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Overcapacity in solar leads to production cuts amongst Solar Panel Makers

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Overcapacity in Solar Panel industry again

The solar panel industry is again facing an overcapacity, with many of the top tier manufacturers looking to drastically cut utilization in order to Solar Panelsdeal with surging inventory levels. Polysilicon prices which had gone up in recent months to the $20/kg level are back to the $16 level, while wafer prices have also dropped by more than 10% to reduce to the 17-18 cents/watt level. This is not a surprise given that solar panel pricing is under pressure with panel prices going as low as 45 cents/watt in recent days, which is around a 10% lower than the levels seen a year ago.

With panel pricing under pressure the whole supply chain is under pressure. Green Energy which is Taiwan’s leading wafer manufacturer has gone back to the red again, after briefly returning to the black for some time due to a tightness in the wafer part of the supply chain. With weak end consumer demand, wafer and polysilicon are too facing weak demand and being forced to drop prices.

Some China-based PV module makers have reduced output, while others will do so due to high inventory levels, according to industry sources.

Among the China-based PV module makers, second- and third-tier ones in particular heavily rely on domestic demand, the sources said.

Although China’s National Energy Administration has set target total installation capacity of 18.1GWp for PV power-generating stations to be established in 2016, local governments have not yet made administrative preparations to support the goal, and therefore domestic demand has not emerged, the sources noted.

As a result, second- and third-tier PV module makers have been forced to decrease production substantially, with capacity utilization mostly dropping to below 50%, the sources indicated.

Source

Solar cell prices have also dropped steeply to the 25 cents/watt level. Many of the smaller module makers in China are facing the brunt of the lower demand, with utilization levels going down to 50%. Note many solar panel makers have remained underwater for most of the last 2-3 years, even while some of the Tier 1 panel makers made money. Expect the next couple of quarters to be ugly for most solar panel companies, as lower utilization leads to higher costs and given the low margins, many of them will sink back into losses.

Also read why Solar Efficiency levels still fail to impress Investors in H1’16.

The problem of the solar manufacturing industry is the problem of the Chinese economic system which keeps running zombie companies, even when they continue to make losses for years on an end. Even when large solar companies such as LDK, Suntech etc. have failed, their capacities continue to churn out solar panels as they are taken over by new investors and management. Even Yingli which was running into the ground due to huge debt is still producing panels like there is no tomorrow. Read why Chinese overcapacity has increased in various industries.

Chinese state owned banks and provincial governments continue to drop money into these sinkholes, as they do not want to face social unrest because of unemployment. Till there is a reset of the Chinese economic system, it looks unlikely that the solar overcapacity problem will be solved. It is great for solar consumers but bad for most manufacturers, especially those in non-Chinese countries who do not have the advantage of continuous state largesse.

While global demand for solar panels is rising, any deceleration in growth leads to a sharp fall in panel prices as Chinese makers continue to add capacity faster than demand. There has been no balance between demand and supply. With lower prices, many of the inefficient solar panel producers go out of the market to return again, when prices are slightly higher. They do not really get out of the ecosystem which would lead to normal market conditions. Large Chinese state owned companies also keep entering   this overcrowded sector, due to low entry barriers and their low funding costs. The surge in Chinese inflows into the financial system through credit to bolster a falling economy has led to increased investment by Chinese state owned companies. Some of this loose credit has found its way to the Chinese solar sector, leading to the problem of overcapacity. Till the Chinese leadership plugs the flow of money, expect the abnormal conditions of the global solar panel industry to continue.

Moody’s Investors Service says that the surge in investments in loans and receivables by Chinese banks, while supportive of earnings and capital generation in the short term, raises asset quality, liquidity and interest rate risks in the long term.

Data from the 26 listed banks themselves shows that investments in these asset classes jumped to RMB10.5 trillion at end-2015 from RMB2.5 trillion at end-2012, led by joint-stock commercial banks and regional banks.

“The high yields and low provisioning costs of these investments have enabled continued earnings growth for these banks in an environment of rising credit costs and declining net interest margins,” says David Yin, a Moody’s Assistant Vice President and Analyst.

Source

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

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