L R AS Published on Wednesday 1 December 2021 - n° 384 - Categories:PV Watch
A look at the state of the Chinese PV industry
For the past eighteen months, the photovoltaic world has been gripped by a silicon crisis, a shortage of materials, and rising prices. A well-rehearsed message led the world to believe that the Chinese had nothing to do with it and that this crisis was temporary. However, with the publication of the quarterly accounts of the companies, we can see that there was an abundance of silicon, that the rise in prices allowed the players to make huge profits, and that the crisis was temporary.that the 'communication' was fabricated, and that the arguments presented were false.
A look back at a silicon story from the last eighteen months
The official presentation of the situation The situation of the industry as reported by commentators: more silicon is expected to bring down panel prices
This presentation does not seem accurateThe shortage of silicon does not exist for the various companies in the industry
The photovoltaic industry's financial results are staggering The "silicon crisis" has enabled all companies to achieve significant increases in activity and a strong improvement in profitability
Little reliability News from China is therefore not credible. Companies have made buyers pay for their quasi-monopoly situation. Even the commissioning of new silicon production lines may not ensure a decline in prices. Companies have become too accustomed to business and profit growth
On the surface, the panel industry is on hold.
The official presentation of the situation
Silicon manufacturers are keeping their prices high (around 269 RMB/kg), working at full capacity and awaiting the commissioning of production units that will ramp up in the first quarter of 2022. Until then, wafer manufacturers are waiting, with close monitoring of this volume increase, which they believe should encourage silicon producers to be less strict on pricing
Wafer manufacturers are holding their prices wafer manufacturers are holding their prices until there is a breakthrough in silicon prices. In the meantime, prices are not changing much, except this week for M10 wafers (182 mm) because the world's number 1 LONGi wanted to conclude a large delivery contract with DAS Solar. In order to do so, it reduced its prices by 6.8%. This reduction should not be seen as the beginning of a price decrease, as the price of other wafer formats M6, G12 did not change. Producers are torn between buying silicon at the current (and therefore expensive) level, processing it into wafers at a high price when the market could thaw and prices fall. They cannot risk a financial loss to please the cell manufacturers. Therefore, even if they build up stocks, they avoid moving
The cell manufacturers are caught in the crossfire. On the one hand, there are panel assemblers who (it is said) refuse to accept price increases for cells because the buyers of finished products are unwilling or unable to make their power plant or residential construction projects profitable. Thus, the downstream cell buyers (panel manufacturers) would refuse the increases. On the other hand, silicon producers have launched price increases followed by wafer manufacturers. The cell manufacturers are tempted to reduce prices a little so that the panel manufacturers can sell their production.
Panel assemblers are filling orders but remain The panel assemblers fulfil orders but are reluctant to take new orders because prices would have to be certain or revisable. However, buyers refuse to accept price revisions. They too tend to want to reduce their prices in order to find buyers. So, there are widespread indications that panel manufacturers are reducing production to 50% or 60% of capacity in order to pressure wafer and cell manufacturers to remain "reasonable".
This presentation does not seem to be accurate:
This pattern has been repeated over and over again for the past two months by the industry and taken up by market commentators. However, the latter have not gone to the production sites to find out what the exact production rate is. Indeed, a rate of 50% capacity utilisation would lead to fixed costs not being absorbed by production and would put companies out of business. Moreover, this rate is not very credible because for the last twelve months, large quantities of new production lines have been put into service in order to saturate the market and stifle competitors who are not as ambitious or adventurous. Finally, the turnover figures of the five main panel manufacturers totally belie this reduction in production, as in the first half of 2021, the four main panel manufacturers saw their turnover increase by 74%, 66%, 61%, 49%. Where is the production restriction that we have been told is?
Above all, it is impossible to distinguish the true from the false in the messages coming from China: the various players, commentators, but also the heads of companies in the sector must comply with the orders of the Communist Party and cannot deviate from them. So there is nothing to say that the rise in the price of silicon is a purely economic phenomenon and not a political one. To be sure, the first American criticisms of the forced labour of the Uyghurs (in Xinjiang) date from July 2020. They coincide with the beginning of the rise in the price of silicon, for which it was explained that there had been explosions and flooding at one or two silicon producers. It should be noted that the emergence of the price rises occurred in the second half of 2020 and that this was the period of the global spread of the campaign against imports from Xinjiang, and also of the policy of denouncing silicon produced by the Chinese Hoshine.
While it is not possible to say for sure whether this correlation is accurate, the coincidence of anti-Chinese measures from the US and the rise in the price of silicon is troubling. Above all, it would be typical of the Chinese way of doing things: instead of noting that anti-Chinese measures must be followed by retaliatory measures on the same ground, the Chinese have a habit of using another ground to react. And what better way than with silicon and the supply of panels. China is the world's 80-90% supplier of silicon. This is an excellent field for retaliation! It makes it possible to raise prices, restrict the worldwide sale of panels, deprive foreigners of panels that reduce energy production costs, limit the competitiveness of companies that would like to sell their products.It also limits the competitiveness of companies that would like to but cannot source panels, and incidentally limits the competitiveness of foreign countries to the benefit of Chinese companies. It would be in China's interest to pursue this policy since the Chinese quasi-monopoly makes it compulsory to use products manufactured in the Middle Kingdom.
Photovoltaic industry's financial results are soaring
To see the improvement in profitability at Zhonghuan, the world's 2nd largest wafer producer, we note that the company reported a turnover of RMB 29 billion (+115%) and a net profit of RMB 2.75 billion (+220%) for the first nine months, giving a net margin of 9. 5% of turnover. To avoid sharp comparisons, the company alternates the currency of publication, in dollars in thefirst half of the year, and in RMB over nine months.
In the third quarter Zhonghuan's revenue reached RMB 11.8 billion, resulting in a net profit of RMB 3,140 million, or a net margin of 26.6% of revenue. At a time when silicon restrictions were being announced, the company managed to almost triple its net margin!
LONGi, the world's number one wafer maker and assembler, is still the last to publish its quarterly accounts. It has not yet published its third quarter results. In the first half of the year, turnover increased by 75%, gross margin increased by 2.2 percentage points to 22.7%, and wafer shipments increased by 36%. This indicates the effects of price increases.
Although LONGi and Zhonghuan, the two largest wafer producers, have taken market share from their competitors, it should be noted that at no time was there a shortage of silicon.
Official production figures from China are not yet available.
Thus, between the opacity of Chinese information, the manipulation of information given by company managers and the "coordination" by the government, which is concerned with China's interests and not those of the global economy, it is difficult to make sense of the situation.
What is certain is that the silicon crisis launched fifteen months ago has allowed producers of this basic material to make unexpected profits. Daqo, for example, achieved a net margin of 69% of turnover in the first half of the year (no other listed silicon company is required to publish its accounting data).
The world's No. 1 cell manufacturer and silicon producer, Tongwei, reported a net profit in the first nine months of 2021 that was up 80% on the year to 2020. This compares with a net margin of 11.3% in thefirst half. Once again, manufacturers have taken advantage of the tense situation and price increases to make profits.
Only the panel assemblers did not take advantage of the party to make huge profits. In thefirst half of the year, LONGi increased its turnover by 74%, Trina Solar by 61%, JA Solar by 49%, and Canadian Solar by 66%: in thefirst half of the year, Trina Solar achieved a net margin of 3.6% of its turnover, JA Solar 4.6%, Jinko Solar 2.8% and Canadian Solar 1.3%. This net margin is reminiscent of the years 2015 when there was strong competition between the different players. On the other hand, the increase in half-yearly turnover indicates that there was sufficient silicon, wafers and cells to sell panels. Therefore, the 50% of production capacity used by the industry is a fable
This overview shows that information from China is not reliable. In China, the message to the rest of the world is agreed upon. It is most certainly oriented towards the interests of the Chinese nation, which enjoys a virtual monopoly in all four stages of photovoltaic production. There is therefore no economic rationality. Therefore, obtaining a leading position has allowed the manufacturers to make huge profits. It is certainly to the advantage of Chinese producers to maintain this strong position in the supply of components. Westerners have to rebuild an industry that is not only silicon, wafers, cells, but also glass, backplating, silver paste, aluminium frames, etc. This will take time. During this reconstruction, the Chinese will seek to counteract it with the delivery of low-cost products.
Despite the prospect of several silicon production plants coming on stream, it is not certain that prices will fall in the first half of 2022 because bad habits will persist, because the world will demand panels, because the Chinese will find a good excuse to point out that production is hampered by ... (fill in all the bad reasons you can find), that shipping costs (between 5 and 10 times the rates of two years ago) prevent price reductions... Only this attitude could be attacked if the American measures in favour of national production were voted. Let's hope that Europeans will learn the lesson of the 2020-2021 period to avoid depending on the Chinese for a product that is so important for the future of energy