The US confirms the launch of anti-dumping and countervailing investigations on four Southeast Asian countries, and the exemption for bifacial PV modules is canceled. What is the impact on photovoltaic products? [SMM Analysis]

Following the announcement by the US government the day before yesterday to increase the 301 tariffs on Chinese PV products (from 25% to 50%), the US has shown its determination to heighten trade barriers and dampen the Chinese PV industry, issuing new tariff policies on PV products intensively for several consecutive days. The new round of anti-dumping and countervailing duty investigations on Southeast Asian PV cells and modules, and the forecast of the cancellation of the tariff exemption for bifacial modules reported in April, have indeed been implemented.

(1) Launch a new round of anti-dumping and countervailing investigations on PV cells and PV modules targeting four Southeast Asian countries

On May 15, 2024, in response to an application submitted by the American Alliance for Solar Manufacturing Trade Committee on April 24, 2024, the US Department of Commerce announced the initiation of anti-dumping and countervailing duty investigations on imports of crystalline silicon photovoltaic cells (whether or not assembled into modules) from Cambodia, Malaysia, Thailand, and Vietnam.

The US International Trade Commission (ITC) is expected to make a preliminary determination on industry injury in this case by June 10, 2024, at the latest. If the ITC determines that the import of the products involved causes or threatens to cause material injury to the US domestic industry, the US Department of Commerce (DOC) will continue its investigation and is expected to make a preliminary countervailing duty determination by July 18, 2024, and a preliminary anti-dumping determination by October 1, 2024. Final determinations on countervailing and anti-dumping duties are expected to be issued progressively in Q4 2024. The ITC is expected to make a final countervailing duty determination in Q1 2025 and a final anti-dumping determination in Q2 2025.

According to U.S. statistics, in 2023, the import values of the investigated products from the involved countries were approximately: Cambodia ($2.3 billion), Malaysia ($1.9 billion), Thailand ($3.7 billion), and Vietnam ($4 billion). The dumping margins were: Cambodia (126.07%), Malaysia (81.24%), Thailand (70.35%), and Vietnam (271.45%).

(2) Cancellation of Bifacial Module Tariff Exemption in Tariff 201

On May 16, 2024, the White House announced a new measure, declaring the immediate cancellation of the Section 201 exemption under the Trade Act of 1974 for bifacial PV modules from affordable tariffs. For existing contracts for the supply of bifacial solar modules that are delivered within 90 days after the exemption is canceled, these contracts can continue to enjoy the exemption within this period. The Biden administration's statement aims to protect domestic PV manufacturers. According to the latest policy, the Section 201 tariff rate is 14.25%.

The U.S. currently applies various tariffs on imported PV products, as detailed below:

1. Section 301 Tariffs: The U.S. has increased tariffs on PV solar cells and PV modules directly imported from China. Effective May 14, the tariff rate rose from 25% to 50%.

2. Section 201 Tariffs: Tariffs also apply to solar cells and PV modules not from the U.S. In 2024, the tariff rate is 14.25%, decreasing annually by 0.25% until it expires on February 6, 2026. A 90-day transition period is included in this policy.

3. Anti-Dumping and Countervailing Duties (AD/CVD) on China: These tariffs target Chinese PV firms and those in Southeast Asia involved in circumvention activities. The latest anti-dumping and countervailing duty rates are 36.5% and 8.47%, respectively.

4. Anti-Dumping and Countervailing Duties on Four Southeast Asian Countries: A new round of investigations concerning PV capacities in Southeast Asia has been initiated. While the final duty rates are pending, they are expected to range from 70.36% to 271.28%, mainly impacting anti-dumping duties.

This investigation is distinct from the anti-circumvention inquiry that resumed on June 6. The existence of silicon wafer and auxiliary materials production capacities in Southeast Asia does not exempt them from tariffs. Conditions for anti-circumvention exemption require using non-Chinese produced silicon wafers and at least four of six specified non-Chinese auxiliary materials.

SMM reports that Chinese PV firms have established integrated capacities for silicon wafer, solar cell, and PV module production in Southeast Asia. Major auxiliary material manufacturers, such as glass and film producers, have also set up bases in Southeast Asia, facilitating compliance with anti-circumvention exemption conditions for Chinese products.

Considering that Chinese PV companies primarily export products to the US through Southeast Asia, the most direct impact on these companies comes from the anti-dumping and countervailing duties (AD/CVD) imposed on four Southeast Asian countries, while the impact of the Section 301 tariffs is relatively minor. Given the US measures against the Chinese PV industry and its strong support for reshoring domestic production, it is highly likely that AD/CVD tariffs will be imposed. This round of AD/CVD investigations in Southeast Asia is expected to significantly limit the export volume of Southeast Asian PV products to the US. Due to the retroactive nature of AD/CVD, the imposed tax rates can be retrospectively increased at any time, which may lead US project developers to adopt a wait-and-see attitude towards purchasing Southeast Asian PV modules and significantly reduce their procurement volumes. Even PV companies with low tax rates may be affected.

However, the production and export of PV modules from Southeast Asia to the US may decrease. In the latter half of the year, these modules could be redirected to emerging markets like the Middle East and Africa. If demand in these regions does not offset the reduction in the US market, operating rates at Southeast Asian PV module facilities could significantly decline.

In fact, the tariffs imposed by the US on Southeast Asia were already anticipated by Chinese enterprises. Over the past two years, Chinese companies have been gradually setting up PV module bases in the U.S. Leading PV module companies such as LONGi, Jinko, JA Solar, and Trina have begun to gradually release their production capacity starting in 2024. Other companies, including Runyang, Canadian Solar, and Seraphim, have also started production at their US bases. Stimulated by the recent anti-dumping and countervailing duty investigations in Southeast Asia, it is expected that the existing production capacity of Chinese enterprises in the US will accelerate its ramp-up to consolidate their market share in the US photovoltaic products market. The production capacity advantage of US-based PV modules is becoming more prominent, benefiting Chinese PV enterprises in the US. However, the costs and construction periods for overseas setups are higher and longer compared to domestic ones, so the expansion of Chinese enterprises' production capacity in the US will still take time.

For the US market, under the backdrop of increased tariffs and the implementation of anti-dumping and countervailing duty investigations, the supply and demand of photovoltaics in the US may change again. The US government is determined to end the bridge policy for photovoltaic products and is attempting to prevent project developers from hoarding by requiring installations within 180 days. The US Department of Energy and the US Department of Commerce said that they will closely monitor import patterns to ensure that the US market does not become overly saturated. To promote installation demand in the US, the US Treasury Department also issued subsidy details so that more US developers and manufacturers can receive subsidies, thereby increasing the willingness to manufacture photovoltaics and develop projects.

However, the measure of the US imposing additional tariffs will inevitably increase domestic module prices, raising the development and construction costs of US photovoltaic projects. Since early April, due to changes in US government policies, subsequent market pricing has risen by 3 to 4 cents. Considering the sharp drop in global module prices in 2023-2024, coupled with the recent launch of policy changes, the impact on the enthusiasm for US project development and installation in 2024 is expected to be limited. SMM maintains its forecast of 40GW of new photovoltaic installations in the US for 2024. For future US installations, the growth rate of module supply will certainly be the most direct factor affecting the installation growth rate.

From the perspective of domestic PV module supply in the US, it is expected that by the end of 2024, domestic PV module production capacity in the US may reach nearly 60GW. Compared to the current downstream demand in the US, combined with the volume of imported PV modules (mainly from India), this could achieve a supply-demand balance. However, it is worthy of attention that although US PV module production capacity is continuously expanding, domestic solar cell production capacity is the main bottleneck limiting production. It is expected that by the end of 2024, domestic solar cell production capacity in the U.S. will be less than 10GW, indicating a significant supply-demand gap between solar cells and PV modules.

The supply of solar cells will significantly limit the actual operating rate of US PV module production capacity. In the short term, it will be difficult for the U.S. to move away from the supply of imported solar cells. The US also levies high tariffs on solar cells imported from China and Southeast Asia, but the solar cell production capacity in the four Southeast Asian countries is also limited. This risk will be passed on to US PV module manufacturing, affecting the progress and quantity. Therefore, to ensure the growth of domestic PV module manufacturing, the US government may plan to increase the tariff quota for imported solar cells from 5GW to 7.5GW to expand the production scale. Currently, Chinese solar cell companies are also expanding their production capacity overseas, mainly in Indonesia and Laos. These regions have smoother exports of solar cells to the US, and they may become major suppliers in the future.

In summary, the recent series of tariff policies issued by the US government aim to protect domestic photovoltaic manufacturing and dampen the Chinese photovoltaic industry. The anti-dumping and countervailing duty investigations and the imposition of tariffs have a significant impact on the export of products from Chinese enterprises based in Southeast Asia, potentially necessitating a shift in export destinations to fill the gap. In the short term, the current downstream supply and demand in the US market are minimally affected. However, factors such as increase in domestic solar cell production capacity, changes in solar cell import quotas, and potential changes in anti-dumping and countervailing duty policies on other upstream segments will become the major factors impacting the development of the US photovoltaic market.