China EU deal only helps the big manufacturing companies
Setting a minimum price and a volume limit on EU imports of Chinese solar panels has become the final solution to solar trade dispute between China and Europe. According to EnergyTrend, a research division of TrendForce, the settlement is likely to increase entry barriers toward the European market and drive out destructive market price so first-tier manufacturers can focus on product and service quality to achieve industrial concentration in a faster pace. Meanwhile, first-tier manufacturers have started to build factories overseas and look for opportunities to export to the emerging market in case the trade war repeats itself in the future.
EnergyTrend further emphasizes that the agreement may not solve the market issues in the long-term. Companies should think ahead regarding whether the trade war will return after the launch of the two-year agreement. Besides, how to find new opportunities from all the disputes for PV manufacturers in regions such as Korea and Taiwan will be the topic that concerns the most people in the new era.
As indicated in the announced implementation plan, 60% of quota is allocated based on the proportion of Chinese manufacturers' module shipments to Europe from July 2011 to March 2013. Thus it can be a bad news to PV companies with fewer shipments during this period. A total of ninety-four Chinese manufacturers are in the scheme, which is still too many in contrast to the number of competitive manufacturers in the market.
EnergyTrend believes that the current quota allocation plan will not be helpful to industrial concentration which the market is looking forward to. Moreover, the quota held by first-tier manufacturers may be much lower than their total shipments to Europe in the entire 2012. The market is doubtful about the indefinite quota allocation and it may not be a good thing for Chinese PV development if industrial concentration is achieved this way.
Judging from another aspect, price elevation allows first-tier manufacturers to provide better service rather than focus on lowering the price in order to compete with second/third-tier manufacturers. It doesn't mean that there won't be loss to first-tier manufacturers because volume limits will lead to sales stagnation in the European market, which would in turn encourage manufacturers to transfer shipments to other regions. As competition becomes more intense, how to be profitable under the quota limit in the European market will become a major concern within the industry.
The EU-China settlement allows Europe to be exempted from low-cost competition. Apart from that, the minimum price of cell may not be too high in order to support the development of European module manufacturers. Take cell cost, for example; the cost of Taiwan's high-efficiency cells with a market share of 15.2% that ranked second in the world is about US$0.4-US$0.42. The cost of first-tier Chinese cells is about US$0.37-US$0.39. Therefore, if Chinese cells can be exported to Europe and processed into modules in Europe, Chinese manufacturers are likely to maintain notable advantages on cost.
On the other hand, the current floating price is 0.56 Euros, which is 2-4 Euros higher than the average module cost in the market. The cost will be offset by non-module system component cost and project cost. In the meantime, system development can also lower unit cost through using high-efficiency modules. Overall, European developers can accept the price range. With the European market moving toward the development of smaller systems, the difference in price sensitivity will be smaller as well.
Building factories overseas has always been another option for Chinese companies to choose from. Although the decision to build factories overseas will increase Chinese solar panel cost, many manufacturers have started to get involved in that to avoid trade issues. For example, CSUN chose to build factories in Turkey, whereas ReneSola's OEM manufacturing sites can be found in India, South Africa, and Poland. Rumours suggest that Hareon and Yingli may build factories in Taiwan and Thailand, respectively, later on. Regardless of the progress, Chinese companies will continue to move toward global factory expansion. EnergyTrend believes that PV companies in either China or other countries have to accelerate the development in each region since the only way to stay competitive in the industry is to become a global enterprise.
