Losing power: China's wind gear makers face lean returns

Thu Dec 22, 2011 3:23am EST

* Wind gear makers' profits to dip for next 2 yrs - analysts

* Hurt by sluggish overseas demand, slow growth at home

* Limited success in overseas expansion plans

By Leonora Walet and Li Ran

HONG KONG, Dec 22 (Reuters) - Huge overcapacity and weak demand mean Chinese wind turbine makers, among the world's largest, are set for lower revenue and profits for at least the next two years.

China had more than 80 wind turbine makers as of 2010, capable of producing over 40 Gigawatts, yet wind equipment demand is expected to be just 15 GW a year.

And companies looking overseas to fuel their growth are met by funding bottlenecks in Europe and the United States that are likely to mean a decline in orders.

At home, Beijing has taken action to rein in overcapacity - implementing stricter technical standards for wind turbine production, tightening approvals for new wind farms and suspending connections of certain wind projects.

Those government moves to cool the sector have already dented profits at China's top companies, including Sinovel Wind Group and Xinjiang Goldwind Science and Technology . Earnings at several firms nearly halved in the first half of this year.

"The worst isn't over for these guys," said Min Li, head of alternative energy at Yuanta Securities. "Massive oversupply and a slowdown in wind turbine orders will keep margins depressed for a couple more years."

Macquarie analyst Patrick Dai said he expected Goldwind's revenue to decline at an annualized rate of 3 percent from 2011 to 2013.

"Oversupply and soft demand conditions are unlikely to improve significantly in 2012, which suggests that pricing pressure should persist in the next 12 months," he said.

Chinese wind turbine makers' global share had been expanding along with China's rise as the biggest wind power market last year.

Seven Chinese companies, including Dongfang Electric and China Ming Yang Wind Power Group, were among the world's top 15 in 2010, according to Make Consulting, a specialist in the wind power industry.

China is on track to install 15 GW of wind power capacity annually through 2020, down from about 19 GW added last year, according to the Chinese Wind Energy Association.

After a two-fold annual rise in capacity over the last five years, the pace of China's wind power expansion has eased due to Beijing's market-cooling measures.

Shrinking markets at home have driven many Chinese firms to seek growth overseas, but they face fierce competition from global rivals in big markets such as the United States and Europe.

"Chinese turbine makers have increased their efforts for international expansion, with limited success so far," UBS analyst Patrick Hummel wrote in a recent report. "Their aggressive pricing keeps industry margins under pressure."

Exports represented just 5 percent of Chinese companies' wind turbine sales in 2010. Companies like Goldwind aim to boost that to 30 percent by 2015.

The Global Wind Energy Council puts the combined market potential for the United States and Europe at 20 GW next year and 22 GW in 2013.

As the brakes are applied to the breakneck pace of growth in China's home market, there may be casualties.

"Now we see the top three turbine makers produced over 10 GW last year," said Shi Pengfei, Vice-President at the Chinese Wind Energy Association.

"The fact is for each year, the rest of the players will be forced to compete for the remaining 5 GW."

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