Energy
Earning Recap: Major Solars in Q2 2009
This post recaps key points in major solar companies most recent quarter earning conference call, the objective is to help readers to follow industry landscape change on individual company basis with least amount of effort of reading.
The post is not final in the earning season, as different solar companies report earning in different dates. So keep check back to find out the latest updates.
SPWRA (7/22)
Gross margin shrinking from 24% to 22% mainly driven by module margin going down from 29.5% to 24.6%
Module sales grew dramatically to 188M in Q2 from 108M of Q1, while system sales stay relatively flat vs. Q1.
2009 FY outlook: production 400MW, sales 1.35B – 1.7B (with 1H sales at $600MM)
FSLR (7/30)
Cost per watt produced was reduced from 93c to 87c in Q2 2009.
To protect core market share in Germany, rolled out rebate program for German market only in Q2, it may transform into permanent price reduction if polysilicon price never go back up in the future.
Production: 290MW in Q2
2009 FY outlook: sales $1.9 – 2.0 B
Efficiency: 10.9%
CSIQ (8/6)
FY 2009 shipment outlook raised to 260-270MW, higher than 200-220MW given in Q109.
Regarding 2010 pricing trend, predicts two sets of markets: higher priced value added one vs. lower priced highly competitive distribution retail one, which didn’t answer the big question in investor community now: whether there will be a significant degradation of ASP ($2.37 at Q2). Pricing in China is lower than in Europe and America markets, seen sub-$2 / watt for very large power projects.
e-Module strategy: treat it as an insurance product, which hedges the risk of polysilicon price going back up.
Restrictive cash helps arbitrage interest rate swap transaction.
Gross margin outlook for rest of 09 is around 20%, close to Q2 level, but much higher than Q1 outlook: higher single digit.
Conversion efficiency: 16% for e-Module, 18.5% for pilot monocrystaline, 17.2% for mass production monocrystaline
Wafer to module processing cost for polysilicon lowered from 71c to 60c per watt. Polysilicon wafer price is 80-90c per watt.
Gaining market share due to the relative competitive advantage of Asian suppliers with strong bank support vs. Europe based suppliers.
LDK (8/12)
Wafer ASP was $0.99/watt for the quarter, at $0.9 to $0.95 now, expect to reach $0.8 – $0.9 by end of year.
Sales outlook: expect Q3 wafer shipment to be in 260 – 300 MW range, module shipment in 10-20 MW range, and sales in the range of $240 – 270MM
Cost: processing cost was $0.33 for Q2, at full capacity, should be $0.3 per watt. Polysilicon price at $80 per kg. Inventory cost per watt was 80c after $175M writedown vs. $1.5 after previous writedown.
Expect mid-single digit gross margin, expect to be much better in 2010
Capex: spent $250M in Q2
Didn’t provide a good answer to the question of why not stop selling products when the margin is 0 or negative, indicating some problems with management capability.
TSL (8/17)
Shipment: expect 90-100MW shipment in Q3, 350-400MW shipment full year
Cost: multicrystalline silicon cost reduced from 79c in Q1 to 73c per watt in Q2, blended non-silicon cost down from 94c in Q1 to 84c per watt in Q2. Expect polysilicon based mudule cost level that’s 30c higher than First Solar’s product cost to be the level of equally competitive. In 2010, target thorough cost to be $1 per watt by end of 2010.
Gross margin: mid-20% guidance
European countries as customers by size: Belgium, Italy and Germany
Efficiency: achieved 18.6% for monocrystalline modules
ASP was $2.34 per watt in Q2, expect to drop 10-15% in Q3 and 10-12% in Q4
Capex: spent $9M in Q2
Technology roadmap: expect to take 9mm line into production in 2010
STP
Shipment increased 53% QoQ
European country as customer by size: Germany, Italy, Belgium
Cost: non-silicon conversion cost (excluding shipping and share based compensation) was 64c per watt in Q1 and 61c per watt in Q2. Expect to reach below 61c per watt by YE 2009, and below 50c per watt by YE 2010. Expect wafer price below $1 per watt in Q4.
Outlook: keep capacity stable at 1GW, expect gross margin to be flat from Q2; expect ASP to drop 15% – 20% in Q3 and wafer price to drop in the same range as well.
Further Reading
- Click here to read recap for Q1 2009 major solar earnings conference calls.
- Click here for an in-house free estimate from SunPower to install roof-top system in your house.
Important Disclaimer: Product price and availability are accurate as of the date of most recent update. Please send correction requests to info@linked8.com
Earning Recap: Major Solars in Q1 2009
Here is a recap of major solar companies’ Q1 2009 earning conference:
STP
Shipment: 600-700MW for FY 2009, with 40% in first half, with 15% in first quarter.
Consolidated tax rate was 8-10%.
Gross margin: expect Q2 to be flat from Q1, expect long term goal to be 15%.
LDK
Regarding 15000-ton poly plant, 5000-ton train will be completed by end of Q2, the 2nd 5000-ton train will be completed by end of Q3. When asked about why not delaying building the plant, answered that 1.4-1.5B have been spent, only small amount is left to be spent, therefore it’s not reasonable to stop the progress now.
When asked about Capex, answered the FY 2009 number will be in $500-600MM range, with $200MM already spent in Q1.
Cost: Wafer sales was based on rate of $1.4 per watt, acknowledging it will drop to ~$1 per watt by end of year. Inventory cost at $1.1 – 1.3 / watt range after $87M writedown at YE 2008. Polysilicon price at a wide range between $100 – 150 / kg.
YGE
Regarding Chinese solar subsidy program, the management pointed out a recent high-level meeting held by Chinese government officials on developing alternative energy. A news came out today corroborates the spirit of increasing emphasis Chinese government places on alternative energy: China will spend 3 – 4.5 trillion RMB on alternative energy by 2020, this investment program is not part of 4 trillion RMB stimulus package. Mr. Miao estimated that Chinese solar market size to be in 400MW – 800MW range for the two years of 2009 and 2010 combined.
YGE did not submit many applications to the first round of roof-top solar projects applications, but is interested in power generation projects with 5 major utility companies in China.
CSIQ
FY 2009 shipment outlook lowered to 200-220MW, lower than 260MW given in Q408. The management explicitly called the outlook conservative, in support to that, they indicated that the total contract size has grown (more than 260MW) since last quarter instead of going down.
Gross margin outlook for Q209 is higher single digit, and is expected to return to mid-teens in Q3 and Q4.
Conversion efficiency: 15.5% for e-Module
TSL
Gross margin in Q2 is expected to be between 18% to 20%
Cost per watt: 79 cents per watt for multi-crystalline, 89 cents per watt for mono-crystalline. Multi takes 70% of all shipment, 30% was in mono.
FY shipment is expected to be 350MW to 400MV range.
Tax rate is below 15% given the tax treatment to the company that is considered high tech status
In Q1, poly gram per watt was 6.2 gram for multi-crystalline, expect to improve to 6 gram per watt by Q4; and 5.6 gram per watt for mono-crystalline
ASP in Q1 is a 20-25% decline vs. Q4, and will decline another 12-15% in Q2 from Q1, on top of that, TSL still expect room to cut prices.
Conversion efficiency: 17.5% for mono, 16.5% for multi this year; 18.5% for mono next year.
Important Disclaimer: Product price and availability are accurate as of the date of most recent update. Please send correction requests to info@linked8.com
Chart Reading: US Dollar, S&P 500 and Crude Oil
A few quick updates and my thoughts on the charts of US dollar, oil and S&P since I believe oil and S&P may go against each other in the coming days.
US Dollar
It turned out the higher lows in mid-March was fake bullish sign, and now it’s gathering momentum to start a huge drop.
Crude Oil
Crude price started its latest rebound in late-Feb, about half a month earlier than March lows of S&P, then it traded side ways from late-March through April while S&P continues its enormous rebound. This time frame of sideway trading turned out to be a bullish flag, and it’s breaking out to the upside just yesterday, its target this time is $75.
S&P 500
Despite all the bad news of high unemployment rates, 10 banks not passing stress tests, and pathetic consumer spending figures, S&P continued its powerful rebound from March low of 676, with 37% gain so far. It’s heading to last bear market high of 934 hit in early January, two months before the March low, coincidentally, now it’s exactly 2 months away from March low, so it’s highly possible next Monday S&P will start a big down leg, probably 20% down, targeting Nov low of 740.
A few technical commentators have already been calling correction on S&P will start soon or in progress: Carl Swenlin from Dailymarkets.com called current pattern “bearish ascending wedge” and could correct any time soon, Mike Paulenoff from MPTrader.com noted that Thursday’s market action signaled the end of up leg that started on 4/27;
The interesting question is will energy price fall with S&P during that down leg? I say no, since energy trading has de-coupled from S&P from the pattern since last November. We will likely to see, starting from next week, for more than a month, S&P will go down led by Financials at the same time energy and shipping stocks continue their rise.
Important Disclaimer: Product price and availability are accurate as of the date of most recent update. Please send correction requests to info@linked8.com
Invest in Oil: How to Buy Crude Oil at Spot Price?
Most energy investors need to invest in oil, but it’s impossible for average investor to buy and hold physical crude oil, and then sell it later, it’s simply too difficult. To address this problem, many investment vehicles have been created to facilitate investing in crude oil. This post talks about each of the major oil investment vehicles and their relationship to crude oil price.
Oil Prices
The often talked about oil price is not a price of a single product, but have at least two versions: spot price and futures price. Among spot price, there are two versions as well: West Texas Intermediate (WTI) Spot and Brent Spot, and WTI price is more widely used in US.
Oil ETF and ETN
Several Exchange Traded Funds were created to reflect crude oil prices, either spot or futures, so that investors can invest into this important component of commodity.
In fact, these securities are not real-sense exchange traded funds, because ETFs are supposed to hold the physical assets such as equity or commodity as underlying assets, but given the difficulty holding crude oil physically across the time, these ETFs buy and sell futures to track oil prices.
Contango and Backwardation
This way of working actually makes the price of these ETFs more complicated, the shape of futures price curve can actually affect their prices, there are two types of futures price curves: when earlier maturity futures price is lower than than later maturing futures price, it’s contango and the contrary is backwardation. Read here to learn more about contango and USO, and here about general concept of contango and backwardation.
Here is a perfect explanation of contango and backwardation from this article:
Backwardation in the crude oil futures market typically indicates that oil market fundamentals are tight, but should ease in coming months. For example, after Hurricanes Katrina and Rita, near-month crude oil futures spiked as traders fretted over supply disruptions in the Gulf and damage to refining and transport infrastructure. There were some temporary shortages of crude and gasoline in certain markets because of pipeline and refinery closures.
At the same time, most traders expected conditions to ease once pipelines were inspected and brought back online. Thus, near month futures traded at high levels relative to longer term futures–the market was in backwardation.
Contango implies that near-term oil market fundamentals are bearish but investors still expect longer-term improvement. In the late 2008 through early 2009, investors faced rapidly rising US oil inventories and an accelerating decline in global oil demand–fundamentals looked bearish.
More important, the US and global credit markets were in a state of near-total dysfunction. The lack of demand, excess supply and near cessation of business activity due to weak credit market conditions pushed down near-month futures and sent contango to record levels.
Since early this year, contango in crude oil futures markets has declined to around USD8 a barrel, still a historically stretched level. The simple recovery in contango to more normal levels accounts for about USD27 a barrel of the USD31 a barrel rally in spot prices since the beginning of the year.
With these in mind, here I give crude oil ETF and ETN a comparison.
US Oil Fund (USO)
USO portfolio: The portfolio will consist of listed crude oil futures contracts and other oil related futures, forwards, and swap contracts. USO will also invest in obligations of the United States government with remaining maturities of two years or less and hold cash and cash equivalents to be used to meet its current or potential margin or collateral requirements with respect to its investments in crude oil futures contracts and other oil interests.
USO Market Cap: $4.47 B (as of Mar. 25 2009)
USO Average Daily Volume: 34.16M
iPath S&P GSCI Crude Oil Total Return ETN (OIL)
OIL ETN: iPath Exchange Traded Notes (ETN) are senior, unsubordinated, unsecured debt securities issued by Barclays Bank PLC that are linked to total returns of market index. The iPath S&P GSCI™ Crude Oil Total Return Index ETN is a sub-index of the S&P GSCI™ Commodity Index. The S&P GSCI™ Crude Oil Total Return Index reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts.
OIL Market Cap: $777.53M
OIL Average Daily Volume: 3.71M
PowerShares DB Crude Oil Double Long ETN (DXO)
DXO ETN: All of the PowerShares DB Crude Oil ETNs are based on a total return version of the Deutsche Bank Liquid Commodity Index-Oil (the “Index”) which is designed to reflect the performance of certain crude oil futures contracts plus the returns from investing in 3 month United States Treasury bills. The Long and Double Long ETNs are based on the Optimum Yield™ version of the Index and the Short and Double Short ETNs are based on the standard version of the Index. The Optimum Yield™ version of the index attempts to minimize the negative effects of contango and maximize the positive effects of backwardation by applying flexible roll rules to pick a new futures contract when a contract expires. The standard version of the index, which does not attempt to minimize the negative effects of contango and maximize the positive effects of backwardation, uses static roll rules that dictate that an expiring futures contract must be replaced with a contract having a pre-defined expiration date.
DXO Market Cap: N/A
DXO Average Daily Volume: 35.8M
PowerShares DB Oil Fund ETF (DBO)
What is DBO? The PowerShares DB Oil Fund (Symbol: DBO) (the “Fund”) is based on the Deutsche Bank Liquid Commodity Index – Optimum Yield Oil Excess Return™ (the “Index”) and is managed by DB Commodity Services LLC (the “Managing Owner). The Index is a rules-based index composed of futures contracts on Light Sweet Crude Oil (WTI) and is intended to reflect the performance of crude oil.
DBO Market Cap: $46.96M
DBO Average Daily Volume: 339,000
United States 12 Month Oil Fund, LP (USL)
What is USL? The United States 12 Month Oil Fund, LP (”USL”) is an exchange traded security that is designed to track the movements of West Texas Intermediate light, sweet crude oil (WTI). USL issues units that may be purchased and sold on the NYSE Arca. The investment objective of USL is to have the changes in percentage terms of the units’ net asset value reflect the changes in percentage terms of the price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the average of the prices of 12 Futures Contracts on crude oil traded on the New York Mercantile Exchange (the “Benchmark Futures Contracts”), consisting of the near month contract to expire and the contracts for the following eleven months, for a total of 12 consecutive months’ contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following eleven consecutive months, less USL’s expenses. When calculating the daily movement of the average price of the 12 contracts each contract month will be equally weighted.
USL Market Cap: $3.18M
USL Average Daily Volume: 513,000
MacroShares $100 Oil Up Trust (UOY)
What is UOY? MacroShares are issued in pairs: When MacroShares $100 Oil Up are created, an equal number of MacroShares $100 Oil Down are also created.
UOY Market Cap: $7.29M
UOY Average Daily Volume: 15,000
Conclusion
If you compare the chart of WTIC to the charts of 5 oil ETFs or ETNs, none of the oil investment vehicles tracks oil price movement perfectly, the closest match to spot oil price is DXO. It reflects the fact that all the available oil investment vehicles can only mimic oil spot price movement, but none of them can perfectly track spot price.
HardAssetInvestor ran a great article in Feb 2009 to compare the USO and USL, sister funds run by same company, focusing on their pricing structure and impact of contango and backwardation, the conclusion is that USO is more vulnerable to contango situation, while USL may be newer fund to USO therefore not as liquid as USO, but USL addresses contango problem and is liquid enough to serve as a good oil spot price investment vehicle.
Sources:
How do you buy spot oil?
Julian Murdoch
Important Disclaimer: Product price and availability are accurate as of the date of most recent update. Please send correction requests to info@linked8.com