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: After a two-day run-up in solar stocks, the party ended quickly, and every stock in the industry is dropping like a rock. Suntech Power (STP) led the declines by falling 23%, and LDK Solar (NYSE: LDK), Yingli Green Energy (NYSE: YGE), and JA Solar (NASDAQ: JASO) all dropped at least 15%.
So what: Earlier this week, there was hope that a negotiated solution involving the U.S., Europe, and China over solar tariffs would come together. Today, China's Xinhau News Agency is reporting that discussions fell apart, and they're blaming the E.U. for not negotiating.
It's really China that needs to give here, because the E.U. is talking about putting harsh tariffs on Chinese panels, which could crush demand in an industry that's already suffering through oversupply. Tariffs are expected to be announced in June, and that could effectively freeze China out of the biggest solar market in the world.
Now what: The market's reaction to the news on Monday and today's news isn't really logical, as I pointed out yesterday. If a negotiated solution were reached with the U.S. and Europe, it would have raised the price of solar panels in both regions. This would make China less competitive in both regions, although it may have increased margins on the sales it can make. Basically, all solutions were bad for Chinese manufacturers, because either tariffs go up in Europe or prices for panels go up in both Europe and the United States.
The reaction in U.S.-traded stocks makes even less sense. SunPower and First Solar both dropped today, and whether a negotiated solution was reached or not, the punishment for Chinese solar panels is good for both companies.
