The United States Department of Commerce announced final anti-dumping duty and countervailing duty (AD/CVD) tariffs on solar components manufactured in China and Taiwan and imported into the US. These new AD/CVD orders do not apply to REC Silicon but its earning could be affected temporally.
REC Silicon's solar grade polysilicon exports to China have been subject to a final AD tariff of 57% since January 2014. However, REC Silicon has continued to sell solar grade polysilicon into China by working with customers to utilize the Process in Trade under Chinese customs laws. On August 14, 2014, MOFCOM issued a notice that Process in Trade would be suspended. To date, the effect of this suspension notice has not yet had a substantial impact on REC Silicon.
Earnings from FBR polysilicon will be negatively affected in the short term
Changes in the availability of the Process in Trade for US solar grade polysilicon exports to China will have a negative effect on REC Silicon's earnings and cash flows in the short term; however, REC Silicon's financials will remain strong.
REC Silicon's fourth quarter 2014 operations are anticipated to be broadly in line with the guidance given on November 4, 2014. Fourth quarter 2014 revenues will be negatively impacted by the current sales strategy, which is focused on maintaining sales volumes at slightly discounted prices compared to market prices. Accordingly, the company expects fourth quarter 2014 EBITDA will be approximately 35 million - 40 million USD. Further details will be provided as part of the 2014 fourth quarter release on February 13, 2015.
Less than half of REC Silicon's earnings are affected by the AD tariff/the Process in Trade
Revenue and cash flow associated with sales of semi-conductor grade polysilicon and silicon gases are not subject to the AD tariff; and therefore, any change in the availability of the Process in Trade will not have an impact on them.
During the first nine months of 2014, 45% of REC Silicon's revenues were derived from sales of solar grade polysilicon to China. Of the total 12,259 MT of polysilicon (granular and Siemens) sold, 69% was solar grade polysilicon sold to China.
REC Silicon can continue to meet all its financial obligations from current operations
REC Silicon's cash balance at the end of third quarter 2014, less the capital contribution to the Yulin JV paid in October, was 85 million USD. In addition, the company expects to have a positive cash contribution from operations. The company has no major financial commitments due in 2015. The next scheduled debt maturity obligations are 235 million NOK and an estimated 200 million NOK for the indemnity loan, both due in 2016. Additionally, a 300 million NOK bond and a 110 million USD convertible bond are due in 2018. The schedule of capital contributions for the Yulin JV requires REC Silicon to make payments of 15 million USD in 2016 and 154 million USD in 2017.
The impact will be reduced over time
While resolution of the US/China solar trade dispute is pending, the company will actively work to mitigate the impact of the 57% duty, if the availability of the Process in Trade changes. Initiatives will include expanding REC Silicon's customer base outside of China and utilizing other opportunities, which management is currently evaluating, including to sell solar grade polysilicon in a manner that would not be subject to the AD tariff. REC Silicon will implement cost reduction initiatives and capital expenditure reduction measures to preserve the company's financial strength.
REC Silicon will monitor the situation closely and will continue to work to reduce the negative impacts of the US/China solar trade war. Although the timing and potential outcome of these efforts remain uncertain, REC Silicon is confident that the trade dispute will be resolved in due course.