Treasury Wine (ASX: TWE) share price sinks lower on China update

The Treasury Wine Estates Ltd (ASX:TWE) share price is tumbling lower today after effectively being shut out of China for the next five years…

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Spilled wine and a glass on its side, indicating a share price drop for ASX wine companies

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The Treasury Wine Estates Ltd (ASX: TWE) share price is sinking lower on Monday morning.

In early trade, the wine company’s shares are down 4% to $10.37.

Why is the Treasury Wine share price sinking?

Investors have been selling Treasury Wine shares on Monday after China’s Ministry of Commerce (MOFCOM) confirmed that it would be placing tariffs on Australian wine for five years.

This was the result of the MOFCOM’s final determination in its anti-dumping and countervailing investigations into certain Australian wine exports into China.

What was the final determination?

According to the release, MOFCOM’s final determination is that a combined anti-dumping and countervailing duty rate of 175.6% shall be applied to Treasury Wine’s Australian country of origin wine in containers of two litres or less imported into China. This duty rate is consistent with the provisional measures that were placed on its wines late last year.

This essentially means that a $50 bottle of wine would now cost $137.80 after duties have been applied.

The release notes that the final determination became applicable from 28 March and will remain in place for at least five years.

What now?

Treasury Wine has previously warned that demand for its portfolio in China will be extremely limited while these measures are in place. So, this looks set to be the case for at least the next five years.

In light of this, the company has reiterated that it is working hard to grow its business outside China.

Management commented: “As previously announced as part of its half year results release, TWE is executing a detailed response plan to maintain the long-term strength of its business model and brands, with benefits expected to progressively reach their full potential over a two to three-year period. Today’s final determination does not result in any change to those plans.“

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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