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Chinese Solar Companies Spike on Soft Tariff Decision (Update 1)

Updated from 2:08 p.m. ET to information from Commerce Department release, analyst comment, and solar trade group statement.

NEW YORK ( TheStreet) -- Shares of Trina Solar (TSL - Get Report), Yingli Green Energy (YGE) and Suntech Power (STP) rose sharply at midday Tuesday after the Commerce Department announced preliminary tariffs on imported Chinese solar panels that are more modest than anticipated.

Shares of the three leading Chinese solar panel makers led the shares of all Chinese solar stocks higher after what had been a morning of heavy selling in the solar sector.

While a precedent-setting victory on paper for German-headquartered SolarWorld, which has its U.S. manufacturing base in Oregon and led the trade complaint, the market reaction indicated what solar experts thought of the punishment.

U.S. solar panel leaders Sunpower (SPWR) and First Solar (FSLR) declined, while the Chinese solar companies rallied.

First Solar may be facing selling pressure also because its large-scale solar projects became the focus on a congressional attack on the Department of Energy loan program on Tuesday.

The Commerce Department is levying preliminary countervailing duties (CVD) of 2.9% to 4.7% against Chinese solar companies. Stakeholders in the process had already been told of the decision before the Commerce release shortly after 2 p.m., leading to the rally in Chinese solar shares ahead of the decision being made official.

Trina Solar received the highest CVD, at 4.73%, while Suntech received the lowest tariff, at 2.9%. All other Chinese solar companies will be subject to a 3.6% import duty.

U.S. Customs and Border Protection can now collect a cash deposit or bond based on these preliminary rates, applicable to all entries of Chinese solar cells made up to 90 days prior to the preliminary determination.

The complaint against Chinese solar companies for "dumping" of panels in the U.S. at below cost has been one of the headline political issues in the solar sector for 2012, and arguably second only to Germany's subsidy revisions as a trigger for solar trading. The U.S. is one of the most important emerging markets for solar companies looking to offset the European market decline.

Solar stocks remain a risky investment, but can be a good trade if investors are able to deal with the volatility. The outlook for Chinese solar module makers remains a profitless year in 2012 because of rampant overcapacity in the sector and declining support from Europe.

Chinese solar companies were expected to find means to circumvent the tariff all along, by sourcing solar cells from Taiwan or South Korea, though that can marginally increase an already stressed cost model.
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