Bloomberg News

Shorts Sell ‘Solarcoaster’ as China Glut Sinks Panel Prices

June 30, 2011

(Updates with stock performance in 15th paragraph.)

June 20 (Bloomberg) -- Short sellers are flocking to solar power, dumping record levels of stock in First Solar Inc. and competing equipment makers in a bet that profit will be hurt by a glut of Chinese panels and shrinking demand in Europe.

First Solar of Tempe, Arizona, the world’s largest maker of thin-film solar panels, had a record 23 percent of outstanding shares sold short this month, according to Data Explorers information on Bloomberg. A record 54 percent of Germany’s Q- Cells SE is short, meaning the stock was borrowed for sale by speculators who hope to buy it back later more cheaply.

A surge in Chinese competition and solar subsidy cuts in the world’s biggest markets of Germany and Italy have attracted short selling that has helped push down the 37-member Bloomberg Global Leaders Solar Index 22 percent this quarter. The index’s price-earnings ratio has dropped to 15 from 19 since March 31.

“The stocks look cheap, but 2012 still has massive and potentially overwhelming challenges,” said Shawn Kravetz, chief executive officer of Esplanade Capital. The Boston-based hedge fund has bought Chinese manufacturers and shorted their European competitors, he said, without naming stocks sold short.

Officials for First Solar declined to comment. Thalheim- based Q-Cells did not respond to e-mails or calls.

Kravetz said his colleagues who’ve invested in solar stocks for seven years call the industry a “solarcoaster” because of price volatility. The 37-member Bloomberg solar index has a 60- day volatility of 24 percent, or twice the 12 percent rating of the Standard & Poor’s 500 Index, according to data on Bloomberg.

Evergreen, Suntech

Not all out-of-favor stocks are heavily shorted. The solar index’s biggest decliner this quarter, down 57 percent since March 31, is Evergreen Solar Inc. of Marlboro, Massachusetts, though just 15 percent of its shares were held short as of June 16, the most recent day Data Explorers data was provided.

Nine stocks on the index are shorted more heavily, including four Chinese manufacturers -- LDK Solar Co., Yingli Green Energy Holding Co., Suntech Power Holdings Co. and Trina Solar Ltd. Merrimack, New Hampshire-based GT Solar International Inc., a maker of photovoltaic and polysilicon technology products, has a record 20 percent of its outstanding shares borrowed for short sales.

Jim Chanos, the short seller known for predicting Enron Corp.’s collapse, last month recommended investors should bet against First Solar and said Vestas Wind Systems A/S, the largest wind-turbine manufacturer, is “best avoided.”

Supply Pinch Gone

“Being a buyer of PV is much nicer than being a seller,” said John Rego, chief financial officer of South Plainfield, New Jersey-based Petra Solar, which produces solar generators with integrated smart-grid connections for utilities. At the start of last year “it was rather difficult to get PV, and many smaller companies such as ourselves found ourselves in a spot market. That issue no longer exists.”

As Italy and Germany slowed development of solar projects, China’s JA Solar Holdings Co. and Suntech, the world’s biggest solar-cell makers by capacity, were leading an industrywide expansion of factory capacity that will add at least 9.5 gigawatts of new manufacturing lines this year. That will boost global capacity to 41.5 gigawatts, outstripping demand of no more than 28 gigawatts forecast by New Energy Finance.

Factory Expansion

“We had all this capacity added right ahead of the two biggest markets showing a significant slowdown, that’s why we have a tremendous collapse,” said Gordon Johnson, a solar analyst at Axiom Capital Management in New York. He said the stocks may fall another 50 percent. “This doesn’t end nicely any time soon.”

Manufacturers of solar cells, the device fastened to panels for converting sunlight into electricity, have cut their price about 21 percent this year, prompting panel makers to follow suit, according to Bloomberg New Energy Finance.

The solar index lost 25 percent through June 17 from its 13-month high on Feb. 18. The gauge rose 0.2 percent today to 94.01 as of 1:24 p.m. New York time, led by First Solar, up 3.2 percent. Germany’s Conergy AG fell 9.2 percent.

The best performer among solar companies that have traded at least five years is Germany’s Roth & Rau AG, a maker of factory equipment to manufacture solar cells. The stock has gained 157 percent in the period. At the bottom are Evergreen and Conergy, down 99 percent and 98 percent, respectively, according to prices on Bloomberg.

Declining panel prices “isn’t a bad thing,” Yingli Chief Executive Officer Miao Liansheng told reporters in Baoding, China today. Chief Financial Officer Li Zongwei, at the same event, said Yingli is “looking forward to what will happen after the downturn because we are well-prepared for this downcycle.”

Rush to Hook-up

Global installations of photovoltaic devices doubled last year as developers rushed to hook up equipment in Germany before the government lowered incentives. New plants still may increase by about 30 percent this year as the cost of solar energy drops to near the rate consumers pay for power from the national grid in some of the sunniest parts of California and Turkey.

That’s made Charles Yonts, a solar analyst at CLSA in Hong Kong, optimistic that the industry can work through its inventory without suffering additional declines.

“The worst has passed for demand, but now it’s a question of working through the inventory and that’s difficult,” said Yonts, who recommends investors buy Trina Solar and Trony Solar Holdings Co. of Hong Kong. “Prices have fallen so much that returns are now attractive.”

--With assistance from Christopher Martin in New York and Marc Roca and William Lim in London. Editors: Todd White, Reed Landberg

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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