Four Chinese Solar Stocks Under Threat from Pollution

By Irwin Greenstein

Mother Nature has its own beating in store for already battered solar energy stocks. As if the plunging price of oil wasn’t enough to bring solar stocks to their knees, the new report by the United Nations shows how China’s toxic pollution may hinder the development of the country’s burgeoning solar industry.

The putrid haze of Beijing that has engulfed China and greater Asia is reducing the amount of sunlight that actually reaches the ground, according to a new report from the United Nations Environment Program.

In addition to being responsible for millions of deaths and blighted crop yields, these so-called Atmospheric Brown Clouds (ABCs) have dimmed China’s skies to the extent that the country’s solar initiative, and its huge solar industry, could become DOA.

As it stands now, Chinese solar stocks are on life support — depleting the portfolios of investors who got in at the top of the China IPO solar bubble of 2006-2007.

The losses have been staggering…

Solarfun Power Holdings Co. (Nasdaq:SOLF) has a 52-week range of $4.20 - $40.19 - a drop of 89.5%

Trina Solar Ltd. (NYSE:TSL) fell from 56.50 to 8.51 over the past 52 weeks - for a loss of 84.9%.

Suntech Power Holdings (NYSE:STP) saw it’s 52-week price plunge to $9.53 from $90.00 - a loss of 89.4%

And JA Solar Holdings, Co., Ltd. (Nasdaq:JASO) fell from $27.00 to 2.01 over the past 52 weeks - a loss of 92.5%.

In a conference call to analysts on November 12th, JA Solar CEO Samuel Yang said “At this moment the market reaction has been panic.”

Now it appears that China’s home market for solar products is facing a very dim future as well from decades of pollution.

ABCs reflect solar radiation back to space by absorbing heat in the atmosphere.

In China, ABCs can cut sunlight on the Earth’s surface in two ways. Fossil-fuel particles such as sulphates reflect and scatter rays back into space, while black carbon in soot, absorbs sunlight before it reaches the ground.

According to the report, smog blocks 10-25% of the sunlight that should be reaching terra firma in China.

This isn’t just a thin layer of pollution blocking out the sun. In some places, it can be a mile thick. It can stretch from the Arabian Peninsula to the Yellow Sea, sometimes drifting as far east as California.

The U.N report says “In China the observed dimming trend from the 1950s to the 1990s was about 3-4 per cent per decade, with the larger trends after the 1970s.”

What does this mean for investors?

Those of you who tend to be bottom feeders should stay away from China solar stocks at any price. As we all know, when it comes to stock markets nothing is permanent. But zero is the share price we could be looking at for some these fallen IPO stars.

Disclosure: no positions
 

Comments

[canb888:]

You said a lot about "The losses have been staggering..." they are all related to the share prices only not operating losses. You did say nothing about the fact that most of these Chinese solar companies are making lots of profits (not losses). How would their share price fall to zero if they continue to make lots of profits? It looks like you have some problems in your logic. And, by the way, I would love to buy tons of them if they come close to zero.

2008 Nov 18 04:45 AM

[User 290556:]

This is totally BS! anyone can reason another way that is 180 degree different --China now sees the bad consequence after decades of pollution, it has no choices but to promote clean energies, specifically solar more aggressively. It is now a boon for the industry! Opportunity buy at this low, give away price. What do you say?

2008 Nov 18 07:56 AM

[jimbob8888:]

Good point canb888. Also, if light has been dimming over the past 50 years, don't you think investors would know this? The info you present is not exactly forward looking. Also, I love how you attribute the fall solar stock prices to the fall in oil. This is typical causual ambiguity at its best. Irwin, what is solar energy used to do? It's used to power homes and the grid. Yet less than 2% of grid power comes from oil. So the fall in the price has nothing to do with it unless there is an assumption made that solar will be put on car roofs in the future. The argument that natural gas prices have crumbled and governments saddled with fiscal deficit might combine to eliminate feed in tariffs would be a stronger argument. But then add in Russia's sabre rattling of late and I think you'll see that energy independance is really the issue at heart.

2008 Nov 18 08:03 AM

[jbde:]

All the more reason to convert to solar and reverse the trend. They have cheap labor and can solve their own problem. Anyone who thinks solar is going away is a fool.

As for stocks, people panic and prices get crunched - start scaling in, at the first hint of growth watch oil prices soar and all will be right - again.

2008 Nov 18 08:16 AM

[dedust2:]

Adding to all the comments above, it is also noteworthy that most of these profitable companies` sales come from Europe and to some extent the United States. This article is really silly!

2008 Nov 18 09:10 AM

[skylooker:]

Solar companies and other alternative energy companies like APWR will play a vital role in correcting the pollution problems. The presence of pollution will be a force that will help drive the solar industry, not kill it.
I think the author of this article was very short-sighted.

2008 Nov 18 09:20 AM

[gebby:]

this is one stupid article, i am sorry.

2008 Nov 18 09:25 AM

[Shareholder...:]

I have to agree with gebby. China is not an important market for any of these, so this guy basically doesn't know what he's talking about.

Even if China would be an important market, 3-4% reduction in solar light a decade is bad, but solars will still work. And in fact, they're part of the solution, switching to solar instead of coal for electricity generation will clear the skies.

First price in category most senseless article

2008 Nov 18 10:03 AM

[whatthe:]

This is the dumbest post I've seen on seeking Alpha.
If there is more pollution then there should be a greater demand for Solar!!
I will be sure to ignore anything Irwin Greenstein writes.
The smog can go away in a few days.. Olymics 08 ring a bell.

2008 Nov 18 10:22 AM

[astx430:]

All the 'facts' mentioned in the article are the exact reasons Chinese government put so much resources in green energy alterntives. With the Chinese government support, the profit is almost guaranteed. It is more 'fishy' than stupid.

2008 Nov 18 10:27 AM

[31October:]

What happened to Seeking Alpha? Did it merge with yahoo!finance message boards when I wasn't looking? This entire piece is wrong - It's not that I disagree - The piece is actualy wrong.

Industrializing nations always have pollution, followed by a move toward cleaner skies. Chinese solar companies mostly sell to outside nations, so current pollution is a non-issue. By the time other nations are saturated with solar, it will be time for massive internal investment into cleaner skies. Since China get SO much power from coal, they will have an even more urgent push to solar.
Unfortunately, it will be an urgent push 10 years too late, but c'est la vie... The worst that can happen is that I quadruple down on CSIQ, TSL. JASO, YGE, LDK, STP, SPWRB, and retire later - but wealthier - than originally planned.

2008 Nov 18 10:59 AM

[ariesl:]

I suggest the writer, Irmin, learn what percentage of these companies' sales actually go to China. Then he would see that the vast majority of their sales are to Europe w/ a little bit to the US. BTW, Irwin thanks for the opportunity to buy some shares at an even better price. Does anyone remember buying oil stocks in 2001? If so, you can see that this is a golden chance to make more money, from solar this time. In addition, how do you explain the drop in wind energy stocks of late? There is no connection with oil and wind either. Lastly, did Irwin notice that we had an election recently? Does he think Solar (and Wind) won't get a huge boost in the coming years? All in all, it's a rediculous post!

2008 Nov 18 11:02 AM

[seekingomega:]

The logic here is awful. Since the skies are polluted we might as well ditch solar and go with coal. Nice logic. The battering of all solars has been down right fishy and anyone with a brain knows that they will come back. People will soon realize that governments are moving forward with clean energy regardless of the economic downturn. It is too important. Look at the latest news from France for an indication.

2008 Nov 18 11:12 AM

[Willten08:]

The "author bio" accompanying this piece is grayed out. His name is no where to be found on the referenced web site (Contrarian Profits). From what hole did he crawl out of?

2008 Nov 18 11:27 AM

[Koze:]

This is the most ridiculous article I have ever read for all the reasons stated by other posters and because the smog is not decreasing energetic light only visible light. If it was a problem, the trees and plants (crops) would not be able to survive and we would of heard long ago about mass starvations. Who is this guy? Seeking Alpha will only lose credibility if they let people like this post. Lost a lot in my mind

2008 Nov 18 11:39 AM

[CT Programmer:]

Is this article for real?!? Are you SERIOUSLY trying to argue that solar is dead because the sun can't make its way through Beijing's smog?!? Even if that were the case, it would be an argument for MORE SOLAR IN CHINA! Smog comes from burning fossil fuels. How do you get rid of smog? Stop burning so many fossil fuels. Do I really need to continue the argument (maybe I do with the author of this POS article). Hey, since there won't be any sun anymore, do you think I should invest in Chinese subterranean real estate?

2008 Nov 18 12:47 PM

[da_thief:]

This article reads like it was commissioned by short sellers. Says very little but adds to the panic selling in the solar sector, especially the bit about 'going to zero'. All the Chinese solar manufacturers must be slapping themselves on the forehead today for not noticing its too dark for solar power in China. Uh huh...

Thank goodness we have Irwin Greenstein to point that out.

On the other hand, the stocks in question have lost $145 million in market capitalisation as of 1pm today with declines of up to 20% and are ridiculously cheap...(but Greenstein says don't buy, cos that would make the price go up and we sure don't want that do we). ;)

This is just a game....

2008 Nov 18 01:11 PM

[Bob55:]

It is a game and it is a sad game indeed played by those who want to profit by targeting an industry who we are depending on to make a difference with the world's environmental issues. When articles like this shows up that sounds more questionable than most, you know there's manipulation at work. Something has to be done to protect these alternative energy companies and it has to be done soon. Banning short selling would be a major first step.

2008 Nov 18 02:55 PM

[Domus:]

I can only agree with the 15 comments i have just read. Solar companies do need to be protected and short sellings is a chronic disease which needs to be eradicated from stock market trading. Basically, the stock market would have a great chance to recover if (a) after hours trading were made illegal - why cannot we all trade at the same time - on an even footing so to speak and (b) environmentally (low carbon print) companies were given trading advantages and tax breaks across the entire world, as well as guaranteed pledges from governments to invest heavily in these planetary friendly (:) technologies.

2008 Nov 18 03:48 PM

[sirfisup:]

The author is not making any sense. The cap and trade scenarios that will eventually be enacted into law by the US goverment in an Obama administration will likely follow suit in China. The author has the horse in front of the carrot and his logic is so way off key that you would have to say that this same thinking would advance the sale of SUV's and Hummers. Please use some common sense logic. Pollution created by fossil fuels will eventually be replaced by greener technologies and China has already made a committment to renewables and wind to date has been the biggest benefactor however solar will soon be at the door step to receiving added subsidy help from the Chinese goverment especially in the rural areas of China where electricity is non-existent. As the world turns to greener technologies the world's atmosphere will improve. You can bet that the US will have a cap and trade policy for coal and that China will also follow suit sooner than later. Your argument is a ridiculous one. It is truly amazing how brazen people have become with the drop of oil prices. 6 months from now growth will resume at its annual pace and with it will come $100 oil and renewed enthusiasm for solar investment.

2008 Nov 18 05:06 PM

[erikdred:]

4 months ago you were pumping SOLF on your page. So what has chaged in regards to the environment in China, since then? Nothing. Above has absolutely no merit. More and more countries are looking at alternative energy. USA will be one of the world largest markets for renewable energy. Goldman Sachs have are trying to obtain a miilion acres in the Mohave desert. Read "Green Wombat". I agree China has a polution problem and just for this reason alone they must look at alternative energy, they like any industrial country, can not rely on fossil fuel, that continues to deplete the ozone layer and that is in limited supply. Above is an attempt to scare people from investing in alternative energy. China has just approved 150 biilion in a stimulus package, this does include renewable energy. Your article is a joke. "Big oil at work again". How much did Exxon pay you guys?

2008 Nov 18 06:32 PM

[erikdred:]

Below is a recent acticle from the author. As I guessed, a supporter "drill baby drill". Openly against Obamas green policy. Irwin the tax credits must be a hard pill to swallow. I am sure big oil is keeping you happy. Keep your rediculous posts coming, I love reading a good joke.

China’s Shengli International Petroleum Development Co. Ltd. inked a deal pact Bolivia’s state-run Yacimientos Petroliferos Fiscales. The agreements call for China to invest $1.5 billion over 40 years in Bolivia’s onshore oil and gas sector.
China’s leading refiner Sinopec reached a $239 million deal with state-owned Petrobras for construction of a stretch of a major natural gas pipeline across Brazil.
Sinopec also showed up in Cuba, where it an agreement with Cuba’s state-run Cubapetroleo to jointly produce oil on the island in January 2005.
A Chinese-led consortium, which includes China National Petroleum Corp. and Sinopec, bought Canadian-based (NYSE:ECA) Encana’s oil and pipeline assets in Ecuador for $1.42 billion.
In Peru, the China National Petroleum Corp. produces oil.
The China National Petroleum Corp. also operates two Venezuelan oil fields in Venezuela and has committed to spend over $400 million in Venezuela’s oil industry. The China National Petroleum Corp. is working with Venezuela’s state oil company in the Junin 4 block of the Orinoco extra heavy oil belt, the world’s largest deposit of crude oil. Chinese investments in Venezuela total more than $1.5 billion.
For investors looking to capitalize on the CIC move into emerging market equities, Latin America seems to be a logical first step. You can do this by talking with your broker about Latin ETFs, or investigating Latin publicly traded oil companies such as Brazil’s Petrobras (NYSE: PBR).

Source: China’s Next Big Oil Play?

2008 Nov 18 06:57 PM

[make it fun:]

The stocks are very cheap relative to fantastic earnings. Most will go up at least 3000 % just to begin to recongize their value. TSL as an example is worth well over 200 dollars right now conservatively gven the amazing growth that solar will experience due to the Obama Presidency and the need to clean away pollution. This is just using fairly conservative mutiples on the widely publicly avaialbe published earnings.

2008 Nov 18 10:24 PM

[John Cordes:]

News Flash: Solar's in trouble, too much polution not enough sun light.
Comment and Analysis: Are you kidding or are you an idiot?

2008 Nov 19 08:25 AM

[fleacountry:]

wow, this is deep, no more sun light in China, if turned out to be true, I think solar is the last thing you need to worry about, you better go stock up on can food and dig a bomb shelter in your backyard, with no enough sunlight to grow their crops, and with a population that big, China will have to buy up all the food in the world to feed their people, food price is going to sky rocket and a lot of people are going to starve to death, when that happens, WWIII won't be too far away.

2008 Nov 21 11:44 AM

[solarhope:]

posts like these diminish the value of this website. The author's reasoning(if there is one) is not far away from an imbecile's.

2008 Nov 23 01:09 PM

[I WANT THE ...:]

isnt that the whole purpose of Solar energy is to battle this problem???!!!

2008 Nov 25 10:56 AM

[Amouna:]

" By their deeds you shall know them"

Obama is a sweet talker, but I can assure you that only an infimum of US energy supply will be coming from RE in the years to come. Oil and Coal will still be kings in Obama Land.

By the way, didnt Jimmy Carter say the same when he was inaugurated President in 77, that the US would no longer depend on US foreign oil?

Smart money in not going into Solar anytime soon, and the writer is RIGHT to point that out!

Mar 12 04:53 PM