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China's Solar Survivors Are Starting to Surge

14 September 2013 in Trading Ideas

It’s been an excruciatingly extended wait for many long-term investors in Chinese solar companies, but an upswing in both financial results and stock prices appears to be taking hold.

The need for patience was thrust upon traders who watched for nearly two years as an oversupply of solar panels sent prices lower, pushing many manufacturers out of business, and wiping out the profits of those that survived.

Now, however, signs that an industry bottom may have been reached has helped many investors recover lost gains – and provided an opportunity for other traders considering whether to ride the latest wave.

Late last month, Yingli Green Energy Holding, the world’s largest manufacturer, said it shipped a record number of solar panels in the second quarter as demand from Asian and US customers increased. Shipments rose 24%, while higher selling prices also contributed to wider gross profit margins.1

Yingli’s chairman, Liansheng Miao, said on the company’s earnings conference call that prices have stabilized for the company, and that demand and supply have reached an “equilibrium.” The company went on to reiterate its full-year forecast that shipments would grow about 40% from a year earlier.

According to Bloomberg, prices for silicon-based panels have increased nearly 8% this year.

But if Yingli’s quarterly results are a little too “micro” for you, how about news that another Chinese solar manufacturer just won a contract to supply one of the biggest solar power stations in the world that just happens to be in the US?

China’s Trina Solar announced in August that it would deliver 1.1 million panels for the plant, which will be based in the Nevada desert, and will be the biggest in the US to use China-made panels.2

The news is significant because, as the website Quartz noted, Chinese companies have grabbed a significant part of the US residential market but have generally not been favored by American utilities and developers of big solar power plants.

But that could be changing. Trina’s agreement comes on the heels of an announced deal by Yingli to provide panels for a power plant under construction in the desert outside of San Diego.

chinese solar motifThe perceived recovery among China’s stronger solar companies has also been a boon for their stocks. The Chinese Solar motif has jumped 26.4% over the past month. In that same period, the S&P 500 has gained 0.3%. So far in 2013, the motif has increased 102.0%; the S&P 500 is up 17.2%.

If anything, longtime investors in Chinese solar stocks have experienced both feast and famine over the past two years. For those prepared to stick with their stocks, indication of rising demand can provide some comfort for now.

1Marc Roca and Ehren Goossens, “Yingli Solar-Panel Shipments Surge to Record on Demand,” Bloomberg.com, Aug. 30, 2013, http://www.bloomberg.com/news/2013-08-30/yingli-solar-panel-shipments-surge-to-record-on-demand.html, (accessed Sept. 10, 2013).

2Todd Woddy, “China wins a deal for one of the world’s biggest solar power plants, and it’s in the US,” qz.com, Aug. 13, 2013, http://qz.com/114770/china-wins-deal-for-one-of-the-worlds-biggest-solar-power-plants-and-its-in-the-us/#114770/china-wins-deal-for-one-of-the-worlds-biggest-solar-power-plants-and-its-in-the-us/, (accessed Sept. 10, 2013).

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