Alcoa Inc (AA), United States Steel Corporation (X), Cliffs Natural Resources Inc (CLF): ECON101 At Its Finest

The problem with that approach is that solar-panel companies’ manufacturing cpacity far outpaced worldwide demand. Global manufacturing capacity for solar panels stands at about 60 gigawatts per year. In 2012, though, demand for solar power was only about 35 gigawatts, according to Dr. Harry A. Atwater, director of the Resnick Sustainability Institute at the California Institute of Technology. With so much extra capacity on the market, almost every company struggled to sell panels at a profit. First Solar, Inc. (NASDAQ:FSLR), which developed a cost-effective panel that didn’t use silicon, saw its price advantage erode, and with it much of the company’s share price over the past couple of years.

Now it appears that the solar-panel industry is in the middle of a correction. No longer propped up by Chinese government subsidies and facing U.S. and European import tariffs, Chinese solar companies have been folding rapidly, most recently highlighted by the Suntech bankruptcy. According to a GTM Research report, 88 solar companies will shut down factories or completely close up shop within the next three years, 54 of those being Chinese companies.

Some companies are starting to show life as the stronger companies emerge from this massive correction. Both First Solar and SunPower Corporation (NASDAQ:SPWR) are anticipating higher profits throughout 2013 and beyond. The next couple of years will be the proving ground for these solar companies as the wheat separates itself from the chaff.

What a Fool believes
Markets are like nature, always in flux and striving for equilibrium. Just as when too many predators exist in a habitat with too few prey, supply levels will dwindle until sufficient demand catches up. As complex as nature and the global markets may be, they will always eventually revert back to this basic principle.

Long-term investors need to understand this equilibrium. In sectors such as commodities, ups and downs are expected to happen. Rather than trying to time the market, though, have the temperament to weather these rougher patches, and your portfolio will thank you in the long run.

The article An Economics 101 Lesson From Corporate America originally appeared on Fool.com and is written by Tyler Crowe.

Fool contributor Tyler Crowe and The Motley Fool have no position in any of the stocks mentioned.

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