China to close polysilicon import loophole from September

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Another chapter in the ongoing U.S.-China and China-EU trade wars was written today after China’s Ministry of Commerce and General Administration of Customs announced that it is to suspend imports of polysilicon via a trade loophole from September in an attempt to shut-off a market kink that currently enables domestic manufacturers to import polysilicon while avoiding duties.

China, which consumes more solar-grade polysilicon than any other nation, will suspend any application from solar companies importing silicon under the "processing trade" rules, which previously dictated that any material used in domestic manufacturing would be exempt from import duties provided the finished product is then exported.

Chinese solar companies had been employing this tactic to purchase imported polysilicon from the U.S., EU and South Korea – countries to which China had earlier this year applied duties for their polysilicon imports as part of the seemingly perpetual tit-for-tat actions that have marred this latest round of solar disputes.

Bloomberg New Energy Finance’s (BNEF) Hong Kong-based analyst Wang Xiaoting was quick to remark that the suspension is "mainly aimed at U.S. polysilicon" in retaliation to the recent high tariffs imposed by the U.S. on Chinese solar modules and cells imported into the country.

In April, China imposed punitive anti-dumping (AD) of as much as 42% on EU polysilicon imports, but many Chinese companies had simply taken advantage of the existing loophole in order to continue importing from Europe. This latest announcement from the Chinese ministry could potentially provide a welcome fillip for struggling Chinese PV component manufacturers and polysilicon processors, such as GCL-Poly Energy.

Prior to China’s ruling on EU polysilicon imports, the U.S. and South Korea were hit with duties in January, rising as high as 57% for U.S. companies and applying for a period of five years. South Korean polysilicon providers were hit with tariffs of between 2.4% and 48.7% – a move that severely impacted trade in polysilicon between the two nations, dragging export volumes from South Korea to China down to $2.05 billion, which represented a 34% fall in trade from a year earlier.

Over the first six months of 2014, China’s polysilicon imports actually increased year-on-year by 17.4%, reaching 45,932 tons. Of that figure, import via the "processing trade" rules amounted to 34,068 tons – some 74.2% of the total volume, according to official figures from the Chinese Ministry. That trend has accelerated over the past few months, with June seeing China import 9,566 tons of polysilicon, of which 80.1% (7,662 tons) came via the "processing trade" rules.

A complete ban on imports, effectively blocking what China sees as the dumping of polysilicon, is expected to boost the supply of domestic polysilicon companies as China gears up for a strong second-half for its solar market.

The new policy on polysilicon imports will come into effect on September 1, confirmed China’s Ministry of Commerce on its website.

Likely impact

Johannes Bernreuter of Bernreuter Research told pv magazine that Chinese manufacturers definitely have the capacity to fill the gap created by shrinking imports. "For example, LDK Silicon has just restarted production with the first 5,000 metric tons (MT) train of its polysilicon plant," Bernreuter said. "With higher output and utilization, this could be an opportunity to reduce costs. But more importantly, it will be an opportunity to raise prices with shrinking supply from the U.S."

However, Bernreuter was keen to stress that the impact of the new ruling should not be overestimated. "U.S. polysilicon imports into China were 10,031 MT in the first half of 2014, whereas total H1 polysilicon imports into China reached 45,932 MT."

Bernreuter also believes that some European companies may actually benefit from the closing of the loophole, particularly Germany’s Wacker Chemie, which had used the "processing trade" in the past. "In March, Wacker closed a price undertaking with the Chinese government, which came into effect in May, making Wacker exempt from punitive duties imposed on European polysilicon manufacturers. Thus, Wacker profits in two ways: It does not lose its large customer base in China, and retains a good, guaranteed price for its product."

South Korea’s OCI and Hankook Silicon are both likely to benefit from the exclusion of processing trade, added Bernreuter, because they currently enjoy low duty rates of 2.4% and 2.8% respectively.

"The big loser will be [U.S. producer] REC Silicon," said Bernreuter. "With a duty rate of 57%, the company had been using processing trade extensively." Bernreuter also added that U.S. polysilicon giant Hemlock Semiconductor is unlikely to be too badly affected owing to the company’s near-total withdrawal from the Chinese market on the back of the introduction of duties earlier this year.

"From the timing of the announcement, it is obvious that the Chinese government has placed a new bargaining chip on the table in the trade dispute with the U.S., responding to the latest decision of the U.S. Department of Commerce (DOC)," believes Bernreuter. "Chinese polysilicon manufacturers have been pressing for closing the loophole of processing trade for months, if not years. But only now has the government reacted."