Price declines, oversupply to hit solar Q3

FRANKFURT/NEW YORK Mon Oct 24, 2011 11:18am EDT

Workers build a solar panel in a factory in Sainte Marguerite, Eastern France, September 2, 2011.  Picture taken September 2, 2011.   REUTERS/Philippe Wojazer

Workers build a solar panel in a factory in Sainte Marguerite, Eastern France, September 2, 2011. Picture taken September 2, 2011.

Credit: Reuters/Philippe Wojazer

FRANKFURT/NEW YORK (Reuters) - The solar industry is in for a dire quarter as falling government subsidies and low volumes further drive down equipment prices at a time when oversupply has already led many sector players to lower their full-year profit outlook.

A pick-up in demand for solar panels, widely expected by industry players for the second half, failed to materialize, pushing several U.S. companies, most notably panel maker Solyndra LLC, to file for bankruptcy in recent months.

European players have been cutting their outlooks on falling demand in Germany, among them SMA Solar, the world's No.1 maker of solar inverters and Europe's top solar company by market value.

"We will see quite a dismal set of result," said Thiemo Lang, a senior portfolio manager at Sustainable Asset Management, owner of Yingli Green, Canadian Solar and Trina Solar shares as of July.

"The sector currently suffers from oversupply, in combination with still muted demand, causing serious price pressure. The companies will report very bad margins and/or even losses because of highly priced inventories (that) they have to work through now," he added.

IN TROUBLE

China's Suntech, the world's top maker of solar cells, is expected to report a much wider-than-expected loss in the third quarter, according to equity research firm StarMine, which gives more weight to forecasts from the historically most accurate analysts.

The company is expected to release results in mid-November.

"Q3 volumes have not picked up as much as hoped for, despite favorable internal rates of return (IRR) given low average selling prices (ASP). The main reason seems to be financing issues and postponed projects due to cheaper price expectations," Deutsche Bank analyst Katja Filzek said.

Norway's Renewable Energy Corp will be the first major player to report, scheduled to publish third-quarter earnings on October 26. Germany's top players, including SMA, Centrotherm and SolarWorld, are due in the first half of November.

Cooling demand in Germany, the world's largest solar market, has particularly hit the industry, which still depends on government subsidies to survive. While solar installations accounted for 45 percent of the global market in 2010, this share could halve this year, industry association EPIA said.

Adding to the sector's woes is a full-scale trade war that erupted last week, when Western solar companies increased their efforts to get stiff duties imposed on Chinese-made solar energy products.

The outlook for Western solar companies is indeed gloomy, Financiere de L'Echiquier fund manager Frederic Plisson said.

"Those companies are in trouble right now and will be in more in a few years," he said. "(For them) it will be very difficult to compete with emerging companies."

(Additional reporting by Harro ten Wolde; Editing by Jon Loades-Carter)