Chinese solar losses mount but stocks still rise

Tue Nov 22, 2011 2:20pm EST

(Reuters) - Chinese solar companies including Suntech Power Holdings Co Ltd, JA Solar Holdings Co Ltd and LDK Solar Co Ltd posted larger-than-expected quarterly losses and warned that the sector's bleak outlook would continue well into next year.

But shares in the companies, which initially traded lower on Tuesday, rebounded later in the day, led by Suntech, which erased losses made during the previous three trading sessions.

The price of solar panels has dropped 40 percent this year as key European markets have trimmed subsidies, leaving the market awash in extra supplies and sending shares in most of the companies down more than 70 percent since 2010.

That glut of inventory has exacerbated tensions between China's industry and manufacturers in the United States, where the Obama administration is now investigating whether Chinese companies have been "dumping" their panels at unfair discounts.

China's solar industry fired back on Tuesday, with top executives of the trade association saying the companies may ask Beijing to probe imports of U.S. polysilicon, the key material in most solar panels.

With margins sagging under the pricing pressure, Suntech, LDK and JA Solar are all moving to conserve cash and reduce capital expenditures.

Suntech, the world's largest maker of photovoltaic panels, trimmed its shipment forecast for the current quarter by about 10 percent and said it would seek to aggressively cut costs in 2012.

But Suntech's shares firmed almost 17 percent, or 39 cents, to $2.62 by afternoon trade, leading a bullish bounce that saw most of the companies rise more than 5 percent, and some more than 10 percent.

The volatile sector has been heavily targeted by "short sellers," who bet on share prices to drop, and Tuesday's gains appeared to be related to some of those investors buying to cover their positions, market analysts said.

"Chinese-listed solar stocks dominate the list names with the greatest amount of short interest, accounting for eight shares out of the top 20 (shorted) shares," Data Explorers said in a research report.

Suntech, JA Solar and LDK, as well as Canadian Solar Inc and Hanwha SolarOne Co Ltd, took one-time charges to write down the value of their inventories, and all were carefully eyeing the market and managing their factory output.

"We're monitoring our inventory level carefully and currently producing to order," Min Cao, JA Solar's chief financial officer, told a conference call.

Still, companies appear wary of cutting spending too deeply and losing pace with their competition.

"We've been a little bit surprised that there haven't been larger declines in (spending) by some of the marginal players," said Edward Guinness, co-manager of the Guinness-Atkinson Alternative Energy fund, which owns shares in Trina Solar Ltd. Yingli Green Energy Holding Co Ltd and LDK.

Companies remain under heavy pressure to cut their production costs to keep ahead of the market price declines.

Chinese manufacturers, who produce the majority of the world's modules, are targeting module costs of about 80 cents per watt next year, down more than 25 percent from current levels.

Those reductions will likely only be reached by the largest players, who can buy supplies at a discount and drive down costs.

"The only people that are going to achieve 80 cents (per watt) are the volume leaders," Guinness said

EARNINGS SUNSET

Suntech, which has been among the fastest to expand its manufacturing capacity, posted a net loss of $116.4 million, or 64 cents per American Depositary Share (ADS),for the third quarter versus a year-earlier profit.

"Looking forward, we expect excess capacity to fuel strong competition and consolidation in the next two to three quarters. This will be challenging for all solar companies," Zhengrong Shi, Suntech's chairman and CEO, said in a statement.

JA Solar Holdings posted a net loss of 36 cents per share, compared with a net loss of 49 cents per share in the same period last year.

JA Solar cut its 2011 shipment forecast to 1.6 gigawatts, down from a previous 1.8 gigawatts. Shares of JA Solar fell 4.6 percent to $1.45 in premarket Tuesday trading.

"As a result of on-going macro-economic and industry uncertainty, visibility in the near term is limited," Peng Fang, JA Solar's chief executive, said in a statement.

LDK, which makes the polysilicon wafers used in solar panels, posted a net loss was $114.5 million, or 87 cents per ADS, as its sales dropped 30 percent to $471.9 million.

Elsewhere, Canadian Solar reported a third-quarter loss of $43.9 million, or $1.02 per share, compared with a net profit of $20.3 million, or 47 cents per share, in the same period last year.

Hanwha SolarOne posted a wider-than-expected quarterly loss, hurt by lower shipments and prices. The company cut its full-year shipment outlook saying it expects industry conditions to remain tough.

On Monday, Trina Solar, said it would reduce its output to about 80 percent of capacity in the fourth quarter. It reported a worse-than-expected third-quarter net loss of $31.5 million, or 45 cents per ADS.

Shares of Suntech rose 16.6 percent to $2.60 on Tuesday, LDK was up 6.0 percent at $3.00, JA Solar shares gained 3.3 at $1.57, Canadian Solar rose 10.9 percent to $2.44 and Hanwha rose 12.4 percent to $1.36.

(Reporting by Matt Daily and Ernest Scheyder in New York Swetha Gopinath and Divya Lad in Bangalore; Editing by Derek Caney, Dave Zimmerman and Gerald E. McCormick)