Published on Monday 5 June 2023 | Article n°448
The oversupply of silicon from the fourth quarter of 2022 onwards has reversed the trend in photovoltaic prices. Many manufacturers did not anticipate this phenomenon and continued to produce as before. However, when prices fall due to overproduction, buyer behaviour changes considerably. They avoid buying or they postpone their purchases because they know they will be able to obtain goods on better terms at a later date. This contributes to building up stocks and creating losses for manufacturers.
Chinese manufacturers have over-anticipated demandThis prompted them to invest massively in production facilities.
Over-ambitious production capacity led to overproductionOverproduction: the arrival of production has led to overproduction
Stocks estimated at one month's production (which is probably a minimum): when prices fall, stocks depreciate and create losses.
We mustn't feel too sorry for the professionalsOn the one hand, the situation is exactly the opposite of that when prices were rising, and on the other, they did not anticipate the overproduction properly.
The decline that has begun will not stop for several months to comeThe fall in prices in the sector will not stop until there are bankruptcies and prices have returned to the cost of production.
On the one hand, the Chinese authorities are announcing a 57% increase in cell production (which gives a trend in panel production over the first four months) over the first four months.On the other hand, manufacturers are complaining about overproduction and the build-up of inventories, which are starting to be high, forcing them to take corrective measures. How can these factors be combined?
Chinese manufacturers over-anticipated demand
It all started with silicon manufacturers anticipating a huge increase in demand for panels over the next few years. The shortage of this material since July 2020 has caused prices to soar, favouring the few producers with the equipment to produce it. The plant start-ups that began in the second half of 2022 reversed the shortage, creating an oversupply in the last few months of last year.
Alongside this expansion of silicon production equipment, the other stages in the manufacture of wafers, cells and panels have also invested heavily. Some observers estimate that cell and panel production capacity has reached 900 GW, with global demand estimated at 240 GW in 2022.
Over-ambitious production capacity has led to overproduction
So, in anticipation of strong final demand for panels, the industry has equipped itself extensively; it has equipped itself too extensively, at a time when final demand has slipped away. Why? Because overproduction has the effect of calling into question commercial relations, because of the drop in prices to come. If we wait a little, the seller will spontaneously agree to lower his prices. If, moreover, the seller has too much stock, he is prepared to make an additional gesture to free himself of goods in the warehouse.
The commissioning of new silicon production units has triggered this harmful mechanism for manufacturers: buyers have an interest in buying as little as possible so that when the next order is placed, prices will have fallen. This slows down commercial relations between buyers and sellers.
There is another factor that suffocates sellers: falling commodity prices mean that new products are produced at a lower price. Older products in stock have been produced at a higher price. So the manufacturer is in a dilemma: what he produced a month or two ago is far too expensive for the new market price. What should he do with it? If it is offered to a buyer, the latter will want the market price and not the price of a month ago. So the manufacturer either lowers his price to bring it into line with the market price and loses the price differential, or he waits for the market to rise again, but he can wait a long time and the time that passes increases the negative price differential.
Stocks valued at one month's production (this is probably a minimum)
At the moment, market analysts indicate that silicon manufacturers have a month's worth of stock manufactured at a price higher than the market price. Wafer producers are in the same situation, with more than a month's supply and are expected to make a loss. Cell manufacturers are in the same situation.
In addition to the production chain itself, wholesalers received too many goods in the second half of 2022. Imports of panels into Europe reached 87 GW, against demand of 41 GW. The excess of 46 GW was in European warehouses by the end of 2022 (which begs the question: were these excess deliveries deliberate, forced or coerced by the manufacturers?) Added to this are Chinese deliveries during the first quarter. This is what leads pvXchange to say that wholesalers want to get rid of overpriced panels, even though the market price has fallen. This abundance of products, combined with regular supplies, means that customers can be supplied with the panels they want! Wholesalers and retailers in the European industry are suffering losses.
We mustn't feel too sorry for the professionals
The reversal in the trend is creating a difficult situation for the industry. But we mustn't feel too sorry for them, because this situation is the opposite of the 24 months of price rises in the sector (when they bought and sold a few days later, they made a profit as prices continued to rise).
What's more, it was the lack of foresight on the part of manufacturers in the sector that led to their misfortune: if they had reduced production from the start of the year or even in the fourth quarter of 2022, they would be producing what is required If they had reduced their production from the start of the year or even in the fourth quarter of 2022, they would be producing what is required by the downstream sector, and they would not be incurring any losses, since the production would immediately find a buyer at the current cost price. So it's this lack of foresight that is causing difficulties for manufacturers.
The decline that has begun will not stop in several months' time
pvXchange seems to be saying that demand is currently moderate in Europe. This is also the case in China. This is to be expected, as the longer developers wait to place orders, the lower the prices will be... In our look at PV(Regard sur le recul des cours en 2023 de la filière PV), it was said that the price of silicon would fall by 2023.said that the price of silicon should fall to 50 or 60 RMB per kg (compared with 115 RMB currently), which would lead to a further 15% drop in the price of panels (to 140 RMB/W). Buyers are therefore waiting for prices to return to close to these levels before ordering large quantities of panels. It is difficult to determine when this return to these purchasing levels will occur, but we can be sure that global photovoltaic installations are and will be boosted by the current fall in prices.