Recession and solar panels

A couple of years ago, I went to an ophthalmologist for a regular exam. In the course of that, the doctor, which I was meeting for the first time, warned me to watch for “flashes” in my field of vision and if I saw any to come straight to her. The flashes, she explained, were an indication that the tissue between the retina and the rest of my eye is thinning and could snap. It was common in folk with bad myopia like me, she said.

A few months afterwards I did begin seeing flashes in my field of vision. They weren’t particularly scary but they were there. I went back to the doctor, who did a more specific exam (if you’ve never seen the back of your eye you’ve missed out) and ruled that I might need to have laser surgery to strengthen that connective tissue.

A couple of panic attacks and a week later I made an appointment with another doctor — a surgeon; a laser expert. That lady repeated the specialised exam and concluded there was absolutely nothing wrong with my eyes besides the natural retinal degeneration associated with my condition. The flashes? “Probably tiredness”, she said. Before the week was out I was no longer seeing flashes.

Why am I talking about eye horrors (leaving my excessive suggestibility aside)? Because the current commodity market situation reminds me of that eye surgery scare.

When earlier this week oil dropped off a (low) cliff and so did a lot of other commodities, it was because of Recession Fears that have now come to deserve the capitalisation. Recession fears, retinal detachment fears, they even sound alike, kind of. While I was wondering just how many hours the rout will last, the FT came out with the following:

Hedge funds have been central to the recent price declines across commodities — selling out of long, or positive, positions in certain commodities and often replacing them with bearish wagers. Although physical supplies of many raw materials remain tight, “hedge funds are taking their chips off the table, [they] are leading big liquidation flows,” said David Whitcomb, head of research at Peak Trading Research.

By Friday morning, oil was back above $100 and Goldman Sachs’ Damien Courvalin was talking about Brent hitting $140 before the end of the year in the bank’s base-case scenario.

Goldman has had this base-case scenario for oil for a while now, despite Recession Fears. Why? Because of the imbalance between supply and demand. Because of fundamentals.

Those hedge funds, then, were like the first doctor I saw two years ago. They knew there was a cause for worry, so they had to worry, even if fundamentals suggested recession will not exactly kill oil demand the way the pandemic did in 2020.

Goldman, on the other hand, seems to be focused on the fundamentals — the natural degenerative processes that the second doctor talked about. Incidentally, that second doctor had a very material vested interest in telling me that I need laser surgery: she would get paid for it. But she chose to be truthful. Just an aside, apropos of nothing.

Here’s another story. Back in 2007, when I was an editor at an information services company in Sofia, we covered business news from Europe and the United States. The news flow from the U.S. was becoming increasingly concerning in the real estate and banking sector.

One day, as my direct superior and I discussed the situation, I asked him how no one could see that a major meltdown was looming. Were they this stupid or did they simply not want to see what was happening, I wondered. His answer was that they, meaning everyone involved in those industries, probably didn’t want to see it.

Back to 2022, the International Energy Agency appears to have made a major discovery: China has cornered the global panel market. I know, it was a huge shock for me, too.

In a first of its kind report, the IEA shared with the world its observations that “China has invested over USD 50 billion in new PV supply capacity – ten times more than Europe − and created more than 300 000 manufacturing jobs across the solar PV value chain since 2011. Today, China’s share in all the manufacturing stages of solar panels (such as polysilicon, ingots, wafers, cells and modules) exceeds 80%.”

It also shared with the world its conclusion that “China has been instrumental in bringing down costs worldwide for solar PV, with multiple benefits for clean energy transitions. At the same time, the level of geographical concentration in global supply chains also creates potential challenges that governments need to address.”

The cherry on top was this comment from Fatih Birol, for all those who may have missed the point of the report for some reason such as that they were otherwise occupied.

"This level of concentration in any global supply chain would represent a considerable vulnerability," Birol told Reuters. I will refrain from saying “Really? What tipped you off?”

Millions of words have been written about Europe’s “sleepwalking” into dependence on Russian hydrocarbons. Europe didn’t sleepwalk into anything. It saw a good deal and it took it. The concentration of control over certain supposedly global supply chains that shall remain unnamed in the hands of a single country, on the other hand, was very likely the result of sleepwalking.

While Europe was discussing its emission reduction targets, China was building polysilicon production capacity. While the U.S. was bombing Syria, China was buying stakes in overseas cobalt mines.

While both were tutting about immigrants and what to do with them, China was building alternative energy supply chains, on which the whole world now depends because there are no alternatives and there are no alternatives because China worked to make its renewables production not only abundant but also affordable. It offered a good deal.

China was doing all this in plain sight. And why wouldn’t it? The country had an energy policy and it was working on it, as every country with an energy policy should be doing rather than spending years talking about how it would implement that policy and only then realising it needed to also do something about it.

Of course, many could see what China was doing (and what China was doing was not something wrong). They simply chose not to emulate it, perhaps because they thought it was unnecessary: China would always be the world’s friendly source of cheap but good stuff… Or would it? (I’ve always wanted to do this.)

So for years, the West has not been seeing things, either because it did not want to see them or because it brushed them aside as insignificant, very much like banks in 2007. If you think I’m drawing a parallel with the 2008 crisis, you’re kind of right. The energy meltdown is going to be much worse.