United States

United States

Market downturn will limit Chinese tower tariff impact

UNITED STATES: The 14-26% duties the US has slapped on turbine tower imports from China will bear little fruit with no new PTC in sight.

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Cash or bonds are already being collected to cover preliminary duties newly imposed on imports of Chinese wind turbine towers into the United States - but the impact of the tariffs, especially over the short term, is unclear. This is because the US industry will contract dramatically later this year because of uncertainty over the extension of the federal production tax credit (PTC). Tower orders are placed well before delivery.

Since early June, the US Department of Commerce (DoC) has been levying duties of 14-26% on imported Chinese towers because of China's substantial subsidies to its own tower sector. Following an investigation, the DoC found that Beijing had been subsidising its domestic tower industry so much that competition was being skewed within the US domestic market. The investigation was prompted by a complaint filed by the US-based Wind Tower Trade Coalition, whose members are Broadwind Energy, DMI Industries, Katana Summit and Trinity Structural Towers.

"For the US companies that brought the case, it is a victory, but it may be a pyrrhic one," said Alex Morris, an energy analyst with the financial advisor Raymond James & Associates. "With the expected expiration of the PTC at the end of 2012, the industry is bracing itself for a steep decline in US wind installations in 2013 regardless of this decision."

He also compared the impact with that of the DoC earlier in May imposing tariffs on imported Chinese solar cells. "Unlike the analogous decision on anti-dumping tariffs of 31% on Chinese-made solar cells, China's role in the wind tower market is not nearly as significant, so this decision is unlikely to be as controversial," he said. The US imported $3.1 billion of Chinese solarcells in 2011. In contrast, the US imported just $222 million in wind turbine towers last year.

A final decision on China's tower subsidies is expected on 30 July. Until then US Customs and Border Protection will collect duties from the importers of the turbines. If the final decision is contrary to the preliminary decision, the money would be refunded.

The preliminary duties - because of China's subsidies - impose a 14% levy on CS Wind, a South Korean company that makes towers in China and Vietnam, which has accounted for nearly 65% of US tower imports from Asia over the last two years, said Make Consulting in January. For Titan towers, the rate is 26%. Products of all other Chinese producers or exporters will be subject to preliminary tariffs of 20%.

Parallel case

According to Dan Shreve of Make Consulting, Vestas and Siemens could be the most affected by the dispute, which also includes a parallel case on alleged dumping of towers, because they are CS Wind's largest US customers. "This will erode Vestas' cost-cutting strategies during a trying time of weak earnings and significant layoffs," Make had said in a January note to clients. GE Energy could also be hit because it buys towers from Titan and Chengxi Shipyard, Shreve added.

Even if the short-term impact for US tower makers is minimal, the duties could still help level the playing field between US and Chinese tower makers. Later this summer, the DoC will issue a preliminary decision on whether Chinese and Vietnamese tower companies have been dumping their products on the US market.

Christopher Blansett, an analyst with JP Morgan Equity Research who follows Broadwind, said: "These duties, potentially coupled with the additional tariffs (for alleged dumping) that could be instituted later this summer would definitely help Broadwind and other US-based wind-tower makers over the long term."

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