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Suntech focused on cost reduction for 2012

09 Mar 2012

CEO at leading Chinese photovoltaics company takes a swipe at rival SolarWorld ahead of pending decision on US trade tariffs.

Suntech Power, the world’s leading photovoltaics (PV) manufacturer as measured by volumes shipped, is expecting a sustained period of intense competition in the solar industry, and will focus on cutting production costs this year to maintain its position and boost profits.

Announcing its full-year results for 2011, the Chinese company’s CEO Zhengrong Shi predicted that increased demand from the US, China, Japan and India this year would largely make up for a sharp fall in shipments to Europe, as governments slash support for the technology.

In the closing quarter of last year, Shi said that shipments did not fall as much as the company had expected, and were down only 10% from Q3, not the 20% forecast. The reason for that was a rush of installations in Germany and the US designed to beat cuts in government support, but the knock-on effect in Germany has now resulted in an acceleration of those cuts to feed-in tariffs.

Suntech’s chief commercial officer Andrew Beebe told investors that a remarkable 4 GW of PV installations were registered in Germany in just the fourth quarter of 2011 – equivalent to about 50% of the entire year’s total in the country. But following drastic action by the government to rein in that demand to a more sustainable level, Beebe said that the 2012 German market would decline to somewhere between 2.5 GW and 3.5 GW.

If Suntech’s predictions are correct, that will be roughly equivalent to expected US market demand of 3 GW, while CEO Shi is also anticipating a strong ramp in demand from China, after the government announced cumulative PV installation targets of 15 GW by 2015 and 50 GW by 2020. That is likely to mean sustained annual demand of around 4-5 GW per year, the CEO said.

Billion-dollar loss
Despite being ranked as the world’s leading PV provider for a second successive year by analyst firm IMS Research, Suntech swung to a significant loss in 2011, as the industry was pounded by manufacturing overcapacity, high inventory levels and rapid price declines.

That environment has already sent a number of firms to the wall, and sparked claims of unfair competition by Suntech’s rivals in Germany and the US, with the possibility of a trade war looming over alleged Chinese government support that has distorted the market.

Suntech’s own shipments increased 33% to 2.1 GW last year. But the pricing environment certainly took its toll: revenues increased only 8% to $3.1 billion, while its operating loss (according to GAAP figures) plummeted to $633 million. The company posted a net loss for the year just exceeding $1 billion, compared with a profit of $237 million for 2010.

CEO Shi also took a swipe at SolarWorld, the German company whose US subsidiary has spearheaded the complaints of illegal subsidization of domestic PV manufacturers by the Chinese government through its self-styled “Coalition for American Solar Manufacturing” (CASM).

Though he agrees that current polycrystalline silicon PV module prices are unsustainable, Shi said that Suntech had been completely transparent in its dealings with the US Department of Commerce investigation into alleged dumping of modules – in contrast to its rival. “SolarWorld has avoided providing information on its subsidies from Germany, the US and the Middle East,” he said.

Shake-out continues
With the widespread solar industry shake-out continuing apace – the past week has seen the start of liquidation proceedings at Scheuten Solar, restructuring at Centrotherm Photovoltaics, and Tokyo Electron move to acquire Oerlikon Solar – Shi does expect module prices to rationalize with fewer players left in the market.

But prices have continued to slide in the opening quarter of 2012, and that rationalization will not happen before the Department of Commerce provides its preliminary determination on the SolarWorld-led complaint, which is due March 19 and will make clear whether it intends to levy countervailing import duties to offset the effects of subsidies.

Meanwhile, one of SolarWorld’s six previously anonymous partners in the CASM has revealed itself. Wisconsin-based Helios Solar Works, which has an annual solar panel manufacturing capacity of 50 MW, blames the “illegal and harmful trade practices” by Chinese rivals for having to downsize recently.

“We have supported these trade cases from the beginning, and we are pleased to publicly declare that support,” said Helios CEO Steve Ostrenga in the company’s statement, which did not explain why Helios has chosen to remain anonymous until now.

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