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Solars hanging in there..

August 8th, 2008 · No Comments

We did predict oil prices would correct exactly a month ago, when these were above $140, because of slowing demand. However, there is some collateral damage, even though it doesn’t make a whole lot of sense..

The solar sector is doing very well. First Solar (FSLR) once again blew past estimates and had absolutely blockbuster results. Growth remains very strong, above expectations still, despite some clouds hanging over the Spanish market because of a proposed cutback in subsidies.

  • Photovoltaic (PV) power has boomed in recent years in Spain due to generous government subsidies, but these will be slashed next year. Installed capacity is set to reach 1,500 MW by the end of the year, but in 2009 only an additional 300 MW will be entitled to special feed-in tariffs.

But other markets are filling the (relative) void (places like Italy and South Korea are now booming). So fundamentally, we can’t see much wrong with the sector. It might very well get a boost from an Obama presidency as well. But, as in any market (especially a tough one like today’s), perception is what matters.

And perception at the moment is not good, due to the correction in oil prices. The funny thing is, even with the rather steep correction so far, oil prices are still very high. Only a few months ago, $115 per barrel would have been considered excessive.

Fundamentally, oil is still expensive, and when the world economy gets out of it’s present funk, these prices are likely to start rising again (and they might very well do so earlier on some sort of supply crisis).

For the mean time, though, it’s not good news for solar stocks. Let’s look at the chart of Trina Solar (TSL)

Once again it’s in the doldrums, just sinking below the $27 level, somewhat below those March lows. It’s hard to imagine that TSL is more than double the size (and profitability) of last year but the stock has halved (or more if you measure it from the high above $70 last year).

Unless there is some dramatic slowdown, all this pent-up value will assert itself at some stage, but that stage might not be any time soon, especially if oil keeps correcting downwards. Now, having said that, Monday the 19th will be earnings announcements, this might very well give a temporary boost (or even some run-up before that in anticipation). Whether it lasts is another matter though.

We think the support around the levels we’re at now will hold, but another strong downwards lurk in oil prices might shatter it. We’re staying on the sidelines, for now.

Tags: TSL