OCI, Hanwha suffer in US, China

By Jun Ji-hye

Solar energy-related firms here are expected to suffer greatly as the Chinese government has recently decided to suspend construction of new solar power plants.

The decision is unfavorable to companies such as OCI and Hanwha Chemical that manufacture polysilicon, a basic material used for solar energy generation.

China is the No. 1 solar power market in the world, and demand for polysilicon there is huge.

OCI and Hanwha Chemical have exported about 80 percent and 50 percent of their polysilicon output to China, respectively.

On June 1, the Chinese government announced a set of measures to reorganize its policy regarding solar energy generation, including suspending construction of new solar power plants and reducing government subsidy.

The measures seem to be designed to control the overheating industry and development speed, according to industry observers.

An official from a solar energy-related firm said the announcement is embarrassing companies as the measures were tougher than expected.

“We expected to some extent that government subsidy would be reduced but it was embarrassing as the measures were announced earlier than expected. They were much tougher than expected as well,” he said.

The Chinese government usually announces measures related to solar power generation at the end of June and apply them in July. But this time, it announced the measures in early June and applied them immediately.

Another official said companies are facing a situation that they have no choice but to cut costs to raise cost competitiveness. He added that this would be an only possible countermeasure.

The unfavorable factor from China came after solar energy-related firms already had a rough time due to the United States' safeguard tariffs on solar energy products.

Under the safeguard measure that took effect in February, a 30 percent tariff is imposed on imported solar cells and modules above 2.5 gigawatts in the first year.

Hanwha Q CELLS has been also hit by the safeguard measure as its sales in the U.S. market accounts for about 30 percent of the total. Hanwha Q Cell manufactures modules after receiving polysilicon from Hanwha Chemical.

In May, Hanwha Chemical said it will find alternate markets and continue to improve its operational profit despite the U.S. safeguard action.

“We have improved our performance to some extent by strengthening our business in Europe, Japan and Korea, besides the United States,” an official from the firm said during its first quarter earnings conference call.

The firm posted 827.4 billion won ($769 million) in sales with an operational profit of 35 billion won during the first quarter.