China is the world’s largest producer of solar cells, which go into these solar panels seen here. … [+]
On Thursday afternoon, the White House said four companies key to China’s solar panel supply would have restricted access to the U.S. market. Some said that the move was tepid.
A closer look suggests two things: the solar cell industry in China is now a geopolitical risk due to allegations of forced labor. That’s got to be bad for business. Yeah, you love the planet. But, you might hate people if the solar panels you’re importing were made with the help of the loving hands of Uyghur forced labor in Xinjiang. Such are the allegations that led to Thursday’s ban.
Second, the order gives the U.S. a chance to build up its solar industry, an industry China laid to waste until anti-dumping duties and other tariffs were imposed on Chinese solar multinationals that stopped some of the bloodletting.
President Joe Biden against a backdrop of a field loaded with China solar panels in mainland China. … [+]
Secretary of Homeland Security Alejandro Mayorkas announced mid-afternoon on Thursday that U.S. Customs and Border Protection (CBP) had issued a Withhold Release Order (WRO) against Hoshine Silicon Industry Co. Ltd., a Shanghai listed company located in Xinjiang, home to the now infamous Uyghur Muslim detention camps. Beijing says those are needed as part of its war on terrorism, and that all of this talk about human rights abuses is just a way to force economic protectionism on the market.
A WRO instructs Customs agents to detain shipments containing silica-based products made by Hoshine and its subsidiaries. That means anything that was made from that silica is banned. This should include solar cells, the clear glass-like squares that constitute a solar panel.
“As President Biden made clear at the recent G7 summit, the United States will not tolerate modern-day slavery in our supply chains,” said Mayorkas.
Beyond Hoshine, a company in which Vanguard owns tens of thousands of shares in three of their emerging markets portfolios, three other companies in China’s solar supply chain were put on the so-called “Entity List” at the Commerce Department. This just makes it harder for U.S. companies to do business with them. One of the three is a subsidiary of Daqo New Energy (DQ) in Xinjiang. Daqo, the parent, is held by BlackRock, State Street, Invesco, and many other big Wall Street firms.
In May, Daqo invited journalists to their factories in Xinjiang to show they were as modern as any Western factory. And were not using forced labor. This charm offensive has failed for now.
“This is a somewhat headline-grabbing move, but it should be underscored that, in practical terms, U.S. imports of any solar-related hardware from China are already minimal,” says Pavel Molchanov, an industry analyst for Raymond James. “The practical effect of this narrowly targeted, indeed mostly symbolic decision will be immaterial.”
Obama-era duties, compounded by Trump-era Section 201 and Section 301 tariffs, have shrunk China’s market share in the U.S. Still, China is a major part of the solar industry here. Most solar panels on rooftops were almost entirely made by Chinese companies spread throughout Asia.
The Entity List for Daqo and the WRO list for Hoshine is part of a years-long strategy to remake the U.S. solar industry. Tariffs, coupled with demand, have made multinational First Solar invest in a new facility in Ohio.
Jim Cramer made a buy recommendation on First Solar on Wednesday.
Jim Cramer on June 23, 2021. First Solar. Buy it!
If America is going to go green, and give up on fossil fuels now that it is a natural gas and oil producing power house, it would make no sense to give that all up and put electric power generation at the mercy of European and Chinese made wind turbines, and Chinese solar.
It will take around six months to add new capacity here to as long as 9 months to start new upstream production — this is basically solar cells and modules, best known as panels.
Companies are going to need this time frame to invest capital before there is slowdown in the supply chain from Xinjiang.
China may even stop doing business with U.S. partners in order to punish them, starving them of key components. This is a risk to U.S. solar dependent on China components for its panels.
During the trade war with Trump, Beijing slapped tariffs on at least six U.S. based producers of polysilicon ranging from 53.3% to 57%, leading to layoffs at at least one factory run by Norwegian firm REC Solar Grade Silicon in Washington. China extended those tariffs for five years, and included South Korea as well.
This is a great way for China to corner that market even more as local importers that do not want to pay the 57% duty for imports will either turn to the small number of players in Europe, or — more likely — buy domestically. China companies invest more as a result. And then the market is cornered.
U.S. companies will probably only invest if they knew these restrictions, and tariffs, were more permanent. It is impossible to compete with China on price, and surely impossible to compete with their labor practices.
Estimates are that China controls around half of the global polysilicon supply chain of which roughly 60% is based in Xinjiang. Since China does not allow third party audits, it is also hard to know if any of the solar cells being exported to the U.S. were made by Hoshine materials.
It may be best to assume they are.
In the meantime, American solar companies that are not public, should consider doing so. Wall Street is all over Daqo Solar and other China names. First Solar is the only real American one. The big ESG funds are looking for you.
As part of an end-to-end strategy, the U.S. solar industry needs investor interest to survive, as much as it needs demand from consumers.
Brokerages like Raymond James or Morgan Stanley are no different from Macy’s or Target. They need products to sell. Right now the financial product in solar is almost exclusively China. Eight of the biggest solar multinationals are Chinese and all of them are loaded with money from BlackRock, Vanguard and others.
“Right now it’s hard to invest in U.S.-made renewable energy,” says Jeff Ferry, a chief economist for the Coalition for a Prosperous America. “Investors need U.S.-based investment opportunities. With the right policies this will happen. But you need an end-to-end supply chain. When you have more of that, I think you will see U.S. solar companies grow and going public.”
