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China Solar Makers Face ‘Suicidal’ Prices on Excess Output

Updated on
Suntech Solar China
Workers operate on the assembly line that makes photovoltaic cells, the main energy generating component of a solar panel, at the Suntech Power Holdings Co. factory in Wuxi, China. Photographer: Qilai Shen/Bloomberg

Losses for China’s largest solar manufacturers, including Suntech Power Holdings Co. and JA Solar Holdings Co. may continue through next year as declining shipments prompt them to slash prices and liquidate inventory.

Shipments at Suntech will fall about 20 percent in the fourth quarter from the third, the world’s largest panel maker said today in its third-quarter earnings report. JA Solar, the country’s biggest cell producer, also said shipments will fall sequentially, and it wrote off inventory in response to falling prices, driving down gross margins.

Cell prices have fallen 59 percent since Dec. 27, according to Bloomberg New Energy Finance. Seven Chinese companies reported lower gross margins since yesterday and three said margins have moved into negative territory, an unsustainable level, said Hari Chandra Polavarapu, an analyst at Auriga USA in New York.

“Liquidation is leading to suicidal pricing.” Polavarapu said in an interview today. There are too many solar companies in China, he said, and they are cutting prices to maintain share. “China’s strongest manufacturers are sacrificing profitability because the weakest players still exist.”

Chinese solar manufacturers expanded capacity faster this year while demand growth slowed in Europe, the top regional market.

“We are seeing a softening in the European market continue into the fourth quarter,” Suntech Chief Executive Officer Zhengrong Shi said today on a conference call. “We expect that the fourth quarter of 2011 and the first half of 2012 will be a challenge for all solar companies.” Panel shipments for 2011 will be about 2,000 megawatts, down from an Aug. 22 forecast of 2,200 megawatts, Suntech said.

‘Pricing Has Collapsed’

JA Solar said it expects shipments of solar cells and modules of 310 megawatts to 330 megawatts in the fourth quarter, compared with 445 megawatts last quarter. Neither gave a forecast for next year.

“Demand has not lived up to expectations and pricing has collapsed over the last three quarters,” Aaron Chew, an analyst at Maxim Group LLC in New York, said today in an interview. “Most of the major cell, wafer and module manufacturers are poised to report four quarters in a row of losses and this is just the first one.”

Suntech reported a net loss of $116 million for the third quarter, or 64 cents an American depositary receipt, on sales of $809.8 million. JA Solar posted a net loss of $59 million, or 36 cents an ADR, on sales of $388 million.

Falling Margins

Gross margin, a measure of profitability after accounting for the cost of the goods, was negative 4.3 percent at JA Solar, down from 22.5 percent in the third quarter of 2010. Suntech’s margin fell to 13.3 percent from 17.9 percent.

Hanwha SolarOne Co. reported gross margin of negative 10.8 percent, down from positive 24 percent a year earlier, and LDK Solar Co. fell to negative 3.6 percent from 22.2 percent.

Margin also decline at Canadian Solar Inc., which released its results today, and at JinkoSolar Holding Co. and Trina Solar Ltd, which both issued reports yesterday.

All wrote down inventory in the third quarter except Suntech, which did so in the second.

Suntech rose 17 percent to $2.62 in New York. JA Solar rose 5.3 percent to $1.60, LDK gained 6 percent to $3.00, Canadian Solar increased 13 percent to $2.48 and Hanwha climbed 15 percent to $1.39.

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