Will LDK Solar Repeat the Successes of Standard Oil? 8 comments
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There is a book titled The Prize, by Daniel Yergin. It is an in depth discussion of the history and role of oil as the industry developed and became the lifeblood, and nemesis of modern society. In one of the opening chapters is a recounting of John D. Rockefeller's incredible boldness and foresight in amalgamating and organizing Standard Oil Co.
The following excerpt from The Prize describes a move by Rockefeller that completed the vertical integration of Standard Oil Co - a move that is rather striking in its similarity to that of LDK Solar (LDK), and the ideals of CEO Mr. Peng, as LDK makes bold moves to buy and reuse "questionable" scrap polysilicon, and complete its drive to vertical integration with the building of massive polysilicon plants in China.
Brief prelude to excerpt: Standard Oil was originally a refiner of oil they bought on the open market from "oil producers". The primary product of Standard Oil, in the 1870's to the early 1900's was kerosene used to burn in lamps for lighting. In the late 1880's, the Pennsylvania "Oil Region" was drying up, and many thought that there were no other usable deposits of oil in the US.
Excerpt from pages 52 - 53, of The Prize:
Rockefeller was poised to make his last great strategic decision - to go directly into oil production. No less than his colleagues, he had great antipathy for oil producers. Yes, they were speculators, they were unreliable, they behaved like greedy miners in a gold rush. Yet here, in Lima (Ohio) was an opportunity for Standard to gain control of raw materials on a very large scale, to apply its rational management to the production of oil, to balance supplies and inventories against its market needs. In short, Standard would be able to insulate itself to a considerable degree against the fluctuations and volatility of the oil market - and against the disorder of the "mining camp." And that was the direction in which Rockefeller very definitely wanted Standard to go.
The signs of depletion in Pennsylvania were a warning that it was time to be bold, and Lima offered the indisputable evidence that the oil industry had a future beyond Pennsylvania. But there were two major obstacles. One was the quality of the petroleum. It had very different properties from that of Pennsylvania, including a most unappealing sulfuric odor, like rotten eggs. Some called the Lima crude "skunk juice". There was no known way to remove the odor, and until such a way was found, the Ohio oil had only a very limited market.
The second obstacle was located at 26 Broadway - the obstinacy of Rockefeller's more cautious colleagues. They thought the risk much too great. As a starting point, Rockefeller argued that the company should buy up all the oil it could and store it in tanks all over the region. The oil was flowing in such huge volumes out of the Ohio ground that the price dropped from forty cents a barrel in 1886 to fifteen cents a barrel in 1887. But many of Rockefeller's colleagues strongly opposed the policy of buying oil for which there was not yet any good use. "Our conservative brethen on the Board," as Rockefeller called them, "held up their hands in holy terror and desperately fought a few of us." Eventually, however, Rockefeller prevailed, and Standard Oil put more than 40 million barrels of Lima oil in storage. Then in 1888 and 1889, Herman Frasch, a German chemist employed by Standard, figured out that, if the crude oil were refined in the presence of copper oxide, the sulfur could be removed, eliminating the problem of the rotten-eggs smell and thus making Lima oil an acceptable source of kerosene. Rockefeller's Lima gamble proved to be well worth it; after Frasch's breakthrough, the price of Lima oil immediately doubled form fifteen cents a barrel at which Standard had acquired it to thirty cents, and continued to climb.
For those who have followed the LDK story of late, the above recanting of "questionable" and bold moves by John D. Rockefeller as he bought and stored what was considered, at the time, unusable oil, should sound very familiar. While the story of LDK is yet to be played out, I hope that this snippet of history shines some light on the risk, and rewards of gambles and foresight.
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This article has 8 comments:
The more I read these articles, the more I realize that LDK skyrocketed because of second rate investors who are now trying to convince the rest of us to buy swampland somewhere.
I have never analyzed LDK at all. But the garbage that is being shovelled here make me wary about it.
For retail investors, stick to the more transparent companies.
S. Rein
For those that have commented above, you missed my point. And the point being, that LDK is taking a calculated risk, that is against the grain and current convention. In the case of Standard Oil, this paid off handsomely. In the case of LDK, we do not yet know if it will pay-off. Which I clearly stated in the article, and is why, if you care to notice, the article was composed in the form of a question, not as a statement of fact.
And, specifaclly to the person from CMR, you may wish to do due diligence before you go about exposing your ignorance. At least then you would have some semblance of credibility, as opposed to emotional ramblings.
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