US tariffs to hit Malaysia PV exporters most

  • Analyst Reports
  • Thursday, 25 Jan 2018

KUALA LUMPUR: Malaysia, which is the largest photovoltaic (PV) exporter to the US with a market share of 30% of US PV imports, will be impacted by the US move to slaps import tariffs on imports of PV cells and modules for four years. 

CIMB Economic Research said PV exports to the US accounted for 1.1% of Malaysia’s total exports in 2016. 

“A complete halt in PV exports to the US is unlikely, but tariffs may erode Malaysia’s market share/margins and disincentivise relocation of foreign PV firms to our shores,” it said. 

On Jan 22, the US government announced that it would impose safeguard tariffs on imports of PV cells and modules over a period of four years, starting at a rate of 30% in year one, before moderating to 25% in year two, 20% in year three and 15% in year four.

The proposal is in response to petitions against unfair trade practices linked to China subsidising its PV manufacturers, leading to cheap imports to the US. 

The solar tariffs were implemented alongside tariffs for the imports of residential washing machines. 

CIMB Research said while the tariffs will increase the prices of imported PV cells and modules by 30%, global PV prices have been declining in recent years and are expected to fall a further 10% in 2018 amid global excess capacity, lowering the net cost hikes for US buyers to 20%.

The impact on demand may be less pronounced if US solar installation companies partially absorb the incremental cost. 

Nonetheless, the equalisation of selling prices between US and foreign PV suppliers may result in an erosion of the latter’s market share, if the heavily-consolidated US-based PV manufacturers have spare capacity. 

Malaysia has emerged as the largest exporter of PV cells and modules to the US with a market share of 25% by value and 30% by capacity in 2016, benefiting from the fall in China’s share from a peak of 59% in 2011 to 21% in 2016 after the US imposed anti-dumping and countervailing duties in 2012. T

The US government alleges that China’s PV manufacturers evaded these tariffs by subsequently shifting PV production to countries like Malaysia, Singapore, Germany and South Korea.  

“UN Comtrade data shows outbound shipments of PV products to the US comprised 1.1% of Malaysia’s total exports in 2016. 

“According to a Malaysia Investment Development Authority (MIDA) survey in 2016, 89% of Malaysia’s total PV production was exported. 

Domestic PV demand remains fairly small, with the Energy Commission expecting connected solar power capacity in Malaysia to rise from 357MW in 2017 to 1,250MW by 2020. That equates to an average annual installation of 298MW, which is a fraction of the 3,789MW that Malaysia exported to the US in 2016, suggesting that Malaysian PV exporters need to find new markets abroad such as China, India, and developing economies to replace possibly-displaced demand from the US. 

“While we do not expect a complete halt in PV exports to the US, increased competition could erode Malaysia’s market share and margin in the interim. 

“We think the possible downside to PV exports could be partly offset by lower intermediate PV imports as part of the solar industry in Malaysia consists of the assembly of PV panels, rather than the production of solar cells,” it said. 

CIMB Research said however, Malaysia’s PV trade surplus had climbed in recent years to RM14.6bn or 1.2% of nominal GDP in 2016, implying benefits from a weaker ringgit and rising contributions from higher value-added segments of the solar value chain. 

The US import tariffs may reduce Malaysia’s attractiveness to foreign companies, which dominate the domestic PV sector, by creating incentives to relocate production to the US in order to bypass the tariffs.  

“At this juncture, we keep our 2018 real GDP growth and gross export forecasts unchanged at 5.2% and 9.8%, respectively. 

“However, we remain mindful of the downside risks that accompany Malaysia’s trade dependence, with total trade amounting to 139% of GDP in 9M17, and its susceptibility to the threat of rising trade protectionism from the Trump administration, as the US accounts for 10% of Malaysia’s total exports,” it said.
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