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EysteinH
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Norwegian. Master degree in psychology. Currently studying law and working part time. Interested in stock Analyst work.
  • If 32% less sell prices of solar products who would feel the squeeze? Some toughts. 0 comments
    May 18, 2011 6:56 AM | about stocks: JKS, CSIQ, TSL, JASO, DQ

    The recent downgrade by S&P of HSOL a company i have shares in got me worried for a while. S&P analysts predict a 32% sell price drop in 2011. If this is realistic or not is not the discussion for this article other than that I would note PWER recently said the italy marked looks like its recovering and new emerging markets are making FIT plans. (Equador recently and more to come.) But lets say that the S&P predictions really did come true and we see a massive drop of sell prices of 32% who would be really squeezed and what would happen with the market?

     

    Company

    Gross margin

    Revenue q1 (million)

    Primary focus

    Jinko Solar

    26.16%

    $326,719

    Modules

    Canadian Solar

    14.73%

    $443,404

    Modules

    Trina

    27.46%

    $550,853

    Modules

    Ja Solar

    17.30%

    $556,383

    Cell

    Neo Solar Power

    8.58%

    $251,857

    Cell

    Motech

    11.40%

    $267,756

    Cell

    Renesola

    30.70%

    $328,157

    Wafer

    Green Energy T

    20.44%

    $225,957

    Wafer

    Danen

    22.55%

    $54,280

    Wafer

    REC

    57.95%

    $740,031

    wafer/poly

    Daqo

    50.96%

    $87,311

    Polysilicon

    (source: http://solarpvinvestor.com/2011-global-q1.html )

     

    First of all the polysilicon makers have the highest margins of the whole solar supply chain currently with around 50% (Renewable energy corporation - Rec.ol have 57 % last quarter) and I think they will see the biggest drop in price as they are the ones who can afford to have less margins. The question is how much margins are tied into fixed price contracts? And can they be renegotiated. (REC has renegotiated some contracts to keep clients in the past.) My verdict is they could probably share quite a bit of the margin drops. Lets say around half the price reduction happen in this part of the production chain and prices drop 15%.

     

    Then we have the wafer makers, they do contribute a lot of the total cost of production. New sawing equipment coming online in end of 2011 would also see lesser production costs. So I belive wafers can take some margins down to keep the solar business going even at 32% reduction of sale prices. Lets say some 25% of price reduction happens in this part of the production chain and prices drop some 8%.

     

    Strict cell producers have less to go on, but if they can increase effiency of the product then they could drop the margins somehow and still be profitable. I don't think we will see huge drop in cell prices in 2011. But lets say they squeeze what they can and drop some 3 % in prices.

     

    The module sellers have more margins to go on, and they usually have high internal cell production capacity too. I think they can share a bit of the burden of the margin drops. To get to a total reduction in prices of 32% they drop 6% themselves in this part of the production chain.

     

    Conclusion: I think we will see the polysilicon producers will see the largest drop in margins if the scenario of 32% sale prices become a reality. The further downstream one goes you will see margin drops but less than the more upstream you go in the production chain. With the exception of Cell makers.

     

    Themes: Solar Stocks: JKS, CSIQ, TSL, JASO, DQ
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