L R AS Published on Tuesday 15 June 2021 - n° 366 - Categories:PV Watch

A look at the good and bad Chinese producers in PV

After nine months of rising silicon prices, will there be such a rapid decline in prices as there is always when there is inflation in the price of a raw material? Will we see a resumption of the decline in panel prices that we have seen over the past ten years? We can hope so, but is it realistic if we consider the market situation? There is a role-playing game between the manufacturers of the different stages of the photovoltaic industry. There are good and bad producers. In reality, they have divided the roles between them, so that everyone can say, it's not my fault, it's theirs! For the greater good of Chinese photovoltaics!

The summary

SNEC as a forum for exchangeThe SNEC was the occasion for a meeting between silicon producers and downstream processors, who discussed their grievances

A very favourable situation for silicon producersThese dialogues are not sufficient to change the position of silicon producers: they are not numerous enough to organise prices, the silicon slicers have linked up with each other by entering into long-term contracts; all need silicon

What can the downstream sector do in the face of rising silicon prices? Try to buy less to build up stocks if possible from silicon producers

Assemblers present themselves as victims: they pretend to be affected by price increases, while transferring to cell manufacturers the responsibility of establishing a bulwark against price increases

The interview with the panel manufacturers at the SNEC is indicative of a refusal to talkThe only thing that interests a reader is the reaction of the panel assemblers to this silicon price increase. Their answer is that you have to improve the technology, be alert to changes. As for the effect of these increases on the accounts, we will have to wait for the publication of the second quarter accounts!

There will be no reduction in panel prices in the near futureOne of the interviewees forgets to mention that panel prices will remain high. The monopoly of silicon producers allows them to maintain high prices. The industry is dependent on silicon and the panel manufacturers will need (they say) to restore their profitability. In reality, no one is sure what is going on in the closed world of manufacturers

The power plant builders will have to go through the sellers' prices: they will not be able to do otherwise. Either they delay construction or they buy expensive panels. In both cases, they lose out. Installations will be affected

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The text

SNEC, a forum for exchange

The Shanghai trade fair, SNEC, which took place at the beginning of the month, was useful because it brought together silicon manufacturers and users of this basic material for the production of panels in one place. It enabled the latter to present the difficulties of the downstream sector to the former. The manufacturers understood that they could not continue to raise prices, but this did not encourage them to start lowering their prices. They benefit from limited production, from wafer manufacturers' silicon purchase contracts that are committed to a volume over several years, with a price determined monthly by the market. Wafer manufacturers have recklessly entered into a trap from which they will find it difficult to escape as prices are easily administered when trading small volumes. Wafer manufacturers thought they could pass on price increases to the downstream market. However, panel assemblers, in contact with end-users, were quick to point out (they say) that they could not find buyers if prices rose.

A very favourable situation for silicon producers

Despite this deaf dialogue between silicon producers and converters in the sector, the former have understood that the situation is favourable to them: they are few in number (the six main ones supply 90 to 95% of Chinese production: in 2020, according to the CPIA, Chinese silicon production stood at 392,000 tonnes. According to PV Magazine, the production capacity of China's top five silicon producers at the end of 2020 was 386,000 tonnes: Has silicon finished its price rise?). Buyers do not have the option of switching to other suppliers. The contracts that were supposed to provide a guarantee of supply to silicon wavers are the trap that puts them at the mercy of silicon producers. It is therefore in the interest of the silicon producers to keep prices high as they are the only source of supply.

One might have thought that there had been a build-up of silicon by a number of intermediaries or even by the wafer manufacturers. This would have led sooner or later to the use of these previously built up stocks. This use would have reduced silicon purchases and thus put pressure on silicon manufacturers. This hope is gradually evaporating: there will be no downward trend in prices and thus no deflation of the bubble. The silicon manufacturers, strengthened by their position, the irreplaceability of their product and their quasi-monopoly, will keep prices high.

What can the downstream sector do about rising silicon prices?

The downstream industry, consisting of wafer, cell and panel manufacturers, is trying to manage the situation. The silicon slicers felt that the cell manufacturers needed their wafers and that they would go through their prices, even if they were rising. Hence LONGi's and Zhonghuan's constant increases, which went down pretty well until this recent upgrade, which seems to be the one too many. Hence LONGi's delay in publishing its quotes and the hesitation of buyers to follow Zhonghuan's.

Resistance is to be found at the last two levels of the industry: in contact with users, panel manufacturers have slowed down the passing on of the price increase as much as they could (at least, that's what they say). They have reduced (they say) the use of their production capacity to half of its potential. This is because they have found that users are refusing to accept these repeated price increases; that buyers do not understand the reason for them; that silicon production capacity is that silicon production capacity is around 200 GW while demand in 2021 is expected to be between 160 and 180 GW, leaving room to easily feed the market. Even though they say they don't want these increases, they must have accepted some of them. PV Tech mentions that the price of panels is currently at its highest level for two years. He says that if silicon costs RMB 185/kg (it is currently between RMB 200 and 220/kg), the average price of a panel is about RMB 1.74/W ($0.27/W). He notes that panel prices have recently exceeded RMB 1.90/W in tenders for installations in China.

Assemblers present themselves as victims

In reality, there is a media offensive by assemblers to show that they are victims of the silicon producers. They insinuate that they are trying to deny the increases and that they are only just succeeding. They claim that customers do not accept these increases and that they refuse increases while passing on limited or total increases under the pretext that buyers would be unhappy with these increases and would postpone their orders.

The efforts of the panel assemblers to limit the passing on of increases (or rather what is presented as such by the companies concerned), transfers the burden of being the price policeman to the cell manufacturers. The assemblers pass on to them the task of rejecting increases from silicon slicers. It is always the weakest link that suffers in these cases, because while wafer manufacturing is in the hands of two giants, LONGi and Zhonghuan, cell manufacturing is divided between a few large, specialised players (Tonga, China).In addition, there are integrated manufacturers who also make panels and often wafers...

The interview with the panel manufacturers at SNEC reveals a refusal to talk

In this shadow game where the fault lies with the silicon producers, and the good guys are the panel assemblers who do everything to avoid the increase, the interview with various panel assemblers sheds light on the situation in a crude way: The article wants to know the reaction of the assemblers in this context of price increases. It would be worthwhile to explain how assemblers manage to cope financially, when, let's remember, the industry has become rigid with these long-term silicon purchase contracts. Some (Talesun) say they try to keep prices low, but how do they do that when silicon or cell prices are rising? Akcome, the most honest, recognises that being in the middle of the chain, it is affected by this increase. The others (Chint, Seraphim, Trina Solar, Suntech, ...) do not talk about the price increase or the evolution of their profitability, but about the interest of having a performing technology, of anticipating the changes, of accentuating the evolution of the technology.They talk about the benefits of having good technology, of anticipating change, of increasing automation to produce bigger and better, or of investing in the next technology by increasing research and development efforts. Where is the answer to the question that everyone is asking: are the panel assemblers victims of this increase or are they complicit by having passed on the increases? For the moment, we cannot answer this question. We will have the answer when the 2nd quarter accounts are published. But by then, either we will have become accustomed to high prices in the sector and these publications will be a non-event, or the companies will indeed be making a loss and sooner or later they will have to make up for their losses by not passing on the price drop.

There will be no reduction in panel prices in the near future

It is the latter case that seems most likely: there will be no drop in panel prices at least by the end of the year and probably even by the end of the first quarter of 2022. On the one hand, this is because there will be no start-up of large silicon production capacities, which would be the only way to bring prices down sustainably. In the meantime, silicon producers will be well advised not to lower their prices because the shortage, which is somewhat artificial at the moment, will become serious with the start-up of numerous wafer and cell production facilities. Whether it is the long term purchase contracts, the monopoly of the six manufacturers that allows prices to be held, or, above all, the irreplaceable nature of silicon, there is no reason to believe that the producers' attachment to high prices will diminish.

On the other handthe concentration of panel manufacturers: the ten largest account for 85% of world sales, enabling them to maintain their prices and above all their profit margins. Is it really possible to change panel suppliers when they have worked together to maintain a certain price level? Moreover, and this has escaped him, the head of Seraphim has announced that the price of panels is going to increase, whereas it has been falling for ten years. This is logical. Why would panel assemblers sell their production at 100, if they can sell it at 150 because of its rarity? All it takes is an agreement between the ten or so producers to keep the price high

Plant builders will have to go through the sellers' prices

However unhappy panel installers may be, they will have the choice of either postponing the construction of power plants, not making any money and therefore going bankrupt, or going through the producers' prices and passing these prices on to the principals. The latter may accept projects already under construction, but avoid or reduce new projects. Thus, the prospects for new power plant installations in European countries will shrink. As a result, panel installers will see less business.

If the large Chinese groups maintain this policy, this may give a new development potential to European micro-panel manufacturers. As they cannot find Chinese panels, installers could source them from China, but their production capacity will have to increase rapidly. However, anticipating new demand now is risky, as Chinese panel manufacturers will not go quietly. This is the consequence of a monopoly that has gradually been established.

For more information: market analyses https://www.energytrend.com/solar-price.html

https://www.infolink-group.com/en/solar/spot-price/2021-06-09-PV-spot-price

PV Tech's interviews at SNEC (Part 1)

PV Tech interviews at SNEC (part 2)

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