Chinese Solar Photovoltaic Panel Businesses Are in a Dark Mood

They deal in products that promise to efficiently deliver heat and light, but the mood of hundreds of Chinese solar companies is decidedly dark and cold at the moment.

Chinese solar companies, despite being hailed as one of China's biggest success stories of recent times, and as champions for their efforts in reducing carbon emissions, creating jobs and lowering technology costs, are struggling to weather the market turmoil caused by domestic oversupply and uncertain overseas markets.

After the United States ruled in May that China's solar panel makers were dumping goods and receiving unfair subsidies, a recent complaint about dumping panels in Europe - the largest market for Chinese-made solar panels - may push the once vibrant industry off the edge of the cliff.

The potential anti-dumping investigation in Europe, seeking higher tariffs on solar products made in China, is seen as the last straw for the Chinese solar photovoltaic manufacturers that heavily rely on overseas markets.

Only the best ones will survive the latest turmoil, experts and insiders say.

"It would be catastrophic for China's solar industry once the higher import tariff is in place," says Meng Xiangan, deputy director of the China Renewable Energy Society. "But it will not be the end of the story. Companies that focus on innovation and reducing cost will come out on top after the solar PV industry emerges from the turmoil."

The complaint was filed by a group of European solar panel makers late last month, and the European Commission has up to 45 days to decide if it will start an investigation. The case is at an early stage and it is too soon to predict a result, but any policy disruption in major markets will make it difficult for manufacturers and installers alike.

Michael Barker, an analyst with NPD Solarbuzz, an international solar energy market research and consulting company, says that if the EU does impose tariffs on Chinese solar products, it is likely to hit second and third-tier manufacturers more than the main ones.

"Tier-one module manufacturers have the ability to change supply arrangements to protect against anticipated charges caused by any decision from the European Commission, whereas smaller suppliers may not have this ability," he says.

But China's biggest solar companies are still fearful of the outcome.

After a joint news conference last month urging Beijing's support and Brussels to think long and hard before reaching a conclusion, the four top solar panel makers in China - Yingli Green Energy Holdings Co Ltd, Trina Solar Ltd, Canadian Solar Inc and Suntech Power Holdings - planned a worker protest on Aug 2 against the European solar panel makers' complaint.

Though the protest was called off due to bad weather, Chen Zhuo, Yingli Green Energy's legal director, said everything will be done to prevent the investigation. More than 50 percent of Yingli's sales are generated in Europe, Chen says.

China is the world's largest solar PV producer with more than half the world's total production. About 60 percent of China's $35.8 billion (28.9 billion euros) worth of solar panel exports last year was to Europe.

The European market is also crucial because the entire solar PV industry in China is going through a tremendously tough time at present, says Meng of China Renewable Energy Society.
The profit margins of most Chinese solar manufacturers have fallen since last year because of excess global solar cell capacity and the massive slowdown in demand from the end markets.

NPD Solarbuzz says the growth of the global solar PV industry dropped from 153 percent in 2010 to 22 percent last year, driven largely by reduced government incentives in many European markets.
Shipments from the US-listed Yingli Solar rose 44 percent in the first quarter of this year compared with the same period of last year, according to the company's quarterly financial report issued on May 30.

However, the company's gross margin fell to 7.8 percent in the first quarter, compared with 27.3 percent in the same period last year.

The market downturn has already dragged some Chinese solar makers into trouble, and the Jiangxi-based LDK Solar, one of the largest solar PV makers, is heading for bankruptcy.

Though China's domestic demand for solar cells has taken off, with the National Energy Administration resetting its original plan of 5 gigawatt accumulative installed capacity of solar power to 21 gW by 2015 in July, only a few experts say the growing demand in China can offset the impact by the shrinking EU market.

Shen Hongwen, a research specialist in new energy with the CIConsulting of Shenzhen, says it is simple mathematics. "China's production capacity for solar cells has grown to more than 40 gW a year. Even with the new target of 21 gW by 2015, China's domestic demand for solar power is about 4 gW a year."

Despite all the difficulties, Michael Carboy, head of China research with Deutsche Bank Climate Change Advisors, still sees the solar industry in China as promising.

"Greenhouse gas emissions, air pollution concerns, the need for more power to electrify both a growing economy and an expanding and wealthier middle-class are all strong motivations for China to continue nurturing the domestic solar sector," Carboy says.

China invested about $4 billion last year, he says. "We believe China will connect to the grid an incremental 30 gW or more of solar power in the period from 2010 to 2020. With approximately 2.5 gW of PV now installed in China at the end of 2011, the incremental investment needed to increase China's grid-connected PV capacity to 35 gW by 2020 might approximate 233 billion yuan ($36.6 billion, 29.6 billion euros) to 255 billion yuan if installed solar PV prices continue to decline at a compound average annual rate of 11.5 to 12 percent."

Meng of China Renewable Energy Society agrees, saying the solar industry in China is a strategic one. "There will be a rosy future ahead as long as companies that have focused on high-quality products and innovation make through it."

At Yingli Solar's plant in North China's Hebei province over the past two months, red banners with the slogans "Climbing up the solar PV snowy mountains" and "Crossing the solar PV meadows" have been highly visible.

The slogans to encourage its employees to weather the storm are inspired by the settings of the arduous Long March in the history of the People's Liberation Army.

Liang Tian, director of public relations with Yingli Green Energy, says: "We all know there is a rosy future. But no one can be sure how long we will have to wait before we get there."

System Built to Price Rare Earths in China

China is to set up a national pricing system for rare earth metals within the next month, in addition to its new trading platform, to further regulate the industry and strengthen its control of the resources, essential materials in consumer electronics and other high-tech goods.

Speaking on Wednesday at the Rare Earth Industry Forum in Baotou, in the Inner Mongolia autonomous region, Ma Rongzhang, secretary-general of the China Rare Earth Industry Association, said the association will establish the pricing index with the aim of leveling out price volatility in the market.

The move, still awaiting approval, will also help the country be a stronger competitor in the international market, and play an important part in the sustainability of the sector, although no specific details were given.

The new rare earth trading platform was launched in Baotou.

North China's Inner Mongolia autonomous region is home to more than half of the world's light rare earth output.

The platform will be operated by the country's top rare earth producer, the Inner Mongolia Baotou Steel Rare-Earth (Group) High-Tech Co, as well as with nine other firms and institutions including the southern giants Xiamen Tungsten Co Ltd and Guangdong Rising Nonferrous Metals Group Co Ltd.

With a total investment of 100 million yuan ($15.7 million), each shareholder invested 10 million yuan and holds a 10 percent stake in the exchange.

Dudley Kingsnorth, a professor in energy and mineral economics at Curtin University in Western Australia, said he is supportive of the idea, and that it will improve transparency and help avoid volatility.

But he added that the supply of heavy rare earths will be the major concern of the industry in the future.

Chen Zhanheng, deputy secretary-general of the association, pointed out that some of China's rare earth products - traded, for instance, inside some southern provinces to avoid tax - might not necessarily be put onto the national trading platform, but that a stabilized price will benefit everyone.

He also suggested China stockpile more heavy rare earths instead of light rare earths, which are considered as being overproduced.

However, Huang Chang-geng, senior vice-president of Tungsten, said he was still unaware of any specific regulations and systems for the fledgling platform.

China produces 90 percent of all rare earths, while it has 23 percent of world resources, but many in the industry consider this as unsustainable.

The most urgent action is required on heavy rare earth supplies, said Alastair Metcalf, chief executive officer of Hastings Rare Metals Ltd in Australia.

He suggested that China secure stock from other countries for its processing plants, particularly Australia.

In July, the World Trade Organization formed a special group to investigate the issue of stockpiles after the European Union, the United States and Japan complained over what they claimed were Chinese export controls.

Rare earth exports this year are expected to drop to around 10,000 tons, much lower than the industry export quota of 31,000 tons.

In the first half of the year China exported no more than 5,000 tons of rare earths, said Ma. Last year, overall exports were 16,900 tons, about 56 percent of the country's export quota.

Ma said that indicates the rare earth export quota is not a barrier to overseas consumers importing rare earths from China.

Rare earth exports, according to statistics by Chinese customs, were 17.83 percent of its total output of 96,900 tons in 2011.

Smuggling is attributed as the main reason for the export fall, in addition to sluggish demand caused by rising prices, sufficient stockpiles from overseas consumers, and reduced market share of the US products, Ma said.

Rare earths, a group of 17 metals, are essential in the manufacture of high-tech products ranging from smartphones and wind turbines to electric car batteries and missiles.

China Oil Trader Agrees To Buy Titan As Suit Looms

Chinese oil trader Guangdong Zhenrong Energy Co Ltd has agreed to take control of debt-laden shipping and oil storage firm Titan Petrochemicals Group Ltd, which is facing a liquidation suit from US private equity firm Warburg Pincus.

Zhenrong is controlled by Zhuhai Zhenrong Co, formerly affiliated with China's defence industry and now one of the country's five biggest traders of crude oil and oil products.

Under an agreement signed with Guangdong Zhenrong on Aug 1, loss-making Titan plans to issue 7 billion new shares for HK$175 million ($22.57 million) to the oil trader, Titan said in a filing with the Hong Kong bourse on Wednesday.

The new shares, to be issued at HK$0.025 each, would represent nearly 90 percent of Titan's enlarged share capital after the offer, it said.

But Zhenrong will seek to keep Titan listed by maintaining the company's public float at no less than 25 percent of its total share capital, Titan said, adding that the share issue would be subject to a number of conditions, including a dismissal of Warburg's liquidation suit.

Warburg Pincus - which has invested more than $215 million in Titan since 2007 - filed a petition in a Bermuda court last month seeking to wind up the company, which had assets of HK$6.4 billion at the end of last year while current liabilities reached HK$7.7 billion.

Warburg has also sued Titan and some of its executives in Hong Kong's High Court for misrepresentation and breach of contract.

Zhenrong has also agreed to pay up to $145 million to buy Warburg Pincus' interest in Titan's storage companies on the mainland and to provide the storage companies with interim financing of up to $40 million.

An acquisition would allow Zhenrong to make use of Titan's oil storage facilities in Guangdong, Fujian, Shanghai and Shandong in eastern China, a Guangdong Zhenrong official has said.

Titan has suffered losses for five consecutive years after its debt-driven growth strategy came undone during a steep downturn in the shipping industry.

Shares in Titan, which has a market value of $248 million, were suspended on June 19. The stock last traded at HK$0.246, after plunging 50 percent over the previous 12 months.

Energy Sectors Remain Major Focus of China's ODI

Outbound direct investment made by China's energy and resources industries reached around $239 billion from 2005 to the first half of 2012, accounting for 71 percent of the country's ODI, according to a report issued Wednesday by Ernst & Young.
China's ODI skyrocketed from $10 billion in 2005 to nearly $73 billion in 2011, the report said.
In recent years, China has diversified its ODI from energy industries to the agriculture and technology sectors.

Eighty-two percent of China's ODI went to energy industries in 2009, but the proportion fell to 60 percent in the first half of this year.

However, outbound investment in the agriculture and technology sectors, which accounted for just 2 percent of total ODI in 2009, jumped to 17 percent in the first half, according to the report.

Many Chinese companies polled in the survey said they may take advantage of European economic woes by acquiring undervalued assets.

Thirty percent of companies polled pointed to Western Europe as their top investment destination, while 22 percent of companies saw the United States and Canada as best places to invest.

China Auto Market Sales Cool with Midsummer Dip

The Chinese auto market did not escape the curse of "sluggish July" and has suffered a sales slump of nearly 10 percent from June.

European brands, however, provided a silver lining to the gloom.

Figures from the China Passenger Car Association show that last month, sales of sedans, sports utility vehicles, multipurpose vehicles and minivans collectively reached 1.04 million units, down 9.6 percent month-on-month, but up 8 percent year-on-year.

The combined sales figures for passenger cars in China during the first seven months of the year show a year-on-year increase of 5.8 percent to 8.05 million units.

Wang Hongchang from the China Automobile Dealers Association explains that July is the traditional slack season for selling cars, and the frequent storms in North China and sudden purchase restrictions in Guangzhou have exacerbated the situation.

"I think in August the market will witness a milder slide, and then the market should bounce back in September, based on my observation of previous years," he says.

Despite the recent sluggishness, the market grew modestly year-on-year, mostly because of the remarkable resilience of European brands.

Joint venture companies still rank high on the sales sheet, as anticipated, with FAW-Volkswagen leading the list with 106,544 units in July, followed by SAIC-GM with 97,064 units, and SGMW with 90,268 units. SGMW is a three-way joint venture involving SAIC, Liuzhou Wuling Motors Co and GM China.

The largest European automaker, Volkswagen Group, remained on the top perch. Besides FAW-Volkswagen, its other joint venture, SAIC-Volkswagen, sold 94,101 cars last month, up 21.9 percent on last year.

Volkswagen's premium car brand Audi has not released its sales figures in China yet. But in the US market in July, it sold 11,707 cars, a year-on-year increase of 28 percent, the highest in 19 months.

Driven by the strong demand from Chinese and Russian markets, German car manufacturer BMW sold 135,537 cars globally last month (including the Mini and Rolls-Royce brands), 5 percent higher than the previous July, while the accumulated sales during the first seven months reached 1.04 million units, up 7.6 percent.

The Chinese market is still the biggest engine for BMW's sales growth. In July, BMW Group delivered 23,092 cars in China, up by 22.5 percent.

Sales in the US, however, grew by only 4 percent.

Mercedes-Benz is the only major European automaker to report a sales drop last month. On Aug 3, the company announced that global sales in July went down by 3.1 percent to 97,323 units.
A consolation for the company is that the Chinese market is still growing and has great momentum. Last month, the Mercedes-Benz brand delivered 14,760 cars in China, a modest increase of 2 percent.
During the first seven months, the group (including Mercedes-Benz, Smart and Maybach) sold 119,980 cars in China, 10 percent more than the previous year.

But it seems that not all of these marquee names are getting along with their joint venture partners, despite reporting escalating sales.

At the end of last month, Volkswagen alleged that its Chinese partner FAW infringed its patents for the gearbox and engine, which was said by insiders to be the result of long-existing disagreements over technology transfer forms and stock share allocation between the partners.
In the mid-1980s, when the first foreign joint venture was introduced in China, the government trade-off was the Chinese market for foreign partners' advanced technologies. But after 30 years, more than half of the Chinese auto market belongs to foreign brands, and Chinese brands have not been catching up as quickly as the government expected on auto technologies.

But there was good news for Chinese brands in July. On the latest list of energy-saving cars (with engine size smaller than 1.6 liters) released on July 11, more than 100 models were selected, with about 60 percent being Chinese.

Consumers can get a 3,000 yuan ($472, 382 euros) subsidy from the government to buy these models, which may boost the sales of Chinese brands in the following months.

It seems that more favorable policies toward the car market are being lined up. Responding to criticism that highway tolls during holiday periods created serious congestion, the Chinese government issued a policy this month to exempt passenger cars with less than seven seats from tolls during major holidays, to take effect from the beginning of October. A total of 20 days in the year will be toll free.

Cui Dongshu, deputy secretary-general of the China Passenger Car Association, says this policy will significantly boost the sales of cars in August and September, when people are preparing for the Golden Week holiday at the beginning of October.

Shi Jianhua, deputy secretary-general of China Association of Automobile Manufacturers, says the Chinese auto market has switched from the high-speed lane to the steady-growth path.

He estimates the yearly growth rate of the market to be 8 percent, with the total vehicle delivery of 20 million. Since more families are buying second cars, mainly for leisure, Shi believes the SUV segment will surge by 30 percent to 2.07 million in 2012.

At the same time, he says, the instability of government policies has hurt the industry, especially the younger and newer Chinese brands.

The sudden announcement of a purchase restriction in Guangzhou at the end of June dismayed the whole industry, and stirred a buying frenzy among the South China city's residents.

Shi is apparently against these "raids" to rein in cities' congestion problems. "Instead of limiting the purchase, the government should pay more attention to city planning," he says.

Alstom Has Decided to Boost Hydro Power Investment in China

Alstom, the world's third-largest power equipment maker, is boosting its investment in hydro power in China, as other renewable energy sectors such as wind and solar energy face a slowdown.

Alstom Renewable Power, Alstom's division in charge of renewable power generation equipment and services, plans to establish a Global Technology Center in Tianjin, as part of a 100 million euro ($123 million) investment to upgrade Tianjin's hydro industrial facility - the largest such plant that Alstom has in operation.

"Compared with other renewables, hydro power is very stable," said Jerome Pecresse, president of Alstom Renewable Power.

And as the renewable sector - including wind and solar - develops, the demand for pumped-storage plants will also increase, according to Pecresse.

Alstom is one of China's leading hydro producers. The company has contracts for hydro turbines and generators covering about 47 gigawatts, out of which about 50 percent are already in commercial operation.

Alstom was also involved in the construction of the Three Gorges Dam, the world's largest power plant of any kind, to which it supplied 14 of the dam's 32 units, each with an output of 700 megawatts.

"International hydro power companies are setting up their research and development centers in China to grab more market share, leading to fierce competition as well as more mergers and acquisitions," said Zhou Xiujie, an industry analyst with China Investment Consulting.

According to the China Electricity Council, the country's hydro power investment reached 44.4 billion yuan ($7 billion) in the first five months of the year, up nearly 50 percent year-on-year.

With a temporary slowdown in the construction of nuclear plants after the Fukushima disaster in Japan, the Chinese government is pushing ahead with all forms of renewable energy: solar, wind, bio-energy, geothermal and hydro.

However, the development of wind and solar energy is slowing down.

Authorities began tightening approval for wind power projects last year after a significant amount of wind resources were wasted because the grid was not capable of carrying or sending out the electricity.

Despite the government's ambitious push, the solar market in China is still very small, with less than 3 gW installed at the end of 2011.

In comparison, hydro power makes up 22 percent of the country's installed power base, with many large hydroelectric projects either in the planning stage or under construction. The country's hydro market is booming, with installed capacity for hydropower increasing by 15 gW every year, and expected to reach 380 gW by 2020 from just under 200 gW this year.

China plans to get 11.4 percent of its energy from renewable sources by 2015, of which hydro power will contribute two-thirds, analysts said.

In the first half of the year, the central government has approved six major dam projects totaling 8.8 gW, with another 10 gW in the pipeline by the end of the year, according to the National Development and Reform Commission.

China's hydropower capacity stood at 230 gW at the end of 2011, 22 percent of the total, and another 55 gW are now under construction, according to figures released by the National Energy Administration.

The country's hydro power market slowed down during the 11th Five Year Plan period (2006-10) partly due to controversy about its environmental impact. However, new approvals accelerated since 2010 when the reduction of carbon emissions was at the top of the government's agenda.

Meanwhile, the slowing economy may pose some challenges for hydro power development as demand for electricity is cooling down.

China Launches Rare Earth Trading Platform On Bigger Pricing Power

China on Aug 8, 2012 launched a physical trading platform for rare earth metals as part of its efforts to regulate the sector and strengthen its pricing power for the resources.

The Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co., China's top rare earth producer, and nine other firms and institutions jointly launched the platform with a total investment of 100 million yuan (15.87 million U.S. dollars). Each shareholder invested 10 million yuan and holds a 10-percent stake in the exchange.

The rare earth trading platform is located in the city of Baotou in north China's Inner Mongolia Autonomous Region, home to more than half of the world's light rare earth output.

Previously, China's rare earth market was largely opaque, as transactions were not made in public markets and always ran in small volumes. Only limited amounts of pricing and transaction data have been made available to the public.

The opaque market and the fact that Chinese rare earth producers far outnumber foreign consumers have weakened China in terms of price negotiations with foreign consumers, industry analysts said.

Ma Pengqi, a rare earth expert and former director of the Baotou Rare Earth Research Institute, said the trading platform will provide clarity and give China more say in deciding rare earth prices.

Some analysts, however, questioned the exchange's effect on stabilizing prices.

Liang Xingfang, general manager of Baotou Ruixin Rare-Earth Metal Material Co., said the spot market's role in stabilizing rare earth prices is limited.

"We have to wait and see how the exchange will work in the future," he said.

As the world's largest producer of rare earth metals, China now supplies more than 90 percent of the global demand for rare earth metals, although its reserves account for just 23 percent of the world's total.

Rare earth metals, a group of 17 metals, are vital for manufacturing hi-tech products ranging from smart phones and wind turbines to electric car batteries and missiles.

Mining the metals greatly damages the environment. In recent years, China has come down heavily on illegal mining and smuggling, cut export quotas and imposed production caps, stricter emissions standards and higher resource taxes to control environmental damage and stave off resource depletion.

However, these measures have irked rare earth importers, who complained about rising prices and strained supplies.

The United States, Europe and Japan in March jointly filed a complaint to the World Trade Organization (WTO) against China's export policies on rare earths and two other metals. The WTO established a panel last month to investigate the complaints.

Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology, said China would abide by any decision made by the WTO, but the country must continue to tighten regulation in the sector.

The launch of the trading platform coincided with a major annual industry conference, the Baotou China Rare Earth Industry (International) Forum.

Su Bo, vice minister of industry and information technology, repeated Zhu's statement at the two-day forum that opened Wednesday, saying China will continue to crack down on illegal mining and smuggling, promote industry consolidation and properly handle international trade frictions.

China's rare earth output fell 36 percent year on year to 40,000 tonnes in the first half of the year. Prices of major rare earth products in July remained twice as high as prices at the beginning of 2011, although down from the beginning of the year.