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Canadian Solar looks to developing markets as tariffs weigh on US demand

U.S. demand for solar panels shrank dramatically during the first quarter after President Donald Trump imposed tariffs on imported cells and panels, Canadian Solar Inc. Chairman, President and CEO Xiaohua "Shawn" Qu said May 16. The company is looking to developing markets to pick up some of the slack.

According to data from Panjiva Inc., a division of S&P Global Market Intelligence, seaborne imports of solar panels to the U.S. fell by 74% during the first three months of 2018 after companies rushed in 2017 to get equipment into the country ahead of a new round of duties.

The tariffs "immediately slowed down the new module shipments and purchasing in the U.S.," Qu said on the company's first-quarter earnings call. "We are still selling ... some inventory. We also have some inventory in the U.S. ... We have the modules to support our customers, but the volume is low."

Companies in the U.S. appear to be sitting on enough duty-free solar panels to support six to nine months of project development, said Raj Prabhu, CEO of Mercom Capital Group LLC, a clean-tech communications and research company. Funding to the global solar industry fell 65% quarter-over-quarter during the first three months of 2018 as a result of the tariffs and ongoing trade tensions between the U.S. and China, Mercom Capital said May 15.

The industry could face more problems if demand slows in China, the world's biggest solar market. Headwinds could come from rising interest rates, a "subsidy payment deficit" and tighter government controls on solar power development, said Yvonne Liu, an analyst at Bloomberg New Energy Finance.

"A slight slowdown [in China] will mean a huge oversupply" of solar panels globally, Prabhu said.

In a press release, Qu said increasing demand in developing markets should offset slower growth China, India and the U.S., adding that he expects improving market conditions in Europe, Africa and Mexico. Canadian Solar, which is headquartered in Ontario but manufactures much of its hardware through Chinese subsidiaries, recently expanded its project pipeline into Australia, Austria and Argentina.

South Korea-based manufacturer Hanwha Q CELLS Co. Ltd. has responded to the U.S. tariffs by shifting its focus from America to Europe.

Canadian Solar reported first-quarter net income attributable to the company of $43.4 million, or 72 cents per diluted share, compared to a loss attributable to the company of $13.3 million, or a loss of 23 cents per diluted share, a year earlier. Net revenues totaled $1.42 billion during the first quarter, compared to $677 million a year earlier.

The company shipped 1,374 MW of solar modules during the first quarter, beating guidance estimates but falling short of the 1,480 MW it shipped a year earlier. At the end of April, the company's late-stage project pipeline, including projects under construction, totaled 2,300 MW compared to 2,000 MW at the end of February. About 22% of the pipeline is in Brazil, 20% is in the U.S., 19% is in Mexico, 18% is in China and 15% is in Japan.

During the second quarter, Canadian Solar expects to ship between 1,500 MW and 1,600 MW of solar modules and generate revenues of $690 million to $730 million.

Canadian Solar shares were up 3.04% at $17.30 in afternoon trading May 16.