Traders Feed On Solar Rumors
Solar stocks that were once a darling of bullish investors and green energy enthusiasts have found a new patron in short-term traders, who are feeding on the sector’s high volatility. That’s my main conclusion after seeing a huge surge in the shares of many solar stocks despite any major positive catalyst. This surge is one of the biggest I’ve seen this year, but is certainly not the only time that most solar shares have risen or fallen by more than 7 percent on a single trading day on little or no major news from the sector.If short-term traders really have hijacked the sector, which seems probable, it would mark a relatively big setback for stocks that were once popular among aggressive longer-term investors who liked the strong prospects of solar energy. Of course that doesn’t mean that serious investors will never return to the sector if it ever manages to stabilize and return to a growth track. But until that happens, stock charts for solar shares will probably look like a roller coaster track for the next year or so, meaning anyone who buys into the sector should have a very strong stomach for volatility.
Let’s start with a look at the latest solar share prices, led by an absurd 53 percent surge for former superstar Suntech (NYSE: STP), which is now in the process of a bankruptcy reorganization. Shares of Yingli (NYSE: YGE) were also active, posting a 14.5 percent gain; while LDK (NYSE: LDK), which is also teetering on the brink of insolvency, was up 11.5 percent.
Within that group, Yingli was the only member to actually report any news. The company released a preliminary first quarter results announcement that was modestly upbeat, saying its shipments for fell by 6-7 percent, or about half the rate it had previously forecast. (company announcement) It said gross margins were between 4.0 to 4.2 percent, which was roughly in line with its previous guidance. While those numbers were certainly a positive sign, they didn’t seem to warrant the big jump in the company’s stock.
I suspect the rally was more fueled by rumors that formal talks had begun to settle a conflict that has seen both the US and EU accuse China of unfair support for its solar panel sector. The US has already imposed punitive tariffs on Chinese solar panels, and the EU is preparing to take similar action. Such negotiations would have been a very positive signal, showing that Beijing was finally willing to admit there was a problem and take action to find a solution.
But later in the day, the US Trade Representative’s office said there were no active talks taking place, though it didn’t rule out the possibility in the future. (English article) I suppose it’s positive that the US didn’t rule out future talks; but Beijing will have to admit there’s a problem before we’ll see any progress towards a settlement — something that seems unlikely anytime soon.
In the meantime, it’s also worth noting that not all solar stocks surged in the latest trading day. Shares of Canadian Solar (Nasdaq: CSIQ) actually tumbled 8.5 percent, as the company has been the subject of recent speculation that it may be teetering on the brink of insolvency. JA Solar (Nasdaq: JASO) also closed down slightly on the day, though the shares are up nearly 70 percent this week after the company reported relatively solid first quarter results and also repaid $120 million in debt that recently came due. All of this shows that there’s plenty of volatility ahead for solar shares, which will probably continue for the rest of this year before perhaps subsiding in 2014 if and when the industry finally stabilizes.
Bottom line: Short-term traders will feast on Chinese solar shares for the rest of this year, with volatility likely to ease as the sector stabilizes in 2014.
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