Solar Stocks Drop as EU-China Trade War Moves Closer

Today started as a slow day for solar stocks, but soon after the market opened, they sold off in furious fashion, reversing gains earlier in the week. JinkoSolar (NYSE: JKS  ) and Canadian Solar (NASDAQ: CSIQ  ) fell 12%, while JA Solar (NASDAQ: JASO  ) and Trina Solar (NYSE: TSL  ) dropped 9%, leading the industry's losses. The sell-off was broad, but these stocks took it harder than most.  

The driver of today's move
There's growing concern that a solar trade war, similar to the one the U.S. launched last year, is brewing between the EU and China. EU officials have become frustrated with an unclear trade policy in relation to solar panels headed to Europe. Since there is a trade complaint launched by Germany's Solar World, there is some urgency to the matter.

European companies have similar claims as their U.S. counterparts about the solar industry in China. Loans from state-run banks have subsidized the industry, and manufacturers are now dumping product on the European market at below cost, making it impossible for local manufacturers to compete.

Trina Solar, JA Solar, Canadian Solar, and JinkoSolar have all accepted loans from state-run banks, and any tariffs implemented would hurt their sales -- and we're not talking about peanuts here. China exported over $25 billion of solar panels to Europe in 2011, and counts on the region for a vast majority of sales.

Trade war a brewin'
The best part of all of this is that China is accusing Europe of favoring European-made panels, and has threatened their own tariffs. Europe exports polysilicon to China, just as the U.S. does, and a tariff would reduce demand for the imports used to make panels. The irony is that this would make Chinese panels even more expensive, a double whammy for China.

Europe is frustrated by a lack of answers from China's government -- a government that's in the midst of a leadership change. If answers and changes to the solar industry don't come soon, the EU could implement a tariff, something it doesn't want to do, but may be forced to.

The losers
If Europe puts tariffs on Chinese panels, it would hurt every manufacturer in China, particularly Suntech Power, Yingli Green Energy, and LDK Solar, the three companies with the worst balance sheets and the most to lose. China is planning to install a lot more solar domestically, but it's nowhere near big enough to support the mammoth industry it has created.

China is already fighting an uphill battle in the U.S.; further challenges in Europe could be a disaster.

The winners
Interestingly, the winners in this potential mess were also down today. SunPower and First Solar (NASDAQ: FSLR  ) both traded lower today, even though they would benefit from higher-priced Chinese panels in Europe. That market used to be huge for both companies, but it's been a drag in recent quarters, as cheap, subsidized panels from China have flooded the market.

Long-term, these two companies would be winners if there is a solar trade war between the EU and China.

Foolish bottom line
This is one more reason to stay away from Chinese solar stocks. They're dangerous, even in a growing industry, and I wouldn't be buying any of the dips in price right now.

Buying a profitable solar company

Investors and bystanders alike have been shocked by First Solar's precipitous drop over the last 12 months, and now the stakes have never been higher for the company. Are they done for good, or ready for a rebound? If you're looking for continuing updates and guidance on the company whenever news breaks, we've created a brand new report that details every must-know side of this stock. To get started, just click here now.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 22, 2013, at 8:26 AM, dsong wrote:

    China will revenge the high tarriff by US and Europe.

    That will benefit China Solars.

    Avoid China solars? That is your ignorance.

    Not like US printed money QE3 or QE4, China has 1.3 tril of US debt. China is leading in Solar energy.

    Obama states very clearly in his State Union USA should learn China to develop in Green Energy.

  • Report this Comment On February 22, 2013, at 11:36 AM, radelph wrote:

    The WTO dispute resolution case DS437 will soon resolve the US ruling on solar panel antidumping and countervailing duties in China's favor. Two similiar dispute cases where US claimed China's state-run banks were unfairly subsidizing respective industries, China has prevailed. A decision on DS437, filed in May 2011 is very near. Donm't be a Motley Fool and kepp rehasing these old issues without telling the whole truths.

  • Report this Comment On April 02, 2013, at 8:49 PM, dodelijk wrote:

    why are the comments so negative ?

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