Chinese Pollution Plays Revisited

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 |  Includes: ADES, AMSC, FTEK, GE, STP, ZOLT
by: Himanshu Pandya

I wrote about the growing issues China is having with pollution back in January after reading about it in Knowledge@Wharton. That article got nice coverage after being featured on SeekingAlpha.com and mentioned on the TheStreet.com. The two picks I mentioned in that article FuelTech (NASDAQ:FTEK) and Suntech Power (NYSE:STP) have both seen their ups and downs but I believe are still trading higher right now. I also mentioned American Superconductor (NASDAQ:AMSC) as another possibility and AMSC has actually more then doubled since then. I actually owned all of these stocks at one point or the other and made nice profits along the way. Although, the real move in FuelTech (FTEK) happened after I gave up on it (since I owned Options). Anyway’s, back to the real reason I am bringing up this topic again.

New York Times has an excellent piece on this very topic featured on its front page titled, “As China Roars, Pollution reaches Deadly Extremes“. It’s well worth reading but I’ll highlight some of the key points below: (It won’t help the Chinese readers since not only New York Times is blocked but so is my own site FinancialNirvana.com). You can check to see if a site is blocked in China by using the GreatFirewallofChina.com)

* Pollution has made cancer China’s leading cause of death.
* Only 1 percent of the country’s 560 million city dwellers breathe air considered safe by the European Union.
* Sulfur dioxide and nitrogen oxides spewed by China’s coal-fired power plants fall as acid rain on Seoul, South Korea, and Tokyo.
* Much of the particulate pollution over Los Angeles originates in China, according to the Journal of Geophysical Research.
* In his equivalent of a State of the Union address this year, Prime Minister Wen Jiabao made 48 references to “environment,” “pollution” or “environmental protection.”
* Newest coal-fired power plants and industrial furnaces operate inefficiently and use pollution controls considered inadequate in the West.
* Chinese industry uses 4 to 10 times more water per unit of production than the average in industrialized nations.
* The Chinese leadership has banned publication of Pollution data on the subject for fear of inciting social unrest.
* World Bank study: Outdoor Pollution causing 350,000 to 400,000 premature deaths a year and Indoor Pollution’s causing 300,000 deaths a year.
* China now seems likely to need as much energy in 2010 as it thought it would need in 2020 under the most pessimistic assumptions.
* Chinese buildings rarely have thermal insulation. The building in China require twice as much energy to heat and cool as those in similar climates in the United States and Europe.

This is alarming stuff.

There are a lot of opportunities for a number of companies to help China (if they elect to) at least lower their pollution.

1. Fuel Tech (FTEK) - To me Fuel Tech is the first company that comes to mind since they are in the pollution control business and have had some successfully contract wins there. Fuel Tech’s outlook and second quarter numbers were disappointing the stock has held up pretty well. There is no doubt that the Fuel Tech has a lot of opportunity in United States and China but it’s a little bit speculative. Any positive news coming out of China could propel this stock in a matter of hours. It would be interesting to see how the stock has any significant move based on this New York Times article.

There is also ADA-ES company (NASDAQ:ADES) but I am not sure they benefit from this because the last time I did some research on this company, I didn’t see any business coming out of China.

2. Suntech Power (STP) or any one of the major Chinese Solar companies: Don’t get me wrong, we won’t see China go on a massive domestic Solar boom any time soon but they might just do something before the Olympics. What I am trying to say is that there might be some significant domestic contract wins for the Chinese Solar companies before the Olympics but they will be mainly for show. Putting a few Solar panels won’t cure any pollution issues but will be a good public relations move. Beijing will definitely try to show that they are committed to the environmental cause to all the visitors and the media attention it gets during the Olympics. Suntech Power has already won the contract to provide a 130KW solar energy system for Beijing’s Birds Nest Stadium, the main stadium for the 2008 Beijing Olympic Games. Which Chinese Solar company will get further contracts? I don’t know because it will depend on who is the most politically connected? However, with the little knowledge I have about the local politics I would have to say it would be Suntech Power, since it’s the largest of them all and it did win the contract for the main Olympic Stadium.

3. Wind Energy Stocks: Could American Superconductor (AMSC) or Zoltek (NASDAQ:ZOLT) (indirectly) see any new contracts coming from China anytime soon?

4. General Electric (NYSE:GE) GE definitely benefits through a number of ways but I am not sure if that will move it’s stock.

5. A water purification company: I don’t follow this sector and will have to do further research. Any ideas would be welcomed.

6. The article mentioned that most of the new coal plants use old turbines rather then the more efficient combined-cycle turbines. Who makes these more efficient turbines?

7. Thermal Insulation companies?

There are a number of ways to play this and as you can see I am not aware of all of them. So any ideas would be welcomed.

Full Disclosure: At the time of this writing I am Long Zoltec call options. I could go long or short on any of the stocks mentioned in this article without notice.