China Solar Companies Slowing Production

by: Eric Savitz November 10, 2008 | about stocks: CSIQ / JASO / SOLR / STP / TSL / YGE    

Eric Savitz

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The China-based solar cell and module manufacturers are slowing down production in anticipation of slowing demand and falling prices, according to Wedge MKI, the Asia-based research arm of investment research boutique Wedge Partners. In a research note this morning, Wedge provided a rundown on the moves some of the companies in the industry are making in response to the rapidly shifting economic conditions, including much tighter credit markets, falling module and polysilicon prices and a sharp appreciation in the dollar. “Companies are doing their best to hold on while pricing falls apart, but market visibility is very poor,” Wedge reports.

Here’s a rundown on the steps Wedge finds unfolding at some of the key players:

  • Suntech (STP): “Quietly laying off about 10% of its 10,000 employees, and has idled half its production lines.” Wedge says the company is “lobbying regional banks for short-term financial support in order to ballast the company during this downturn.” The company has “put on ice” its plans to expand from 700 MW to 1.2 GW by the end of the year. European orders are down, and depreciation of the dollar means ASPs “are untenably low.” Prices proposed for new contracts would put solar manufacturers “into a loss position.”
  • JA Solar (JASO): Customer orders are “drastically down.” Channel sources say the company has “large volumes of inventory which will ultimately have to be sold at much-reduced prices.” Contends that half of the company’s production lines have been closed down.
  • Yingli (YGE): Postponed or canceled planned expansion from 400 MW to 600 MW. Trying unsuccessfully to renegotiate contact with equipment supplier GT Solar (SOLR); seeking to retrieve its down payment.
  • Trina (TSL): Halted plans to expand its plan to 700 MW, at least through Q1.
  • Canadian Solar (CSIQ): “Canadian Solar may also have slowed its ingot plant in Luoyang, Henan.”

Wedge notes that the spot price of polysilicon in the China market is down to $233, from $280 last week. “Although the lowered input cost should offer relief, we understand that purchasing is very sluggish due to lack of visibility on market demand and also weak financing for pre-payments,” Wedge reports.

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This article has 19 comments:

  •  
    Nov 10 06:14 PM
    With oil in the 60`s these companies will have a hard time.

    Nice oil forecasts at: oiltradersblog.blogspo...

    And LDK? LDK Solar was my favourite on the last solar bull run.
    Reply | Link to Comment
  •  
    Nov 10 11:40 PM
    It looks like LDK Solar or Solarfun or Q-Cells are not mentioned here and there is good reason. I am an Independant SOLAR analyst....I Liked solar since 1982. The main reason for not expanding for JASO,SUNPOWER, TRINA, and YGE is that "The solar business is cut throat, LDK, SOLF and Q-cells of Germany are all linked and quite frankly the product they produce is superior" and Solarfun is now the exclusive supplier of solar sales to the state of California Electric..

    The easing of the tight supply to normal supply will increase SOLF's margins and not to mention SOLF's recent currency crossover to US$ funds.

    LDK has expanded production to 1.2 GIGAWATTS this quarter and is hiring 1000 people a month.

    It is the law in China that solar power be exploited , you know when poly prices were high and supplies tight the media reported lowered margins for solar companies made it sound real bad. Well for all the signed contracts that means profit margins will sky rocket.

    And for Jaso and the others, having inventory is business's way of saying that their product is not good enough. Their is a high level of competion in solar LDK , SOLARFUN and Q-CELLS have the winning product.

    Reply | Link to Comment
  •  
    Nov 11 12:47 AM
    I don't even think this is really true, just last month, TSL, CSIQ, SOL all have very possitive comments that they already sold out for this year. Next year already booked up to 70% for TSL, 100% for CSIQ(CEO said out of he's planed capacity).
    Reply | Link to Comment
  •  
    Nov 11 12:48 AM
    by the way, STP will have their thin film plant runing by Q1 09, that will be competing with ENER, and First solar.
    Reply | Link to Comment
  •  
    Nov 11 02:33 AM
    Eric, I wonder if you checked the validity of the claims made or are you just quoting a report thinking any potential liability for misleading investors would be pushed back to the author of the original paper?
    Reply | Link to Comment
  •  
    Nov 11 07:31 AM
    PV CAGR: 2009-2012

    China + greater Asia >35%
    Europe >40%
    United States: >50% ???

    renewableenergyworld.c...
    Reply | Link to Comment
  •  
    Nov 11 09:34 AM
    The Stock Prohet To Profits camarodan64, Why does LDK, SOLF and Q-cells have a better product than SunPower? Is it cheaper to install? Is it longer lasting? Does the SunPower product have technical or reliability problems?
    Reply | Link to Comment
  •  
    Nov 11 09:42 AM
    wedge partners is a boutique firm servicing equity portfolios for large institutions. they are a hedge fund. where is the independent analysis. global warming will not be ignored.
    Reply | Link to Comment
  •  
    Nov 11 09:46 AM
    aquaculture, The article at www.renewableenergywor... is a survey of the solar producers. There is probably a bias toward being optimist in their answers just like auto executives are biased in their responses to surveys leading to an over-optimist view of their ability to take market share, and thus an oversupply of cars.
    Reply | Link to Comment
  •  
    Nov 11 10:10 AM
    jaso earnings AmTech notes JASO is scheduled to report September quarter results on November 12th, before the market open. They believe ASPs and shipments remained firm in 3Q08, and are expecting strong operating results. That being said, they expect Q308 results to have very little impact on stock direction given 2009 uncertainties. They are reducing their Q408 and FY09 revenue and EPS estimates given further EUR weakness since their last estimate update on October 10th, as well as four more weeks of project financing tightness leading to increased value chain uncertainty. They believe JASO is currently in discussions to sign a LT contract with a major US energy company that would get the company to 90% booked for 2009. While negotiations have been held up amid recent project financing uncertainty, they believe their new 2009 blended ASP estimate of ~$2.30/w will have the ability to move significant volume in the US, a region we expect to strengthen in the 2H09 should credit markets continue to normalize. at what price do you invest in JASO?
    Reply | Link to Comment
  •  
    Nov 11 10:48 AM
    Pipo, Thanks for the nice link to oil market news, oiltradersblog.blogspo.... Odd thing though. You said that solar companies would have a hard time with oil in the $60s. However, one of your posts on that site warns of another oil proce spike. Your posts seem to counterdict each other. Here's the post.

    Qatar Oil minister fears a Supply Crisis
    Oil prices should be above 70 dollars/barrel to stimulate investments in increased production capacity. With oil prices below 70 dollars, we can hava e medium to long term supply crisis, Qatar's oil minister Abdullah bin Hamad al-Attiyah said on Monday.

    "Now what we are seeing is that the oil price went to a level that leads me to be concerned it will create another crisis in the short term or medium term for supply," Abdullah bin Hamad al-Attiyah said.
    Reply | Link to Comment
  •  
    Nov 11 11:07 AM
    You say: "Yingli (YGE): Postponed or canceled planned expansion from 400 MW to 600 MW. "

    YGE said about one month ago:
    — Company Confirms Cash Flow Sufficient for Current Capacity Expansion Plans and Working Capital
    — Company Confirms No Further Capacity Expansion Plan beyond Its Current Capacity Expansion Plans

    BAODING, China, October 8, 2008 - Yingli Green Energy Holding Company Limited (NYSE: YGE) ("Yingli Green Energy" or "the Company"), one of the world's leading vertically integrated photovoltaic ("PV") product manufacturers, today confirmed that it believes its current cash and expected cash flow from operations and committed available lines of credit will be sufficient to meet its currently anticipated cash needs for the remainder of 2008 and for fiscal year 2009, including cash needs for working capital and capital expenditures for the remaining phases of its current capacity expansion plans.

    The Company confirms that at September 30, 2008, the Company's cash and cash equivalent totaled approximately RMB 883 million (US$130 million) and that the Company also had approximately RMB 3,723 million (US$548 million) in authorized lines of credit, of which RMB 2,614 million (US$385 million) were drawn down to date. The remaining RMB 1,109 million (US$163 million) in available lines of credit can be used if and when needed. In addition, the Company has also received a letter of intent from a PRC domestic bank relating to a potential line of credit of RMB 500 million (US$74 million).

    As previously announced, the Company recently completed installation of an additional 200 MW of annual manufacturing capacity in each of PV polysilicon ingots and wafers, PV cells and PV modules bringing the Company's total annual manufacturing capacity to 400 MW for each stage of the PV value chain. As part of the current capacity expansion plans, the Company also plans to install an additional 200 MW of manufacturing capacity in each of PV polysilicon ingots and wafers, PV cells and PV modules, which is expected to be completed in the third quarter 2009. The Company confirms that it believes its current cash and expected cash flow from operations and committed available lines of credit will be sufficient to cover its capital expenditures to reach its anticipated total manufacturing capacity of 600 MW in 2009 while maintaining adequate working capital to support its operations. In this regard, the Company confirms it has no plans to conduct fund-raising from the capital markets to support this expansion and currently has no plans for further manufacturing capacity expansion beyond 600 MW while it focuses on maximizing utilization of existing capacity and further improving the cost structure of its production. "

    They clearly said they are expanding to 600MW and have currently no plan to go beyong 600MW. Why should we believe you more than the company's statement just one month ago.

    Eric, did you talk to YGE????? I guess you did not!!!!!! Pls respond and prove me wrong.

    Reply | Link to Comment
  •  
    Nov 11 11:16 AM
    WITH NO PLUS TICK RULE THE HEDGE FUNDS WITH THEIR PAID JOURNLISTS....BARRON'S CAN GREATLY INFLUENCE STOCK PRICE MOVEMENTS. CLASSIC BEAR RAIDS. NO PLUS TICK RULE MAKES THIS POSSIBLE
    Reply | Link to Comment
  •  
    Nov 11 12:29 PM
    Let us find out whether the claims in this article are true during their earning report season:

    JASO - tomorrow before market open
    LDK - 11/19
    TSL - 11/19
    STP - 11/20

    Now the bearish camp can easily win the game because market is in bear mode and the solar sector is no exception.

    Most solar stocks are traded so low and I don't know how much lower it could go.

    Most lost 90% from their highs.

    In general, US solar companies are valued 10 times higher than similar Chinese solar companies based on their current and forward PEs
    Reply | Link to Comment
  •  
    Nov 11 12:29 PM
    canb888
    I agree with your reading of YGE. They are a superior company from all that I can read and have continued improvement.

    the crises at hand is bound to have some effects but at the forward P/E that they sport I look forward to very good things from them. YGE is horribly under reported.
    Reply | Link to Comment
  •  
    Nov 11 01:01 PM
    Ya, and which are thin film guys and which are not?
    Reply | Link to Comment
  •  
    Nov 11 05:04 PM
    Raw material costs are sharply lower, and production will be scaled back to prevent a glut of finished materials. Less expansion also removes worries about cash flow to cover these investments. Meanwhile most companies locked in sales for a great deal of future production. Equity market and VC weakness blocks off what was once a steady stream of new competitors.

    Does not seem like a bad situation to me. Click on my name for my more bullish take on solar.
    Reply | Link to Comment
  •  
    Nov 11 06:07 PM
    Eric, everything you write is negative. That pretty well labels you as a short. I suppose we have to have your kind or everyone would be labeled neutrals. But do you think this is the right time with people like me losing their savings and their future? Why don't you just shut up until the market is recovering? Afraid you won't have anything to say then?
    Reply | Link to Comment
  •  
    Dec 05 07:34 AM
    Eric, I asked you whether you verified the claims you are quoting. Today YGE specifically released a PR to answer my question to you. Here is what they say: biz.yahoo.com/prnews/0...

    Here is what CBS MarketWatch say: LONDON (MarketWatch) -- Yingli Green Energy (YGE:yingli green energy hldg co adr
    News, chart, profile, more
    Last: 3.86-0.02-0.52%

    4:02pm 12/04/2008

    YGE 3.86, -0.02, -0.5%) said it reiterating its 2009 outlook, saying it was responding to erroneous news articles saying that photovoltaic module shipments would reach 400 megawatts next year. Yingli Green Energy is estimating between 550 and 600 megawatts of PV module shipments. That's subject to a planned ramp-up during the third quarter. Gross margins will be at least 24%.
    Looks like you were one of those spreading the "erroneous news articles saying that photovoltaic module shipments would reach 400 megawatts next year." What else can one expect from Barron's?
    Reply | Link to Comment
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