The United States International Trade Commission, or USITC, issued its final determinations this Monday morning on countervailing duties (tariffs) on silicon solar panels from the People's Republic of China and Taiwan. As expected, the USITC alleged unfair trading on the part of the Chinese, pointed out that the Chinese are routing a large portion of their solar panels through Taiwan, and significantly raised import fees to a severe sounding 165% for China and 76% for Taiwan. For companies that expect to make solar panels at a profit, the news was welcome. Shares of the American solar companies SunPower (SPWR) and First Solar (FSLR) are trading higher today on the news, by 2% and 2.6% respectively.
Oddly, some Chinese solar stocks are rising as well today; JinkoSolar (JKS) is up 4%. Others are trading lower, including Yingli Green Energy (YGE), which is down 3.2%. Chinese solar stocks are holding up as well as they are in part because the USITC's ruling was expected and was already priced into these stocks, for the most part.
Of course, that doesn't explain why some Chinese solar stocks would be rising on the news while others are falling. In fact, the USITC does not impose the 165% rate on all companies—it negotiates a separate rate for each company, based on the exactly what the company creates, what it sells, where it gets raw materials, where labor is outsourced, etc. JinkoSolar will now be paying an import fee of 58.9%, a steep increase from the 15.2% it was paying previously, but no worse than the Street was expecting. Yingli's rate is rising from 14.8% to 42.3%, and that has given investors pause, particularly in light of the company's existing problems (negative profit margin, gruesome balance sheet and lack of revenue growth, to name a few.)
While this news is almost certainly good for America's solar panel makers, it is mixed for the solar industry as a whole. Since Americans won't have access to super-cheap Chinese silicon panels, fewer will be installing solar power systems in, on, or around their homes. That could hurt companies that primarily install and maintain solar systems, such as SolarCity (SCTY), which is now down 0.7% on the day.
Investors should definitely keep an eye on this situation, as the Chinese may decide to retaliate against the US, just as they retaliated against Europe in 2013 when the EU raised its own import tariffs on Chinese silicon panels. It was Europe's wine and liquor sellers who took the brunt of that hit, but there are any number of American industries the Chinese could target if they decide to play rough.
The proposed tariff rates are still negotiable, at least until August 4, when the USITC issues orders. With luck, the US and China will find common ground, or at least a compromise, in the coming days. Shares of the Guggenheim Solar ETF (TAN) fell with the broader market earlier in the day, but have now crossed back into positive territory.
Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.