Industri

Sa2ri
REC 16.01.2019 kl 19:14 11069

SB1M er ute med en "Newsflash" i ettermiddag hvor de stiller spørsmålet til om REC er en "trading buy over the weekend"?. Dette kan føre til et løft i kursen i morgen og fredag, og SB1M begrunner dette med følgende:

REC – Trading Buy over the weekend?

Conclusion
We have a Neutral recommendation on REC, but argue that it might be a weak trading Buy over the weekend, as there is a chance that China remove import tariffs on polysilicon. On 20 January 2014, the Chinese Ministry of Commerce (Mofcom) announced final import duties on polysilicon of 57% for REC, which effectively shut the company out of the Chinese market (80-90% of global demand). The duties are valid for five years and can earlies expire on January 19, 2019. We argue that a removal of import duties would have a significant positive effect on the REC share price, although it maybe should not.

What’s new?
Chinese import duties on polysilicon from the US might expire this weekend.

Our analysis
In January 2014, Mofcom announced import duties on polysilicon originating from the US and Europe. The duties on US companies last for five years, while European duties were limited to an initial period of two years. After a couple of extensions, the import duties on polysilicon originating from Europe was removed in 2018. We take a look at the similarities and differences of the EU and US cases.

China removed import duties on polysilicon from the EU in 2018
After a few extensions, the duty on polysilicon originating from Europe was set to expire on October 31, 2018.

On March 15, 2018, (i.e. prior to the expiration) Mofcom announced that the duties were about the expire, and it invited the solar-grade polysilicon industry to apply for an extension of the duties.

On November 1, 2018, (i.e. the day after expiry) Mofcom announced that it had not received any applications for an extension and as such, the import duties were removed.

Similarities and differences between the US and EU
1) The Chinese import duties imposed in 2014 were a response to the US and EU implementing import duties and minimum import price on solar panels from China. The first difference between the US and EU is that EU removed its minimum price on solar panels from China in 2018. Thus, China no longer needed the retaliation, and removed import tax on polysilicon from the EU. The US went in the opposite direction of EU and implemented increased import duties on solar panels from China in January 2018 (Section 201), lasting for four years. In addition, the US imposed further import tariffs on Chinese solar panels in January 2019.

2) The second difference is that in effect, no companies were hit by the import tax on polysilicon from the EU anymore. The only EU polysilicon producer is Wacker Chemie, which struck a deal to avoid import duties in March 2014. In the US on the other hand, both REC and Hemlock might increase production and sales to China if import duties are removed.

3) Thirdly, to the best of our knowledge, Mofcom never issued an invitation for the solar-grade polysilicon industry in China to apply for an extension of the duties, like it did for the EU import tariffs on March 15, 2018.

The effect from REC
We believe that the REC share price would have a significant positive effect if China cut import duties, as the company would be able to resume full production (current 25%) at Moses Lake, and potentially decrease cash cost from USD15/kg to around USD8/kg. However, the polysilicon spot price has decreased significantly over the last year, and we are not certain if REC would make money even on full production at Moses Lake. The current spot price is an all-time low of USD8.85/kg for high-grade polysilicon and REC sells at a discount due to lower quality products and not being able to sell to China (28% discount in 2017).

A prolonging of the duties for a year or more would be significant negative for REC.

Best regards,
Jonas Meyer
Equity Analyst

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