JinkoSolar Holding Co., Ltd. JKS announced its plans to construct a solar cell and module manufacturing facility in Penang, Malaysia.
The unit will be capable of manufacturing 500 megawatts (“MW”) of solar photovoltaic (“PV”) cells and 450 MW of solar modules. The company intends to invest about $100 million in the construction of the plant, which is slated to come online in May 2015.
The company is pursuing geographical expansion and diversification of product mix in an attempt to keep its foothold strong in the U.S, a key solar market, as well as to counter the challenges posed by the imposition of countervailing duties and anti-dumping duties. The company’s solar modules deliveries to the U.S. made up for 12% revenues in the fourth quarter of 2014 and a decrease in demand is likely to hurt the company. Hence, with focus on expanding its presence in order to maintain a steady flow of revenues, JinkoSolar has planned to set up a plant in Malaysia, thereby dodging U.S duties effectively.
The U.S. Department of Commerce (“DoC”) finalized anti-dumping duty rates of 52% and anti-subsidy rates of 39% on the import of Chinese solar panels in Jan 2015. It also imposed anti-dumping rates of 20% on Taiwan-made solar cell imports, irrespective of where they are assembled into panels.
Continuous invasion of low-priced Chinese solar products had forced many American solar manufacturers out of business. Therefore, in 2012, the DoC implemented anti-dumping duties of 25.96% and countervailing duties of 15.24%. Tariffs were then only applicable on Chinese cells that were used to make panels.
However, many Chinese solar manufacturers were able to dodge the hefty levies by assembling panels from cells produced elsewhere, especially in Taiwan, although each of their components − ingots and wafers – were manufactured in China.
But the DoC’s decision to levy duties both on Chinese and Taiwanese products has led Malaysia to emerge as the new hotspot for manufacturing solar cells for U.S. exports. Chinese manufacturers are considering setting up production lines overseas in a bid to avoid the duties and cushion their top lines. JA Solar Holdings Co., Ltd. JASO is planning to build a 400-MW PV manufacturing facility in Southeastern Asia.
Chinese solar manufacturers like ReneSola Ltd. SOL have also been signing up with overseas contract manufacturers to assemble modules in recent years, to avoid trade tariffs in Europe and the U.S.
With the U.S. Energy Information Administration projecting solar consumption in the U.S. to shoot up 86% to 0.571 quadrillion British thermal unit (“Btu”) in 2016 from the 2013 levels, the Chinese companies cannot afford to ignore the U.S. solar market.
Although Chinese solar players would probably reap long-term benefits from these investments, JinkoSolar’s earnings and financials in the near term are facing considerable pressure. As of Dec 2014, the company reported a negative working capital of $18.7 million as compared to a positive $165.4 million as of Sep 30, 2014 due to brisk investments made in the solar projects. It also reported a 34.6% sequential decline in its fourth-quarter 2014 earnings.
JinkoSolar currently holds a Zacks Rank #4 (Sell). A better-ranked stock in the solar space is Vivint Solar, Inc. VSLR carrying a Zacks Rank #2 (Buy).
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