March 3, 2011 / 1:20 AM / 7 years ago

Suntech CEO sees temporary supply glut

SANTA BARBARA, California (Reuters) - Solar panel maker Suntech Power Holdings Co Ltd will sell half its production of solar panels in Europe this year despite a pullback in government incentives in key markets there, Chief Executive Zhengrong Shi said on Wednesday.

Construction workers fix solar panels for a new solar power plant near Olching-Esting westward of Munich July 7, 2010. REUTERS/Michaela Rehle

The head of the Chinese company also forecast an impending global supply glut of solar panels, but said it would be temporary.

Suntech sold more than 50 percent of its 2010 production of solar panels to customers in Europe, and that figure will drop only slightly this year, Shi said.

About 10 percent of Suntech’s production will be sold in Italy — about the same as last year, Shi said.

Investors have been worried about an expected revision of solar subsidies in Italy after explosive growth in the solar power market there last year.

Investors in solar stocks fear a dramatic decline in government support will lead to an oversupply of solar panels that will drive prices down more quickly than expected and hurt manufacturers’ profits.

“Temporarily, oversupply will occur,” Shi said, adding that it could happen this year. Lower prices on solar panels, however, help spur demand, he said.

“Once oversupply occurs the price will be reduced and demand will increase too,” Shi said.

Suntech already has agreements in place to sell more than 80 percent of its planned 2011 production, Shi said. He also expects average selling prices on solar panels to drop about 10 percent this year.

Manufacturers want the price of solar power to fall so that it can become competitive with electricity derived from fossil fuels and less reliant on government subsidies. When it falls faster than they can reduce their costs, however, margins get pinched and profits suffer.

Suntech expects its margins to expand this year as it ramps up output of polysilicon wafers, which are used to make cells that are incorporated in the solar modules. Producing the wafers in-house rather than buying them from a third party cuts down on manufacturing costs.

Suntech rivals such as Trina Solar Ltd and Yingli Green Energy Holding Co Ltd already produce their own wafers, and as a result Shi said their profit margins have peaked while Suntech’s still have room for expansion.

“Their profit will only go down because of (average selling price) declines. Within that community I think Suntech probably is the only company that will expand our profit,” Shi said.

While half of Suntech’s sales will be in Europe, the company is rapidly expanding in the United States, China, India, Australia and other markets.

The overall Chinese solar market is expected to double this year, Shi said, to about 1.2 gigawatts from 600 megawatts last year. Suntech has about a 15 to 20 percent share of the Chinese market, he said.

In India, Suntech has partnered with Indian solar power producer Azure Power. The company is currently evaluating whether to build a production facility in that market, Shi said, adding that Suntech would consider expanding production capacity in the United States or adding manufacturing in Europe if those solar markets would be supported long term.

“We cannot manufacture everything in China. We need to make sure we can have a sustainable market here and also a supply chain around us,” Shi said. “It’s easy to set up manufacturing. It would be expensive and embarrassing to dismantle manufacturing.”

Suntech shares closed at $9.81 on the New York Stock Exchange, up 3 cents on the day. The stock has fallen nearly 37 percent since hitting a 52-week high of $15.55 last April.

Reporting by Nichola Groom; Editing by Richard Chang and Carol Bishopric

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