The European Commission has decided to impose ~40% duties on Chinese solar panel imports from 6th June. This will mark the first step in the escalation of trade tensions between two of the biggest trading blocks in the world. China exported more than $20 billion solar panels to Europe in 2012, which constitute almost 6% of its total exports to Europe. This anti-dumping duty will be the largest case of its kind in history and could lead to major retaliation by China. Many Chinese solar companies are either already bankrupt or teetering on the brink of insolvency. LDK Solar (LDK) and Sunech (STP) have already defaulted on their bond payments, while others are sustaining themselves through loans from China Development Bank (CDB). A big duty in the world’s biggest market will mark the death knell for many of these solar module makers. While China and Japan have become the two most important markets in the last year, Europe still represents almost 30-40% of the global market. While Chinese companies such as Yingli Solar Energy (YGE), Renesola (SOL), Canadian Solar (CSIQ) can circumvent these duties by outsourcing manufacturing to Taiwan, they will still lose competitiveness to European and USA solar companies.

Who are the Secret Gainers of
the EU-China Solar Trade War

US Companies – First Solar and Sunpower
I don’t think that European solar companies will gain too much from this solar war. Except for Renewable Energy, other companies are too small or too uncompetitive to take advantage of these anti dumping duties. The biggest gainers in my view will be the US solar panel companies Sunpower (SPWR) and First Solar (FSLR). Both these companies have enjoyed very strong rallies in the last 6 months based on their improved operating performance. These companies have a strong distribution network in Europe and have costs which are slightly more than the Chinese companies. They also have the size and scale to supply large amounts of solar panels to the European countries like Italy and Germany.

Taiwanese Companies
Taiwan is the second largest manufacture of solar cells after China. The country has a number of large solar cell manufacturers like Gintech, Motech and Neo Solar. These companies have managed to survive the brutal downturn by acting as OEM suppliers to larger Japanese and Chinese solar companies. They have superior technology and low costs. Taiwan also has a large solar wafer manufacturing sector which helps these companies to procure wafers at a low cost. Gintech and Motech have huge solar cell capacities and can help the Chinese solar companies circumvent European duties. These companies are already seeing their factories run at full utilization due to the solar boom in neighboring Japan. These companies will benefit even more with mainland solar panel companies outsourcing solar cell and even solar panel orders.

Summary
The solar industry is a dynamic and a complex industry with many moving parts. The solar trade wars taking place between major trading partners has further complicated the existing dynamics. While there will be losers from these trade spats, there will also be many winners. The winners will not always be obvious as can be seen in case with the European solar companies. Taiwanese companies are already benefiting from the US imposition of solar duties on Chinese solar panel imports. They will gain even more as the bigger European market imposes higher solar duties on China. US companies too should benefit as they have the scale and costs to take advantage of the Chinese retreat from the European market. I remain positive about Sunpower stock as I fell the company with its European roots can take the maximum advantage.