Trump's Solar Tariff Confusion Creates An Opportunity
James Stafford
The solar sector is reeling from confusion, and stock prices are reeling right along with it. The time it has taken
investors and traders to wrap their heads around Trump's industry tariffs and the pyrrhic victory of two solar companies
in a case against cheap Chinese imports has seen stocks rally in a big way, and then fall just as hard.
When the International Trade Court ruled in favor of plaintiffs Suniva and SolarWorld in their case against cheap Chinese solar module and cell imports,
reactions were polarized: the U.S. solar industry was outraged—as it had been for most of the duration of the court
investigation—and investors, apparently, were extremely upbeat for the future of this same outraged industry, sending
solar stocks sky-high.
The rally did not last long, though. While investors' immediate reaction to the court ruling was of the unsurprising
knee-jerk variety, reality started to set in over the last few days and solar stocks took a nosedive as sharp as the
rally they enjoyed last week. Just what the solar companies needed after the ruling that threatened their chances of
survival.
On the face of it, the court case doesn't seem like such a big deal, but nothing could be further from the truth.
Narrowly speaking, bankrupt Suniva filed a complaint with the ITC claiming that cheap Chinese solar panels and cells
were instrumental in the company's declining performance. Suniva, whose owners are Chinese, was quickly joined by
German-based SolarWorld in its claim. The key word in the case was "flooded": the U.S. market, the plaintiffs claimed,
was flooded with Chinese-made cells and panels. The solution? A floor price of US$0.78/W for modules and a US$0.40/W
tariff for solar cells—enter the broader picture.
One would think that these two would effortlessly win the support of their local sector players, competitors and all.
But this is not what happened. What did happen was exactly the opposite: the Solar Energy Industries Association came
down on Suniva and SolarWorld like a ton of bricks, claiming that tariffs and floor prices would be a stab in the chest
for the U.S. solar industry, leading to project cancellations worth billions of dollars and massive layoffs, to the tune
of a third of the total number currently employed in the industry.
Yet it's easy to see why the ruling resonated with traders. Tariffs and floor prices are, after all, protective measures
aimed—on the face of it—at protecting U.S. solar businesses from cheap imports. The problem is that sometimes, as in the
Suniva/SolarWorld case, this is a dangerous oversimplification.
Contrary to what the plaintiffs in the case were claiming, there was no “flooding” of any sort, according to the solar
industry association in response to the court ruling. What Chinese exporters did was merely provide U.S. solar
installations builders with the necessary materials—namely, cells and modules. In fact, the SEIA said, the plaintiffs
were trying to blame Chinese cell and module makers for their own failure to turn in a profit because their products
were subpar, while the Chinese suppliers were simply filling a critical gap amid booming demand for utility-scale solar
installations.
The shares of utility-scale solar companies saw obvious effects of the investigation and the consequent ruling—chief
among these: First Solar's stock.
First Solar (NYSE:FSLR)
The country's largest solar panel manufacturer's shares added a stunning 78 percent between the end of March and last week, hitting US$51.99 on September 22, the day of the ruling.
That was the highest price for the stock for the past 12 months.
On Monday, First Solar's stock reversed to US$46.88 as investors started to wrap their heads around the actual
implications of the ITC ruling. As of late-morning trading on Tuesday, FSLR was at $46.44, down 0.94 percent on the day
and down over 5 percent on the week.
Last year, First Solar announced it could take an impairment charge of between US$500 and US$700 million in the phasing out of the thin-film solar panel model it was producing at the
time, its flagship Series 4, and speed up the development of the new model, Series 6. The Series 6 was expected go into
production in 2018, and according to comments at the time of the announcement, would help First Solar to gain a
competitive edge in a world of falling solar panel costs.
But what about the proposed tariff?
This is where it gets complicated for First Solar, because it's not black and white—and when it comes to stock prices,
well, it depends who is paying attention and what they're paying attention to, exactly.
It would seem to make sense that a tariff on imported solar modules and cells would benefit First Solar, but not necessarily because it would boost
sales by eliminating lower-cost imports.
On the contrary, a tariff on Chinese solar module and cell imports would benefit First Solar by allowing it to continue
to produce its own modules and cells in Malaysia while competitors grapple with higher import prices. Why? Because First
Solar does not use crystalline silicon for its modules. It uses cadmium telluride for its thin-film PV panels, so the
tariffs, which specifically concern the more popular crystalline silicone solar products, won't affect it.
But let's not get ahead of ourselves. First Solar's Series 4 is what is being produced in Malaysia, and that production capacity is being idled. So this immediate benefit of the tariff isn't as great at it looks on the surface. It's preparing for the launch of
the Series 6 now, and it may have to reopen one idled factory in Vietnam to respond effectively to a hoarding urge in
response to the ruling. This would add to the company's cost burden in the short-term, but over the medium and long
term, it could be a benefit—if tariffs go through.
Right now, the drop in FSLR's stock price reflects the general confusion as to what this means for all solar stocks, and
the reality hasn't yet set in regarding this company's future in a new regulatory environment. It also reflects the fact
that no one can be sure if these tariffs are going to see the light of day, given the level of opposition from the
industry they are meant to protect.
In the medium and long-term, First Solar could turn out to be one of the very few winners from the Suniva/SolarWorld
case, so even though it's lost over 5 percent this week, there's room for a reversal.
Link to original article: http://oilprice.com/Alternative-Energy/Solar-Energy/Trumps-Solar-Tariff-Confusion-Creates-An-Opportunity.html
By Irina Slav for Oilprice.com
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