Wafer and cell manufacturer giants, Longi and Tongwei, have respectively raised their prices following polysilicon shortage caused by a series of explosion at polysilicon plants in Xinjiang. The increase in polysilicon prices may have an influence on deliveries of modules in the second half of this year and in turn the installation work of auctioned PV projects this year.
Knock-on effects of polysilicon price increases
The explosions at polysilicon plants in Xinjiang have sparked price increases across the PV supply chain. According to a person familiar with the incident, polysilicon production has been shrinking since around April and May. In fact, polysilicon prices have been on the decline since the first half of this year, with mono-grade polysilicon prices dropping to under RMB 60/kg at some point. Some manufacturers have shut down or maintained production lines in an alternative way to reduce the supply of polysilicon.
Polysilicon manufacturers have been looking to raise prices since June as demand turns around in the second half. And the prices are increasing faster in the wake of explosions at Xinjiang-based polysilicon factories. Polysilicon manufacturers are said to have closed up for inspection; it may not be able to resume operation until after the end of this year. Following the incident, the work safety department in Xinjiang demanded that local polysilicon makers conduct self-inspection. Since then, TBEA, Daqo New Energy, and East Hope—all based in Xinjiang—have cut their production capacity by 30% to 50%, according to an individual in the know who asked not to be identified.
“Things will take as little as two months to get back to normal, or we may have to wait until the end of the year at the latest,” the person added. Even if all polysilicon factories get back up and running, polysilicon will be low in supply when you take into account strong market demand. But polysilicon prices will not keep going up; they may increase to RMB 80/kg at most, although it is hard to say whether this will happen.
As OCI’s polysilicon factory in Malaysia has resumed operation, when polysilicon prices reach certain levels, there is every possibility that polysilicon factories in non-Chinese markets will ramp up their production, said chief analyst Corrine Lin at InfoLink.
While the price increases brought by the explosions to the industry chain are widely anticipated, the increased prices for cells announced by Tongwei on July 24 surprised many. “The prices have gone up RMB 0.09/W for G1 and M6, up by more than 11%,” observed a senior employee of a cell manufacturer. “These prices are punitive. Generally speaking, the actual trading prices will be somewhat lower than the official selling prices but they will at least go up RMB 0.07 per watt."
In fact, cell prices were long expected to climb in August; the explosions allowed them to increase prematurely and in greater extents. “There are a lot of cells up for grab,” the employee added. While cell production capacity seems plentiful, standing at around 200 GW, most of it is low-efficiency capacity, which are no longer competitive.
Meanwhile, another employee of a cell maker told PV Men that “although there is plenty of cell production capacity, manufacturers yield many types of cells. 166-mm cells, for example, are relatively low in supply, and their production volumes are limited across manufacturers. Besides, inconsistent screen layouts account for the wide distribution of production capacity. So, when cells of a certain level of efficiency is in demand, there won’t be enough of them among producers."
As far as PV Men knows, high-efficiency cells production is dominated by Tongwei, Aiko Solar, Runergy, Luan Solar, Sumin Energy, Solar Space, and Uniex—with top three makers Tongwei, Aiko Solar, and Runergy holding around 50 GW together. According to the China Photovoltaic Industry Association, the cell industry became considerably more concentrated in the second half of this year, with the market share of top 10 makers having grown to 75%, compared with last year’s 55%.
Barriers to module deliveries
Price increases across the industry chain have hit Chinese module producers hard. Most of them cut prices in their bid for module procurement exercises jointly launched by state-owned utility firms the China National Nuclear Corporation, China Datang Corporation, and China General Nuclear Power Group, anticipating a low number of orders. The lowest bids appear in the 3 GW of modules procured by the China National Nuclear Corporation: RMB 1.328/W for 400W/405W mono-Si modules and RMB 1.358/W for 440W ones.
Considering how cell prices are climbing now, “modules are left with zero margins with a price under RMB 1.4/W but they can barely make profits with RMB 1.45/W,” said Corrine Lin. Things will not change unless cell prices go down. Module makers tend to sign long-term contracts to secure certain levels of cell supply, although they do so to obtain enough orders, instead of ensuring steady prices. At the end of the day, cell prices will certainly have an impact on the volume of modules delivered.
“If cell makers feel hard-pressed to execute production, they may hold back their deliveries even if prices are settled,” analyzed a PV professional. “In turn, module makers will find themselves struggling to deliver their orders, and they can barely withstand the price hikes in the upstream segments.” Once all the price hikes penetrate into the end market, module makers will be facing high pressure in delivering orders for auctioned PV projects in the second half of this year. A module giant has sent a delegation in mid-July to a Tier-1 cell maker to check on the status of their orders.
In addition to cell price hike, prices for PV glass have surged. “As demand for large-format panel and bifacial modules is growing so rapidly that production lines for technically modified glass falls to catch up,” noted Chen Li, who runs a module maker.
Tier-1 module makers’ capacities are now overbooked in Q3 and Q4. “They still have some production capacity left to deal with further orders, but module prices are very likely to climb,” said Chen. At the same time, Tier-2 and 3 makers, as well as outsourcing providers, are all gearing up.
That module makers are fully booked points to strong market demand. However, high-efficiency modules, particularly those feature a power output topping 440 W, are running short in supply. Their shortage, coupled with the diminished polysilicon supply following the explosions at the Xinjiang-based polysilicon factories, will make it even more difficult to get PV projects installed at the end of this year.
“Developers may well switch to products based on G1 format since there is plenty of production capacity for them and they are high in supply,” Liu recommends. If module prices increase too dramatically, some PV projects may not come online until next year.
The PV industry is seeing some growth this year, with stronger prospects for the end market and the supply chain than last year. While PV installations have been forecast to reach 45 GW in China at the end of this year, the repercussions of the explosion-induced increases in polysilicon prices may have some impact on the volume of capacity actually installed, especially the auctioned projects that need to be grid-connected by the end of the year. And how long those repercussions will last depends on how long the coronavirus outbreak is going to persist in Xinjiang and how well local polysilicon producers can resume operation.