Regular readers will know I’m a bit bearish lately on the solar panel manufacturing sector, largely because I believe its recent rebound is being fueled as much by hype as real business after a prolonged downturn. A new report on some of the sector’s so called “growth engines”, coupled with a separate report on a dispute at one of the top surviving players, are adding fuel to my skepticism that the sector’s recent sharp rebound isn’t really happening. At the very least, the recent reports indicate the rebound isn’t nearly as strong as many are claiming, and solar panel makers and their shares could soon be set for far slower growth than many were hoping for.
A number of factors are behind this looming slowdown, most notably financial bottlenecks and related issues in China and other emerging markets that the Chinese panel makers hope will fuel their rebound. They’re being forced to rely on such markets after the US and EU imposed tariffs and took other punitive measures against the Chinese manufacturers for receiving unfair state support from Beijing.
Let’s start off our solar round-up with the worrisome report on Shunfeng Photovoltaic (HKEx: 1165), which emerged as a player to watch last year when it won the bidding to buy most of the assets of bankrupt former solar pioneer Suntech. The new media report is saying that a 500 million yuan ($81 million), 130 megawatt solar farm being built with panels from Shunfeng in China’s interior Ningxia province has run into trouble. (Chinese article)
The report is quite detailed about the issue, but apparently the dispute is purely financial and involves Shunfeng’s failure to pay funds that it promised to help to build the plant. I wrote about this kind of self-financing issue just last week, which has seen most of China’s major solar panel makers partner with other companies to build new power plants, and then provide some or all of the money for such construction. The solar panel makers win new business by selling their panels to such projects, but then end up with big risk if they can’t sell the plants to long-term owners on completion. (previous post)
Shareholders got a bit spooked by the report, with Shunfeng’s shares droping 8 percent after the news came out. The stock was on a steady upward trajectory after the Suntech deal was announced last year, but have now lost about a third of their value since peaking in late May. The decline follows a roughly similar trend for many other solar panel stocks, which have seen bumpy trading this year after a surge in 2013 over optimism for their rebound.
Meantime, another new report on the wider industry trends also hints that the current rebound may be overly optimistic. That report begins with upbeat numbers showing that shipments from China’s major solar panel makers jumped 26 percent in the second quarter of this year, reaching 5.2 gigwatts of capacity, according to data tracking firm NPD Solarbuzz. (English article) But then the same report goes on to cite a range of factors for the rise, many of which don’t look too encouraging.
One of those is the rise in demand from China, which I’ve already explained looks troublesome due to the self-financed nature of many new projects. The report also cites a surge in shipments to the US, as many panel makers raced to beat a new round of punitive tariffs set to take effect. Lastly the report also credits the jump to growing shipments to emerging markets, many of which include financing and protectionist obstacles similar to the ones I’ve already discussed. On the whole, I can’t find any causes for optimism in either of these 2 new reports, and suspect we’ll see the panel makers’ sales and share prices start to come under growing pressure over the next 1-2 years.
Bottom line: A new financing squabble involving Shunfeng and a report on factors fueling a solar panel rebound point to slowing growth for the sector, which will put pressure on both sales and stock prices.
Doug 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 Party Line: How The Media Dictates Public Opinion in Modern China.