supplied by the United States, Europe and South Korea.
A tit-for-tat trade dispute could redraw these supply lines.
Drawing on evidence from Daqo New Energy, GCL Poly and
fellow polysilicon maker LDK Solar Co Ltd, China is
investigating whether U.S., European and South Korean suppliers
breached anti-subsidy rules. A ruling is expected by February.
The probe follows the introduction late last year of U.S.
duties on imported solar panels made from China-made cells. The
European Union is conducting a separate investigation into
alleged state subsidies and “dumping” of panels.
“There’s a high probability that China will impose tariffs
on foreign poly makers,” said Himanshu Shah, chief investment
officer of Shah Capital, which owns shares in Chinese panel
makers Trina Solar Ltd and Yingli Green Energy.
A rush to meet orders ahead of the Chinese import duty
spurred global polysilicon prices to rise in early January for
the first time in 11 months.
Assuming a 50 percent Chinese duty atop current prices of
around $16 per kilogram, polysilicon industry specialists
Bernreuter Research forecasts prices will recover to $24 per
kilogram in the next few months.
The average price for high-purity polysilicon fell 47
percent last year to a record-low $15.35 per kilogram, extending
a 59 percent drop in 2011 as global supply outpaced demand, data
from Bernreuter showed.
With prices falling, about 90 percent of China’s polysilicon
producers had suspended production, China’s state news agency
Xinhua reported in December. (http://link.reuters.com/ryg64t)
LIMITED GAINS
Only the lowest-cost Chinese polysilicon makers would be
equipped to grab extra market share from a decline in imports,
investors said.
Shah said smaller producers would only break even at prices
above $30 per kilogram, almost double the current spot price.
“I see the market getting more and more concentrated around
the top five to 10 players,” said Shah.
Daqo, one of these leading players, is ramping up production
at one of its plants and upgrading another with a view to
resuming output in May or June, should the market price at the
time exceed reduced cash costs, said company spokesman Kevin He.
The company is targeting production costs of $20 per
kilogram by the end of the first quarter, a level already
achieved by bigger rival GCL.
But Shah said he would not be looking to buy shares in
Chinese polysilicon makers as he believed tariff-related gains
had been largely priced in.
‘HEADWIND’ FOR IMPORTERS
U.S., European and South Korean producers are still likely
to shed some value, however, should Beijing proceed with import
duties, investors said.
“It will definitely be an extra headwind for them … This
will potentially make these stocks less attractive to
investors,” said Guinness, whose asset management firm owned
shares of Chinese polysilicon maker ReneSola Ltd as of
September.
Norwegian Renewable Energy Corp ASA, which has lost
74 percent of its value in the last 12 months, said on Jan. 11
it would temporarily reduce polysilicon production in the United
States. Rivals are also revisiting production plans.
Michigan-based Hemlock Semiconductor Group, a joint venture
between Dow Corning Corp, Shin-Etsu Handotai
and Mitsubishi Materials Corp, said on Jan.
14 it would cut about 400 jobs on weak demand.
“My customers are cautiously looking at what’s happening in
China,” said Thomas Guttierez, chief executive of GT Advanced
Technologies Inc, which makes furnaces and reactors for
polysilicon producers.
Foreign suppliers hope Chinese panel makers will continue to
buy their polysilicon for its high quality. An alternative
method of supply would be to deliver polysilicon to Taiwan and
manufacture cells there, which would then be delivered to panel
plants in mainland China.
“We already have scenario plans in place in the event of a
tariff,” said Helena Kimball, spokeswoman for panel maker Yingli
Green.
She gave no details of the planned response, but added: “We
are confident in our ability to continue supplying the global
market.”
(Writing by Krishna N. Das; Editing by Robin Paxton)
