L R AS Published on Sunday 11 February 2024 - n° 475 - Categories:PV Watch

A look at a potential danger

The continuing conflict between Israel and the Palestinians has woken up the Arab world and prompted Iran to launch an assault on the Red Sea by the Houthi rebels. Even if these attacks are not very important, they are spectacular and encourage those in charge of ships loaded with hydrocarbons to bypass Africa. This increases costs and threatens to spread, leading to more serious disruption of world trade, as we had a foretaste of with the disruption of Chinese supplies during Covid.

One of the main victims is likely to be the photovoltaic sector, which will be hit by the contagion of three factors: higher delivery costs, hasty purchases by developers who have until now been taking advantage of the continuing fall in panel prices, and supplies from project managers who are buying panels for the 2024 season. The trend is set to reverse after the Chinese New Year.

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summary

The Red SeaThe conflict between Israel and the Palestinians has focused international attention on this war and has made us forget the Houthi rebels along the coast of Yemen.

The consequences for the European economy are significant The Houthi attacks are prompting ships loaded with hydrocarbons to take a safer route, bypassing Africa and incurring additional costs. Similarly, longer transport times between Asia and Europe will have an impact on component deliveries for a large number of industries.

The trend in panel prices is likely to reverse The price of panels will include the additional cost of transport, encouraging developers who have been waiting to place orders to do so when seasonal demand comes on stream. Photovoltaic prices are likely to rise again in the near future.

A succession of events has raised fears that the wrong decisions have been taken Events have followed one another since 2020 (covid, Asian supplies, rising energy prices, and now supply disruptions). Leaders have been forced to act in a hurry, which never makes for good policy.

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The text

Observers are drawn to the Hamas-Israel war in the Gaza Strip. Everything revolves around this conflict, now in its fifth month of war, with no real sign of victory. This conflict is overshadowing the emergence of another source of conflict that is far more dangerous for the global economy and the future of the world. Iran is seeking to destabilise the Red Sea by sending armed gangs to attack ships in this zone, which is vital for supplies to Europe, and also because China has taken a considerable place in industrial supplies, as well as photovoltaics.

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The Red Sea,

In 2022, 22,000 ships passed through this easily disrupted channel. Ships loaded with oil or gas already prefer to pass through southern Africa (the Cape of Good Hope). According to Reuters, the route between the main Asian ports and Rotterdam is 8,500 nautical miles, whereas the route around Africa is 11,800 nautical miles. Transport time increases from 26 days via the Suez Canal to 36 days via the bypass.

If we limit ourselves to the maritime route between Saudi Arabia and Europe, transport time increases from 19 days via Suez to 34 days via Cape Town, while the large transport ships consume $30,000 to $35,000 worth of fuel per day. The extra cost is half a million dollars. It should be possible to reconcile this extra cost with the price of the cargo.

Iran is testing the nuisance capacity of these Houthist gangs on this sea route.

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The consequences for the European economy are significant

The consequences for the European economy are far-reaching, since the higher cost of transport will be reflected in fuel prices, and thus in a rise in prices that had begun to slow down. Transport time will be reflected in the completion of finished products and the delivery of essential components, as we saw during the Covid pandemic, which hampered a number of manufacturers in many different sectors. This will be reflected in the supplies of the various industries that rely on supplies from China to complete their product.

As China supplies between 80 and 95% of the world's panels, delivery costs will rise and transport times will increase, raising the risk of a rise in panel prices from the end of the New Year holidays onwards. This coincides with seasonal orders from Europe and the US for summer installations.

The risk of an upturn in prices is all the more likely given that the abundance of Chinese PV production in the 4th quarter took place during a seasonal period of falling demand.

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A reversal in the trend in panel prices is likely

As long as prices were falling, it was in developers' interest to wait to place orders, since every extra week they waited meant they could gain a few per cent on the price. The seasonal reversal of stronger demand, the rush by developers to place orders to avoid the looming price rise, and the pressure from Chinese manufacturers to pass on price rises linked to the events in the Red Sea, have led to fears of a price rise. However, this will probably not be very significant, as the industry is still dominated by massive capacity installation programmes, and therefore by a temporary oversupply.

For the time being, we cannot yet envisage a serious international crisis involving a spike in the price of hydrocarbons. Iran is testing its capacity to cause trouble and has not decided to go to war with Israel, or even to open a second front of hostility in Lebanon with Hesbolah; because the Houthist rebels are not very numerous; because merchant ships can be escorted by American or British warships.

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The succession of events raises fears that the wrong decisions have been taken

However, a succession of events (covid, the exceptional rise in oil prices, the war in Ukraine, the massive debt burden of the European Union) have left European governments with no time to take the right decisions.European governments have no time to take well-considered decisions, to develop long-term strategies or to select the sectors to focus on.

Often when there is such a succession of opposing events, this lack of time and examination of the future leads to errors of assessment and the wrong choices being made, for which people pay a very high price in the future. Europe's recent history gives cause to fear that the wrong decisions have already been made.

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