INSIGHT: Western epoxy, wind power sectors call to ‘level the playing field’ with China

LONDON (ICIS)–An EU probe into China wind turbines and a US anti-dumping investigation against epoxy from China and other Asian countries are some of the latest examples of the growing use by policymakers of regulatory measures to support local industry against allegations of unfair competition.

Producers in western regions, particularly the EU, are increasingly pushing back against the impact of lower-priced imports from China on local markets, with regulators looking to tariffs and policy measures to ease industry struggles and diversify supplies.

The EU’s probe into Chinese wind turbines under the Foreign Subsidy Regulation and the US anti-dumping case for epoxy against China, South Korea, Taiwan, Thailand and India are fresh examples of this.

Asia Pacific suppliers have gained ground in the European epoxy market since the pandemic, and the downstream wind sector has also become increasingly pressured.

As reliance in those spaces increasingly shifts to external markets for supply, questions emerge about the viability of local players in the face of these dynamics, as well as the implications for the energy transition and whether domestic supply is structurally adequate to meet future demand.

STRING OF ADD CASES
In the wake of these pressures, there has been a wave of Anti-dumping investigations in the chemicals sector in the west, mainly aimed at China.

Olin and Westlake have submitted anti-dumping duty (ADD) petitions for epoxy in the US against China and other Asian countries, based on allegations that producers in these countries have sold large volumes of product at “unfairly low prices” in the US market, which is claimed to have caused injury to US producers/industry.

On the face of it, the trade data does not support claims of substantial dumping of volume, with pretty low imports from three of the five key Asia-based manufacturers.

However, there is growing speculation that a similar ADD claim is afoot in Europe, but there has been nothing official on this so far.

Run rates have been reduced in Europe for a prolonged period to manage high costs, low demand and increased import flow from China/Asia.

CHINA EPOXY, EUROPE CAPACITY
Chinese epoxy is exported to Europe at around €1,900/tonne DDP in April and in some cases below. This is around €500-600/tonne below European levels and at least a few hundred euros cheaper than other Asian sources.

If an anti-dumping investigation were to come in Europe and duties were to be implemented, could the EU structural capacity meet its demand needs between now and 2030?

Structural nameplate capacity for epoxy in Europe is forecast to be slightly over 700,000 tonnes/per year, potentially with an additional 20,000-30,000 tonnes/year if a new Chimcomplex epoxy project is finalised.

This stands against an actual consumption estimate of 466,000 tonnes/year by 2030, according to ICIS S&D data, although total actual production is expected to remain closely aligned to demand.

“If an ADD were to go ahead in the EU, the region could be self-sufficient from an epoxy perspective,” said ICIS Aromatics and Derivatives Consultant Michele Bossi.

CHINA EPOXY GAINS SHARE IN EU
As we have seen with the ramp up in Chinese/Asian epoxy imports into Europe since the pandemic, there is potential that China could eat into the key EU downstream wind sector, with Chinese wind turbines being offered up to 50% lower than European-made wind turbines and with deferred payments of up to three years.

European manufacturers are not allowed to offer deferred payments due to OECD rules.

These favourable conditions for Chinese wind turbines are likely to sway wind park developers in the EU and the wider west.

China is benefitting from subsidised materials up and down the chain, access to cheap land, financing and energy, according to a wind energy player, who said “something needs to be done to protect the Western OEMs and the supply base”, adding that some western OEMS claim to be victims of Chinese competition but are moving their production to China in order to be competitive.

However, it stressed that “it is a very short-term strategy and will only result in losing to China.”

Excess capacity of subsidised Chinese wind turbines “is not only dangerous for our competitiveness. It also jeopardises our economic security,” said Commission Executive Vice-President for Competition Margarethe Vestager and new inquiry Commissioner.

“The EU probe into potentially unfairly subsidised Chinese wind turbine manufacturers is to ensure a fair competition and level the playing field between European and Chinese manufacturers eager to enter the European market,” said the official WindEurope spokesperson.

EU WIND PROBE UNLIKELY TO AFFECT THE ENERGY TRANSITION
“The number of new wind projects expected to come online before 2030 – and therefore to meet the EU’s 2030 targets – is largely independent of the origin of the wind turbine manufacturers,” highlighted the official spokesperson at WindEurope.

It added that bottlenecks for additional projects coming online before 2030 are linked to other factors such as grid build out and grid connection queues, permits for new wind farms; (maritime) spatial planning and the availability of sufficient space for new wind energy projects.

Although the EU Wind Energy package has provided action points to address these areas and support the sector.

EU ENERGY TARGETS WITHIN REACH FOR 2030
WindEurope forecasts that the EU will come close to reaching its energy targets for 2030, irrespective of the EU probe into Chinese wind turbines, with the EU expected to install 29 GW a year on average over 2024-30.

This will bring the EU’s installed wind capacity to 393 GW in 2030, compared to the 425 GW needed to deliver Europe’s climate and energy targets.

Improvements in permitting and a rebound in investment has enabled the “EU wind energy targets of 2030 to be within reach”, according to WindEurope.

OTHER SUPPORT
The bloc’s Net-Zero Industry Act – intended as a response to the US Inflation Reduction Act will introduce non-price criteria in renewable energy auctions and public procurement, which means that countries will need to apply this to at least 30% of volumes auctioned each year.

This criteria is intended to help the EU’s clean-tech industries compete by prioritising elements such as environmental sustainability, resilience, cybersecurity, business conduct, innovation and ability to deliver on time, alongside the overall project price.

The Carbon Border Adjustment Mechanism (CBAM) from 2026 should help level out the playing field of complying with EU emissions rules, requiring non-EU producers importing into the bloc to declare emissions and buy certificates to pay for them.

While the EU is providing support to the wind sector to promote domestic demand and take measures to level-out the playing field, the same is not the case in the chemicals/epoxy sector.

The inflow of cheap Chinese imports into the west is part of a bigger issue, with structural overcapacity mainly in China against a weak demand backdrop globally and a high-energy and raw material cost environment in Europe  putting the region on the back foot versus other regions.

Lack of cost competitiveness in the chemicals sector in Europe continue to weigh heavily on western players, with two chemical giants ExonnMobil and SABIC the most recent casualties, with some cracker and derivative operational closures.

“Everyone is welcome to trade with Europe. But they have to play by the rules,” said Vestager, Executive Vice President of the European Commission in her recent speech.

But tariffs can only help to some extent, with  regional cost differences and overcapacity mainly in China structural issues that still need to be addressed.

Additional reporting by Aura Sabadus, Gretchen Ransow, Michele Bossi, Will Beacham, Tarun Raizada and Nigel Davis

Europe Graphics: Yashas Mudumbai