Chinese Solar Stocks Surge
Additional Subsidies Boost Market
Since the end of the summer, U.S. shares for nearly every major Chinese solar company have been trading below $5.
A standoff occurred between U.S. and European solar panel makers and these Chinese companies earlier this year as plunging prices began to hurt companies on both sides.
But Chinese companies were able to sell their products overseas for below market price. They were pushing European and U.S. companies out of business in their own local markets.
So the U.S. hit back with high tariffs on these government-sponsored companies, citing unfair price competition and heavy subsidies.
Chinese companies were unable to withstand these tariffs, and shares began slipping in June and July before plummeting through the end of August.
But today these same companies received a boost. The Chinese government announced that it would add 7 billion yuan, or $1.1 billion, to existing solar subsidies to bring the total subsidies for 2012 to 13 billion yuan, or $2 billion.
China's Ministry of Science and Technology announced that over 100 solar developers with a combines 2.8 GW capacity would be receiving these subsidies, including major major companies like Trina Solar Ltd (NYSE: TSL) and Yingli Green Energy Holdings Co (NYSE: YGE).
Yesterday, immediately preceding this announcement, Xinhua News Agency reported that China may double the 2015 solar capacity target, raising it from September's 21 GW to 40 GW.
But analysts find themselves concerned about China's actions. After all, these heavy subsidies were the reason behind the U.S. tariff and an ongoing investigation by the European Comission.
“What Beijing is doing is essentially trying to replace the diminished export sales with lower price, lower margin domestic sales,” said Raymond James analyst Pavel Molchanov. “It is a backdoor bailout.”
And the problem with this sort of bailout is that it may create an initial boost, but it won't change things over the long run.
The companies can soak up all the funds the government pours out, but it won't change the simple fact that their products are not profitable. Prices are just too low, even if shipment volumes are pushed up.
“We think it is extremely unlikely that anyone can come close to making money at that level,” [Pacific Crest Securities LLC analyst Ben] Schuman said in an interview. “I don't see this as evidence that the government has 'picked winners' or that the industry is rationalizing,” he said.
Aaron Chew, a Maxim Group analyst, told Reuters:
“Just because you sell more megawatts at zero percent margins doesn't mean you'll make more money. China will be able to absorb more capacity next year, but it doesn't change the economics of solar.”
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Despite this sour reaction by many analysts, Chinese solar companies all received huge boosts on Wednesday. Trina Solar, for example, was up 13.49% in the afternoon. Yingli was up 17.68%.
And others followed them as well. LDK Solar Co. (NYSE: LDK), which is struggling with massive debt problems, shot up 16.35% On Wednesday afternoon. It's down 71 percent so far this year. JA Solar Holdings (NASDAQ: JASO) was up 16.74%. JinkoSolar Holding Co. rose 20.98%. And Suntech Power Holdings Co. (NYSE: STP) was up 12.22%.
That's all for now,
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