The solar and polysilicon stocks are in for a wild ride this morning as we have two firms out with pretty significant comments (opposing views):
- Citigroup notes Spain is the world's second-largest solar market, and strong Spanish solar growth has been driven by generous solar feed-in tariffs from the Socialist-led government. Firm expects that reelection of the Socialist Party will result in more favorable solar tariff policies post the current policy's expiration on 30 September 2008. The new Spanish solar tariff and installation cap will be announced in May timeframe.
Given the significant share price declines of the solar sector in the last several weeks, they would not be surprised to see a relief rally for the group over coming sessions. Sees Suntech (NYSE:STP) and Yingli (NYSE:YGE) as main beneficiaries due to their exposure to Spanish market.
- Piper Jaffray notes a very damaging article (and pictures) appeared in the Washington Post on Sunday March 9 which highlighted one of the problems with poorly designed Chinese poly plants. Some plants in China, like Luoyang Zhonggui (a supplier to STP, LDK and CSIQ) cannot recycle the byproducts back into the process (toxic silicon tetrachloride) and the article claims the company has been dumping the unrecyclable chemicals back into the land.
Firm speculates it could poise some supply risk if the plant production is scaled back. They believe the primary customer of Luoyang is STP (over half of Luoyang output) and to a lesser extent LDK and CSIQ. We have confirmed that the local supplier to Yingli (Xinguang) is recycling its byproduct (thus it does not pollute) and additionally YGE relies on mostly foreign poly suppliers (Wacker and MEMC). JA Solar (NASDAQ:JASO) does not rely on Chinese poly suppliers currently.
Notablecalls: Oh well, this sure is a complex situation. But let's analyze it for a minute:
- STP is the #1 player in the Spanish solar market, and YGE gets around 50% of its revenues from there. So the exposure is surely there.
- Take a look at the Washington Post article. It's ugly. There has been a lot of talk of Chinese poly supply coming online in 2nd half of 2008, putting some downside pressure on pricing (good for solars). Some of the smartest solar watchers have expressed their doubts regarding the Chinese supply, so the expectations may not be THAT high. More of a sentiment negative.
I think that following the initial knee-jerk in reaction to Washington Post article, both STP and YGE become nice bounce plays. Spain trumps China.
I also like MEMC (NYSE:WFR) for a trade here. As one of the major producers of poly, they would definitely benefit from increased demand in Spain. Also, problems at Chinese competitors is good news for the company.