Solar boom and bust: Suntech, JA Solar and LDK hit the skids
China’s solar industry is becoming a textbook example of boom and bust economics. In the past day three of China’s leading players have all announced they have fallen into losses following a period of ambitious growth, good profits and high capital expenditure.
To add insult to injury, the solar sector is now being actively targeted by financial short selling, exacerbating the volatility in the share price.
Suntech Power (NYSE:STP) posted a loss of USD 116.4 million in the third quarter, down from USD 33.1 million last year. LDK Solar (NYSE:LDK) said its loss for the quarter was USD 114.5 million compared to profit of USD 93.4 million last year, and JA Solar (NAQ:JASO) delivered a USD 43.3 million loss in the quarter against a USD 104.9 million profit last year.
These are the industry’s big players both in China and globally. Other smaller players like Wuxi Jingeng, Jiangsu Aide Solar Energy, Shanghai Chaori, and Shanghai Solar Energy are also known to be suffering.
The losses should come as little surprise given the behaviour of the industry in the last three years. In most countries solar has been receiving high levels of government investment and direct subsidy through ‘feed in tariffs’ (where governments pay more than normal per unit of electricity fed into the national grid). This led to numerous solar projects, large and small, and a boom in demand for panels. The industry, particularly chinese companies, responded with large investments in manufacturing capacity.
The industry has now been hit in the last quarter from two fronts. Firstly excess capacity is now hurting and causing prices to slump. Secondly many governments around the world are reducing or removing solar subsidies to cut their expenditure and national debt. While companies like Suntech are also blaming excessive ‘dumping’ of cheap products by others or currency problems, most rational analysts are saying that the whole industry is to blame for getting itself caught in an unsustainable boom.
Booms always end in busts and that’s where the industry is now. Solydra LLC, a Californian producer of PV panels, went into chapter 11 bankruptcy protection in September and cannot now find a buyer for its factory. The natural outcome from here would be for more smaller players to go out of business, taking out capacity and allowing prices to stabilize.
