analyst Frank He commented on reports the US is imposing preliminary countervailing duties of up to 35.21% on imports of panels made by Suntech Power and five other companies. The news creates uncertainties on pricing and shipments.
Related stocks include Canadian Solar, Inc. (NASDAQ: CSIQ) and JinkoSolar (NYSE: JKS). ReneSola (NYSE: SOL), JA Solar Holdings Co., Ltd. (NASDAQ: JASO), Yingli Green Energy (NYSE: YGE), and Trina Solar Ltd. (NYSE: TSL).
"While it is still too early to quantify the impact from the preliminary decision, we think shipments and margins for Chinese module manufacturers are likely to face pressure in the near-term: (1) it will inevitably lower the incentive for Chinese suppliers to sell modules to the US," said He, "it is possible that retroactive charges may also be imposed on Chinese module suppliers before the final ruling is determined, thus further lowering potential shipments in 2Q."
"We estimate US shipments accounted for approximately 20%/20% of Jinko and Canadian Solar total module shipments in 1Q14.(2) Although Chinese module makers may source cells in China instead of Taiwan to save some costs, this would not fully offset the tariffs imposed, thus impacting module companies' dollar margins in the US. Our sensitivity analysis shows a US$1 cents/watt reduction in module dollar margin would lead to 17%/7% 2014 net income declines for Jinko and Canadian Solar (3) Moreover, we believe a potential shipment slowdown in the US market might bring about inventory destocking, thus potentially increasing pricing competition in non-US regions, as we estimate the US accounted for approximately 10% of China's module production in 2013. (4) On the other hand, we think Chinese suppliers may use overseas manufacturing facilities to avoid tariff charges in the US market. Canadian Solar has a module plant in Ontario, which may help to facilitate shipments to the US," he added.