REC Silicon's outlook in China increasingly murky as trade war intensifies

In the wake of the U.S. Commerce Department’s announcement on Tuesday regarding final anti-dumping and countervailing duty (AD/CVD) tariffs on solar components manufactured in China and Taiwan, REC Silicon said on Wednesday that while it continued to sell solar grade polysilicon in China using Process in Trade rules under Chinese customs laws, it was looking at a variety of options in case that changes.

Process in Trade rules previously dictated that any material used in domestic manufacturing would be exempt from import duties provided the finished product is then exported.

While REC Silicon pointed out that a resolution of the U.S.-China solar trade dispute was still pending, it warned that changes in the availability of the Process in Trade for U.S. polysilicon exports to China would have a negative effect on its earnings and cash flows in the short term (but stressed that its financials would nevertheless remain strong).

REC Silicon’s polysilicon exports to China have been subject to a final AD tariff of 57% since January 2014 but it has been able to skirt the import tax by way of the Process in Trade clause. While China’s Ministry of Commerce said in August that Process in Trade would be suspended, REC Silicon’s business in China has yet to feel the effect of the suspension notice, the company said. However, the group said it would actively work to mitigate the impact of the 57% duty if the availability of the Process in Trade changes.

Among the options REC Silicon is weighing is expanding its customer base outside of China and utilizing other opportunities, such as selling solar grade polysilicon in a manner that would not be subject to the AD tariff.

The company said it would monitor the situation closely and continue to work to reduce the negative impacts of the U.S.-China solar trade war. “Although the timing and potential outcome of these efforts remain uncertain, REC Silicon is confident that the trade dispute will be resolved in due course,” the group said.

REC Silicon expects its fourth quarter operations to be broadly in line with earlier guidance. It said fourth quarter revenue would be negatively impacted by its current sales strategy, which is focused on maintaining sales volumes at slightly discounted prices compared to market prices. The company forecasts fourth-quarter earnings before interest, taxes, depreciation and amortization to range between $35 and $40 million.

Revenue and cash flow associated with sales of semi-conductor grade polysilicon and silicon gases are not subject to the AD tariff, the company added, stressing that any changes in the availability of the Process in Trade would not have an impact on them.

In the first nine months of 2014, REC Silicon generated 45% of its revenue from sales of solar grade polysilicon to China. Of the total 12,259 metric tons of polysilicon sold, 69% was solar grade polysilicon sold to China.