Chinese Solar Cos Go Shopping To Avoid Troubles At Home

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Doug Young 

Bottom line: Sputtering progress for China’s solar power build-up could erode domestic panel makers’ performance, prompting some to buy more overseas assets to avoid punitive trade barriers in the west.

The latest trouble signs in China’s ambitious solar power build-up are coming in newly released quarterly results from Trina (NYSE: TSL), which has reduced its annual sales targets after scrapping one of its planned new projects in the country. At the same time, China’s industry continues to look for ways to circumvent anti-dumping tariffs in the west by setting up off-shore production and purchasing foreign assets to avoid such penalties. In the latest move on that front, a unit of China National Chemical Corp, also known as ChemChina, has just announced its purchase of a major panel producer in Norway for about $640 million.

China’s major solar panel makers have relied on exports for much of their explosive growth over the last decade, with the big majority of sales going to buyers in Europe and North America. But both markets have taken punitive actions against Chinese panels over the last 2 years, complaining that Chinese manufacturers receive unfair state support in the form of policies like export credits and cheap loans from big state-run banks.

The Chinese firms were depending on a major build-up of China’s domestic solar power industry to help offset losses in western markets, though signals earlier this week indicated that program was running into some headwinds. (previous post) Now we’re starting to see some real results of those headwinds in the newly released quarterly results of Trina, one of China’s top panel makers.

The company reported fairly respectable results for the third quarter, with revenue up nearly 20 percent on a quarter-to-quarter basis and profits up a more modest 3 percent due to foreign exchange factors. (company announcement) But investors were spooked by the company’s downward revision of its full-year guidance for module shipments.

The main factor behind that revision appears to be a solar farm that Trina planned to develop in Inner Mongolia, but ultimately scrapped due to changes in government policy. Trina said those policy changes could also affect the company’s pipeline of other projects. That gloomy outlook sent Trina’s shares down 5.2 percent, and they now are trading 43 percent lower than a peak reached back in March.

Interestingly, shares of other major players like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) didn’t drop in the latest trading session, even though these companies will also be affected by the same trends that are hurting Trina’s outlook. Accordingly, I wouldn’t be surprised to see these shares also come under pressure soon, and for the entire sector to feel some pressure through the first half of next year until the China situation clarifies.

Meantime, the other major news bit from the solar sector has China National BlueStar Co, a unit of ChemChina, purchasing Norwegian solar panel maker REC Solar (Norway: RECSOL) for 4.34 billion kroner, or about $460 million. (English article) REC previously had manufacturing operations in Norway, but later closed all of those and now does all of its manufacturing in Singapore. Analysts are saying the deal could be followed by similar ones that see Chinese producers purchase offshore assets to circumvent barriers in Europe and North America.

The United States has levied punitive anti-dumping tariffs against Chinese-made panels, and the European Union (EU) has taken similar actions through an agreement negotiated last year requiring Chinese panel makers to voluntarily raise their prices. But solar panels made in the west and other markets like Singapore aren’t subject to those actions. Accordingly, we could see more similar purchases in the year ahead, and the trend could even accelerate if the solar build-up in China shows further signs of stalling.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.


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