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China Solar Makers See Return of Profits as Margins Rise

Aug. 31 (Bloomberg) -- China’s top solar-panel makers are returning to profitability following two years of losses, after surging Asian demand drove up margins in the second quarter.

Yingli Green Energy Holding Co., the largest panel company, reported gross margin of 11.8 percent in the second quarter, up from 4.6 percent a year earlier, according to a statement yesterday. JinkoSolar Holding Co. already is profitable after its margins doubled to 17.7 percent. Trina Solar Ltd.’s gross margin rose to 11.6 percent and the company expects to be profitable in the fourth quarter.

The panel makers are benefiting from increasing demand in China and Japan, which are set to become the top two markets this year. They’re turning out panels at top speed and shipping at record levels, in contrast to the past two years when a global glut drove down prices, eating into margins and profits.

The second-quarter results mark “the turning point for the PV module industry and a return to profitability,” Stefan de Haan, a solar analyst for IHS Inc. said in an e-mail. “‘The positive Q2 announcements from several PV manufacturers did not come as a big surprise given the accelerated growth they have been seeing in markets such as Japan, China and the U.S., coupled with stabilizing pricing.’’

Asian demand is driving the turnaround. China and Japan may each deploy more than 9 gigawatts of photovoltaic panels. Global installations may reach a record 37 gigawatts this year, up more than 20 percent from 2012, according to Bloomberg New Energy Finance.

Full Factories

That’s boosting factory utilization rates and driving up prices. Baoding, China-based Yingli expects margins as high as 15 percent in the fourth quarter and it may ship as much as 3.3 gigawatts of panels this year. That will exceed its total annual production capacity, which will be about 2.4 gigawatts by the end of this year, according to a conference call yesterday. The company’s second-quarter loss narrowed 43 percent from a year earlier to 33 cents an American depositary receipt.

Trina, based in Changzhou, China, said Aug. 20 it expects to ship as much as 2.4 gigawatts of panels this year, exactly matching its annual production capacity. Shanghai-based Jinko’s factories are about 90 percent full now, and the company boosted its capacity to 1.5 gigawatts a year, which isn’t enough to meet its 1.7-gigawatt shipment forecast for the year.

The average price of Chinese solar panels has rebounded 23 percent this year to 79 cents a watt, according to data compiled by Bloomberg. That follows a 64 percent decline in the prior two years, triggering at least two dozen bankruptcies in Europe and the U.S.

Solar Profits

The companies that remain are now starting to inch back toward profitability. Jinko’s net income in the second quarter was $8 million, its first profit since the third quarter of 2011, as sales surged 43 percent to $287.6 million from a year earlier. That put the company ‘‘among the first Chinese module producers to return to net profitability since the downturn,” Chief Executive Officer Chen Kangping said on an Aug. 14 conference call.

Trina expects to report a profit in the fourth quarter, according to an Aug. 20 conference call. Canadian Solar Inc., which is based in Guelph, Ontario, and produces panels in China, is “on track” to report a profit for this year.

“Returning to profitability for the full year remains our driving focus in everything we do,” CEO Shawn Qu told analysts in a Aug. 8 call.

The positive numbers may be based on recognizing revenue too early, said Gordon Johnson, an analyst at Axiom Capital Management Inc. in New York.

‘Accounting Shenanigans’

“There are accounting shenanigans happening,” he said. “Yingli and JinkoSolar are recognizing revenue for projects they haven’t sold in China.”

There’s still a significant production surplus that will hold back any recovery. Manufacturers have enough capacity to make about 60 gigawatts of panels, he estimated, more than the 37 gigawatts the world will need this year.

“I think people are getting excited for the wrong reasons,” he said.

Other analysts expect improved results from the Chinese solar industry. Vishal Shah, an analyst with Deutsche Bank AG in New York, said more large Chinese solar companies will report profits within the next two to three quarters.

“The supply and demand outlook for the solar sector is improving,” Shah said in an Aug. 20 research note. Growing shipments and increased margins “could drive additional positive earnings momentum as well as share price strength in the near term.”

To contact the reporters on this story: Marc Roca in London at; Ehren Goossens in New York at

To contact the editor responsible for this story: Reed Landberg at

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