(Solar losers, ReneSola, JA Solar story, updated for market close)
NEW YORK (TheStreet) -- Solar sentiment isn't positive headed into the new year.
Take your pick of reasons: European subsidy risk (nothing new there), winter weather in Europe that has likely taken a toll on the level of installations (the typical seasonality), year-end tax loss selling, or recent market pricing checks that indicate a decline sooner than expected, and a short interest increase in solar stocks to end the year.
It's fair to say that the past few weeks have been awful in terms of the flow of news about solar subsidies in Europe. First, key German political interests indicated a willingness to concede on big feed-in tariff reductions in mid-2011.
Then, French politicians started making noise about cutting back on solar support because they don't want to 'subsidize' Chinese solar module makers. Instead, they'd prefer to talk up domestic content requirements for solar projects, which would be a negative for Chinese solar stocks. Finally, the coup de grace was provided by Spain, which right before Christmas announced a retroactive feed-in tariff cut that was once thought to be an unthinkable, potentially illegal action.
Some solar watchers think it's just the continued weakness of the euro. Plot a graph of the performance of the Chinese solar stocks against the euro and the correlation is evident, or so the argument goes, and it is a fair share, if not all, of the negative take on solar. Systematic risk to Europe's financial system isn't expected to lessen in 2011. Some solar experts contend that it's not about solar being some "subsidized" villain that Spain was lashing out against, but the state of affairs across European nations. Solar incentive schemes will be easy marks for austerity budget managers in 2011, regardless of the sector-specific implications.
Yet it's the pricing and short interest data that's the freshest for the solar sector.
On Tuesday morning, a
report was focused on the movement in core solar pricing, and indicated what has been anecdotally bandied about in solar for weeks now -- that pricing is falling.
reports that Taiwan-based solar cell makers are now quoting between $1.20 to $1.25/watt, down from $1.30/W about two weeks ago. The tech trade publication noted that pricing at $1.20 -- though only provided by anonymous sources -- would be the lowest price since early-2010, after the subprime economic crisis.
In November, solar cell price quotes were in the range of $1.40 to $1.42/W, with the recent pricing weakness representing a 10%-15% dip.
A decline in pricing has to occur in order for solar project economics to keep pace with feed-in tariff declines. However, a decline of 10% to 15% is not in line with the sold-out conditions referenced by most major solar companies in their recent round of earnings commentaries, and expectations for single-digit declines.
Most solar companies indicated that all of their production was under contract and at fixed pricing for the first half of the year, but the stocks didn't rally on the bullish commentary.
Chinese solar cell makers are expected to follow the Taiwanese cell makers in reducing pricing,
However, among the major, publicly traded Chinese solar companies, it's hard to know the extent of exposure to the spot market pricing for cells. Their quarterly commentary was, as usual, focused on contracts with fixed pricing already signed with strategic long-term partners. When
reports that the Chinese cell makers are expected to follow suit in reducing pricing, it's not clear whether this is just a market dynamic playing out to a greater extent among private, "tier two" companies.
In any event, in regards to market pricing it's interesting to note that in the just released Nasdaq short interest report for the two week period ended Dec. 15, Chinese solar cell leader
saw the largest increase in short positions among solar stocks. In fact, short interest on JA Solar as of Dec. 15 had reached its highest level in more than a year, with more than 24 million shares short. It was an increase of 5.4 million shares from the previous two week period, which itself was the highest level of JA Solar short interest recorded by the Nasdaq since 2009.
JA Solar was among the biggest solar losers on Tuesday, down 2.6%. JA Solar shares are down 10% over the past month.
While S&P 500 short interest fell to an annual low, based on the new Nasdaq data, short interest on
returned to near an annual high in the most recent Nasdaq set of short interest numbers, at 16.4 million shares as of Dec. 15.
Short interest on
reached its highest level in a year, and virtually tripled -- to over 3 million shares short -- in the most recent two week period. Nonetheless, Goldman Sachs initiated coverage of ReneSola at a buy on Dec. 23. ReneSola was down the most on Tuesday, at a 3% decline, just ahead of JA Solar.
were all down 2% on Tuesday.
Short interest on
Yingli Green Energy
increased by 3 million shares in the most recent two weeks and hit a level it hasn't seen since last March.
It's not as if there was no good news coming from the solar stock sector.
MEMC Electronic Materials
completed its sales of the Rovigo power plant in Italy, but it was an event that was expected to occur by the end of the year, and that MEMC needed to accomplish to keep bailing water.
First Solar received a coveted five-star rating from Morningstar.
announced an $800 million three-year expansion plan for its production of solar ingots, wafers, cells and modules.
Rising oil prices, too, are supposed to be good for the solar industry, at least in theory, though the theory wasn't holding water on Tuesday.
One day in solar trading is not too much to get worked up about, especially since just last week the solar group outperformed the broad markets, gaining 1.9%. It's more or less quiet, too, in terms of trading levels. Plenty of theories, plenty of noise, but negative trading that seemed consistent with the uncertainty, as opposed to a conviction sell, on an already depressed sector.
-- Written by Eric Rosenbaum from New York.
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