Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Solar suppliers exploded higher on word that module prices stabilized in the fourth quarter because of high demand in Germany. JA Solar
So what: Germany installed more than 3 GW of solar in December, according to reports, and reached another annual record of 7.5 GW in 2011. That spike in demand helped module prices stabilize and is eating off the excess inventory in the supply chain. For polysilicon, wafer, and cell suppliers, the higher demand means that sales of their products were likely much strong in the fourth quarter.
Suppliers have been hit especially hard in the past year as manufacturers worked to vertically integrate their own operations and as an oversupply of polysilicon in the market led to falling material prices. We'll know more about the fourth quarter and future demand in the next few weeks as companies begin to announce fourth-quarter earnings.
Now what: This news is positive in the short term, but there are still many unknowns going forward. The incredible level of installation in Germany was because of a feed-in tariff cut that took effect in 2012, and the high level of installations means another 15% cut is likely to come in mid-2012. Those cuts may lead to lower demand in 2012.
These are still four of the riskiest companies in solar because they don't have a major technology advantage and aren't brand-name module manufacturers. I wouldn't buy the bounce today because it's likely that demand will take a dive once German feed-in tariffs are cut. Long term, I think the solar industry has a lot of potential, but for now it looks like a rocky road ahead.
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