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Tariff threat could boost U.S. wind tower manufacturers as market slows

SNL Image

Development of new wind projects like this one, in Iowa, could slow as tax credits expire.
Source: The Associated Press

Facing a potential market downturn, U.S. companies that make steel towers for wind farms are asking the Trump administration to impose barriers to foreign competition.

The U.S. Commerce Department on July 30 said it will investigate claims by the Wind Tower Trade Coalition that manufacturers in Canada, Indonesia, South Korea and Vietnam are hurting American companies by selling subsidized towers at prices that are below fair market value.

The tariff request was filed less than six months before the expiration of the U.S. production tax credit, an incentive that has helped drive domestic demand for wind power. The scheduled phaseout has sparked a development boom that some market participants fear will be followed by a bust once the tax credits expire.

Amid the frenzy to snap up equipment before the incentive disappears, U.S. tower manufacturers say their businesses are suffering due to unfair trade.

"In many circumstances, we have had to lower our ... pricing to become competitive and ultimately retain our workforce and not [temporarily] idle our plants," Jason Bonfigt, CFO of Illinois-headquartered Broadwind Energy Inc., said on an Aug. 2 earnings call.

During the second quarter, revenues in Broadwind's towers and heavy fabrications division rose 13% from a year earlier to nearly $29 million, while operating profits fell 41% to $318,000.

"The wind industry is going to install a record amount [of capacity] in 2020, and I'm lowering my forecast for margins," Arcosa Inc. President and CEO Antonio Carrillo said Aug. 2 on the Dallas manufacturer's second-quarter earnings call. "And that's the reason we launched our antidumping case a few weeks ago."

Arcosa and Broadwind are both members of the Wind Tower Trade Coalition.

The trade practices Carrillo complained about do not appear to have hurt Arcosa's balance sheet yet. Revenues in the company's wind towers and utility structures division increased 14% from a year earlier to $151 million, and operating profits in the broader energy equipment group rose more than 200% to $25 million, due in part to higher unit volume and pricing in wind towers and utility structures.

"Pricing of orders and individual order quantities ... are reflective of a market transitioning from production tax credit incentives," Arcosa said in a filing to the U.S. Securities and Exchange Commission.

The U.S. wind market is expected to remain busy next year, "so our tower prices are firming," Broadwind President and CEO Stephanie Kushner said. "Maybe not as much as we would like to see, but there is a little bit of an upward trend."

The question is what happens after the incentive-driven demand fades.

Carrillo expects smaller orders with prices set by "supply-demand factors rather than tax incentives."

Kushner said the outlook for a "2021 drop-off ... has improved," suggesting that the market could be more resilient than many expect. However, Broadwind is not taking any chances: The company is trying to diversify into other industries to guard against a slowdown in the wind market.

In the meantime, the threat of tariffs could steer more business to U.S. tower manufacturers while the market is still hot.

"Obviously, it adds some uncertainty to making purchases from these [other] countries, which is helpful for the domestic manufacturers," Kushner said.