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After watching their shares and prospects soar over the past
year, solar stocks are suddenly hitting a cloudy patch as
investors anxiously wait for most companies to return to the
profit column following a 2 year sector downturn. That wait may
have just gotten a lot longer, following a warning from Trina
that it will fall far short of its previous sales forecasts for
the just-ended first quarter.
Trina blames the problem on short-term factors, as it and other
Chinese panel makers work to finalize an agreement to avoid the
European Union’s previous threat of anti-dumping tariffs. But
hidden in the optimism from Trina and its Chinese peers is the
fact that the new agreement is likely to have many of the same
effects as the original punitive tariffs. That means most of these
Chinese companies will suddenly face resurgent new competition
from western rivals in Europe once a deal is reached.
According to its newly issued warning, Trina said it now expects
to report it shipped 540-570 megawatts worth of panels in the
first quarter that just ended on March 31. (company announcement) That figure is down
sharply — about 20 percent to be precise — from the 670-700
megawatts worth of panels that it previously forecast just 6 weeks
ago. Trina blames the shortfall on failure to finalize an
agreement with the EU, after the 2 sides last year reached a
landmark deal that would see the Chinese panel makers voluntarily
raise their prices to offset the effect of unfair subsidies from
their home government. (previous post)
Most solar shares have rallied strongly over the last year over
hopes that a 2 year sector downturn was in the past. But the
stocks have given back a big chunk of those gains in the past
month, in a needed correction as investors realize a turnaround
may be slower in coming than many had hoped.
Trina shares dropped 3.8 percent after its warning, and are down
nearly 40 percent since early March. Other panel makers are down
by similar amounts, with Yingli (NYSE: YGE)
down 42 percent over the same period, including a 6.5 percent drop
after Trina’s warning. Even superstar Canadian Solar
one of the only major panel makers to return to profitability, has
lost 34 percent since early March, including a 6.3 percent drop
after Trina’s warning.
Some might argue that the current sell-off may be nearing an end,
since a 40 percent correction is certainly quite large. But many
optimists in the crowd are failing to realize that the new EU
agreement will have virtually the same effect as punitive tariffs,
since it will force Trina and its peers to raise their prices to
levels similar to those from their US and European rivals. That
means all the Chinese manufacturers will face stiff new
competition under the new agreement in Europe, which has
traditionally been their biggest market.
Meantime, the companies could also soon face similar competition
in the US, which last year imposed its own anti-dumping tariffs to
protest China’s unfair state support for the industry through
policies like cheap loans and preferential taxes. The US is
currently working to plug a loophole in its earlier decision that
allowed the Chinese panel makers to avoid many of the extra
tariffs. When that happens, the Chinese companies will also face
renewed competition in that market. (previous post)
Two bright spots for the Chinese manufacturers will be their own
home market and also Japan, where the governments and private
companies have launched ambitious programs to rapidly build up
solar power capacity. But those developments won’t be enough to
offset the big obstacles in the US and Europe, meaning that
Chinese solar panel makers are likely to see both their sales and
stocks come under pressure for the rest of the year.
Bottom line: Trina’s sales warning hints at new
obstacles for Chinese solar panel makers in the key EU market,
putting pressure on their sales and shares for the rest of this
aDoug Young has lived and worked in China for 15 years, much of
that as a journalist for Reuters writing about Chinese companies.
He currently lives in Shanghai where he teaches financial
journalism at Fudan University. He writes daily on his blog, Young´s
China Business Blog, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China, The
How The Media Dictates Public Opinion in Modern China.
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