What: Shares of Chinese solar stocks fell sharply in January as a confluence of factors played against the broader industry. Canadian Solar (CSIQ -2.47% ) was the worst, down 30.4%, JinkoSolar Holding Co. ( JKS 0.85% ) fell 25.6%, and Trina Solar Limited (NYSE:TSL) was down 16.7% in the month. Since then, trading has not improved as the falling market and falling oil prices put continued pressure on solar stocks in February.
So what: It didn’t help that oil prices fell almost 10% in January, as solar stocks have traded heavily with oil lately. Oil isn’t a direct competitor to solar power, but that doesn’t mean they won’t trade together in the short term.
The biggest issue was the collapse of market sentiment towards China in early 2016. There is much concern about the slowing Chinese economy, with the country accounting for more than a quarter of all solar installations in 2015 , there are a lot of downsides if the economy slows down. At present, it does not appear that China is planning to slow down its adoption of solar power, but this remains a concern given the concentration of demand.
Another strange factor impacting Chinese solar stocks is that companies are starting to find it useful to pay European solar tariffs instead of complying with a minimum price system. Trina Solar joined Canadian Solar in waiving the minimum price and annual sales quota in favor of paying tariffs above 45%. If they’re willing to sell in Europe with this kind of tariff, they have to sell solar panels at incredibly low prices (and low margins), which could mean low profits in 2016.
Now what: Despite all the ups and downs in the market, Canadian Solar, JinkoSolar and Trina Solar are still three of China’s top solar manufacturers, and they stand to benefit from the global growth of the industry over the next decade. So if you’re bullish on these stocks, I wouldn’t consider January’s performance as a reason to jump ship.
What will be essential is to prove that the growing demand from China can lead to an increase in demand and profits in the fourth quarter. Investors should therefore keep a close eye on these figures when they are released in the coming months. It’s making money, not generating demand for solar panels, what Chinese solar makers have had the hardest time doing, and that’s what’s kept me from investing in this part of the world. solar industry so far.
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