China's November Solar Shipments Add Concerns About Q4 Estimates

Normally, the fourth quarter would be a very busy period for the solar industry. December would see a bit of a slowdown on production, but certainly a high volume of sales would concentrate throughout, with sales generation peaking in November. While the average investor cannot see sale receipts for each company, an alternative exists and it's offered by Chinese research company Solarzoom. Based on Solarzoom data for module and cells shipments from Mainland China, October saw around 889MW in module shipments. This figure included 394MW of shipments completed by US-listed companies, in addition to 10MW of cells sold internationally. October shipments revealed over 200MW exported by a variety of import/export entities, including very small manufacturers.

Recent Chinese government announcements suggest consolidation efforts in overseas markets, which could improve volumes for large players, and reduce or eliminate inconsequential ones from the export tally. Considering the 24% size of the contribution, this could be quite an opportune condition for large manufacturers.

In November, the total number of shipments was over 1GW and the US-listed companies shipped more than 573MW. While the number shows an increase, some of contributors may need to adjust their quarterly guidance, always a dreadful scenario playing out in the market.

The overall guidance for US-listed companies for Q4 totalled 3.3GW, giving an average per month of 1.1GW. In comparison to October's number, in general terms this already raised a red flag for the entire peer group. November only added more worry, considering that none of the companies guided 50% of the market in China for deliveries in Q4. Of course, not every company shows the same pattern; this is why the shipment data possess critical value to solar investors, betting on differentiation being present among the peers.

When analyzing export data, one must acknowledge that it shows only one side of the business spectrum, since it does not reveal domestic sales. Furthermore, the review also requires understanding that export data does not equate to revenue recognition, particularly in the first month of the quarter. Shipments also exist in isolation from capacity utilization. Periods of increased shipping activity in the current state are not impacted by utilization, since most of the Chinese companies have very long turnover cycles and most of them currently are engaged in inventory reductions.

Nevertheless, export data can give a fairly good indication of business flow and how each organization stacks up against another, particularly for investors in solar who are looking for recovery.

Recognition of domestic penetration, either by percentile of shipment or revenue, helps gauge further levels of compliance toward guidance, as long as revenue is appropriately adjusted for the lower domestic average selling prices (ASP) level. Some companies like Yingli Green Energy (YGE), JA Solar (JASO) and JinkoSolar (JKS) have announced heavy engagement into a domestic market, so there is a genuine expectation for this contribution to be in the guidance, while the question exists of how much of it supports the guided figure or whether the gap is too wide.

Reading conference calls transcripts or reviewing stacks of supplemental presentations, one can approximate the size of domestic revenue and shipments expectations when companies provide hints. China Sunergy (CSUN), for example, announced a prediction to have 5% of revenue derived from China in 2012 in its Q3 presentation. On the other hand, Trina Solar (TSL) during Q3 stated that 15% of module shipments for the year will go to China. Unfortunately, the past performance provided by the company was on revenue percentage, not shipments. This presents a challenge, but also an opportunity. Using provided data, we learned that Trina earned $84M during 2012 from China. Since the company is planning 1,579MW of shipments in 2012, 15% of this volume is 237MW. We only need to know how much was shipped thus far to understand the domestic share of shipment in Q4. Using weighted averages of volume and ASP for the year, and assuming the average Chinese ASP would be 10% lower, we can estimate that $84M represents sales of 113MW at $0.74 per watt. So Q4 should see 124MW of domestic sales, leaving 276MW for overseas markets. Having shipments' data can allow investors to determine whether Trina is on track to reach its own guidance, or is heading for adjustment having only 83MW shipped in two months.

While investors may be under the belief that China's policies are going to stimulate domestic markets, to help some companies, the recently announced second stage of Golden Sun projects shows that US-listed companies are not elevated among other enterprises. While Yingli has almost 300MW awarded and had an additional 40MW through a joint venture with Hainan Province government, taking first place, companies like Canadian Solar (CSIQ) and Suntech Solar (STP), did not even pass the application phase, since they have not completed projects from the first stage of the program. Also, Trina Solar received only 10MW out of the pool of 2.8GW. Others seemed to have a better outcome: LDK Solar (LDK) received 40MW; CEEG and China Sunergy 40MW; ReneSola Solar (SOL), 30MW; Jinko, 28MW; Hanwha SolarOne (HSOL), 8MW; and JA Solar, 6MW. JA is sharing this project with two partners.

Separately from Yingli, a large accumulation was made by Hong Kong-listed Singyes Solar awarded with its own 85MW of projects in addition to 184.5MW to be delivered to its customers. Top companies under the criteria of accumulated size grabbed nearly 1GW and included CECEP Solar, China Datang Corporation, Hanergy, Shanghai Shenzhou Power and ZKE Energy.

Furthermore, 1.3GW was given to companies that are not in the manufacturing field, while 1.5GW was awarded to manufacturers, confirming that the transition into engineering, procurement and construction (EPC) is the now the common path to escape demise among the Chinese. It can be concluded that the Chinese companies listed in the US are not predetermined to win the domestic market share, further reaffirming the value of global business.

Another interesting aspect of export data is the understanding of major global destinations importing modules, some established and others just emerging. While Europe continues to dominate, American and Japanese markets seem to become a lot more active, with surprising characteristics when considering entities and volumes.

The US market received as much as 122MW of modules in October, while Japan received around 95MW. In November there was a substantial reversal, with Japan having a large increase. Australia also has become an attractive point of delivery with over 66MW in October, and November repeating the figure. Nonetheless, Europe continues as the largest destination, with half of all shipments ending in the region.

Recently, India announced an initiation of the investigation into dumping of solar cells into the country. Along with the Chinese, Taiwanese, American and Malaysian imports were implicated, with the last region pointing solely to operations of First Solar (FSLR).

The Chinese shipped around 25MW of modules and 9MW of cells in October to India. Shipments for all of Q3 showed 54MW, with Trina shipping as much as 30MW on its own in September. November was at 32MW, but contributions do not show trending of particular companies. More so, India has not been a particularly high-volume destination to date, despite its large objectives.

Outside already identified regions of USA, Japan and Australia, Chile and South Africa are new potentials to become hot spots for Chinese companies in 2013. In a recent slew of announcements, Chinese companies publicized some 500MW of projects in South Africa, with Hanwha SolarOne leading and Suntech and JinkoSolar having substantial business opportunities in the country. South Africa holds immense potential for solar, along with the rest of the continent.

Whoever is able to gather new business in those countries will certainly be able create an advantage over the competition. This is very true, since processing costs have a very small range of variance from company to company, thus having sales channels and a strong global presence remains part of the survival recipe, despite the China market offering excellent growth potential in 2013. Companies that can be a global force will be naturally at the frontline of the industry.

In perpetual pursuit of information, the opportunity to access critical data becomes instant value. For more details please check SPVI Solar Reports, which are compiled with cooperation from Solarzoom PV Solar Portal.