After discussing two 50 day moving averages earlier today, the next story is all about the 200 day moving average, of one of the biggest names in solar; Suntech (STP). The fact that STP is a multibillion dollar company while solar energy comprises less than 0.001% of world energy production testifies to the enormous opportunities in this sector.
STP extended a long-term supply contract for polysilicon, the crucial raw material out of which solar cells are produced. There have been huge shortages of polysilicon, and it’s spot prices have shot up, boosting the fortunes of companies who produce it, like WFR.
Such long-term supply contracts usually give a tremendous boost to the sector as a whole, and the stock in particular, as polysilicon shortage and pricing is one of the main concerns. It’s actually counterintuitive that other companies in the sector also rally as one of them secures polysilicon, as that deal represents the raw material that will not be available for the rest of them.
That this is no hypothetical threat became clear earlier today as spot prices for polysilicon shot through the $500 barrier for the first time. Why? Because MEMS, a big producer of polysilicon, had to cut back on production of polysilicon for the spotmarket to honor it’s long-term supply contracts (one with STP features prominently).
So, one solar producer’s long-term supply contract is another solar producer’s increasing spot price. Funny that the sector’s stockprices move in lock-step. Many of them are Chinese, perhaps that has something to do with it. More likely, investors are too lazy to sort out the good from the bad, with one obvious exception, FSLR, as it uses a different technology that is not dependent on that scarce polysilicon.
STP rallied strongly but recently hit it’s 200 day average. A pause, probably a little traceback, seems the order of the day. Although things can move with lightening speed in this sector, and a week is even longer than in politics here, we would be somewhat surprised if that 200 day average is broken within the next couple of weeks.
However, there is one impuls that could do that. A renewal of solar subsidies is likely in the US and although the US is not an important market for the solars yet, that could change with the ever rising energy prices. So stay tuned.