US Tariff Barrier on JASO's Exports

The U.S. Department of Commerce (“DOC”) announced its final decision on levying anti-dumping taxes on the import of solar products of China-based manufacturer JA Solar Holdings Co., Ltd. ( JASO - Analyst Report ) . The directives as per the U.S. government entail an anti-dumping duty of 25.96% and a countervailing duty of 15.24% on crystalline silicon photovoltaic (PV) cells produced and exported by JA Solar.

However, the cells manufactured in third-world countries and assembled to solar modules in China will be exempted from this tariff policy. The U.S. International Trade Commission (“ITC”) is expected to arrive at a decision on or before November 23, 2012.

The DOC in May 2012 had made a preliminary announcement of imposing a tariff rate of 31.18% on the import of PV cells and modules. With the import tariff, price of solar inputs in the U.S market will go up causing domestic energy companies to switch to indigenous renewable product manufacturers. This pro-economic policy will help accentuate the growth prospects of the U.S. renewable based companies.

The US government’s recent take on canceling subsidies to Chinese based firms could hurt the company’s operations and financials. This will be compounded by the imposition of tariff rates which would substantially hamper JA Solar’s export interests in the United States. Moreover, continual economic depression in Europe will hinder JA Solar’s near-term top line.

Nonetheless, pressure from the environmental regulatory authorities would lead to increasing switch to renewable energy sources in the U.S. in the future causing demand to pick up. Despite the imposition of tariffs, potential upside in demand for solar products in the US could partially provide a relief to JA Solar’s financials. Besides, we anticipate solar generation to catch up fast in the Chinese market which will further enhance the company’s long-term development goals.

The company, for the third quarter 2012, estimates total cell and module shipments in the range of 350 Megawatt (MW) to 370 MW. For 2012, the revised cell and module export volumes are projected to be between 1.5 Gigawatt (GW) and 1.8 GW, down from the prior forecast of 1.8 GW to 2.0 GW.

The Zacks Consensus Estimates for the third quarter and full year 2012 are currently pegged at a loss of 20 cents per share and a loss of 87 cents per share, respectively. The company has a Zacks #3 Rank (Hold rating).

One of its closest peers, Wuxi-based Suntech Power Holdings Company Ltd. ( STP - Analyst Report ) will also face temporary reduction in its operational solar cell capacity to 1.8 Gigawatt (“GW”) although module and wafer capacity will remain at 2.4GW and 1.6GW, respectively. The company will leverage its strength on global supply chain to manage volatile demand and trade protectionism.

Based in Shanghai, the People’s Republic of China, JA Solar and its subsidiaries are engaged in the development, production, marketing, and sale of PV solar cells and solar power products that converts sunlight into electricity worldwide.