As the photovoltaic (PV) industry navigates through turbulent waters, it appears that the struggles within this sector are far from overCurrently, the landscape is littered with companies in a predicamentSome are holding steadfast against the tide, yet many others are retreating, coming to the harsh realization that compromise is essential for survivalA call for production cutbacks has arisen, with industry players agreeing to a collective effort to moderate supply in order to restore a semblance of balance in global supply and demand.
Among the few companies that remain unyielding are some leading PV firms, including Tongwei Co., Ltd., a giant in the solar industry valued in the hundreds of billionsOn December 24, the company made headlines by announcing a strategic operational adjustment, revealing plans to conduct technical upgrades alongside maintenance adjustments at some of their high-purity silicon projects, while advocating for orderly reductions in production.
The rationale behind this move is multi-faceted
A seasonal decrease in water availability in the Southwest region has led to increased electricity prices, placing additional strain on operational costsWith the PV industry languishing in a prolonged downturn, Tongwei's subsidiary, Yongxiang Co., Ltd., is set to methodically oversee the maintenance and reduction of output at its four high-purity silicon production facilities.
The decision of a sector leader like Tongwei to embrace reductions would undoubtedly send ripples throughout the industry, serving as a beacon for others in a similar plightA recent report from Huatai Securities reflected a cautiously optimistic outlook, noting that a leader in silicon materials initiating production cuts releases a positive signal to the marketThe anticipated introduction of a self-discipline quota system at the start of January could further stabilize pricing within the industry, potentially driving a restoration of both pricing and profitability across the silicon supply chain.
While market analysts adopt a bullish perspective, the immediate feedback from secondary markets paints a grim picture
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The narrative of competition within the PV sector has taken on a starkly competitive dimension, characterized by aggressive efforts that do little to benefit individual companiesFollowing the introduction of the dual carbon goals in September 2020, the PV industry initially surged as a representative of clean energyFrom the latter half of 2020, the entire supply chain witnessed monumental growth as stakeholders scrambled to capitalize on this unprecedented opportunity.
This frantic expansion, however, led the sector toward an unsustainable trajectory as supply quickly outpaced demandThe once favorable supply-demand balance sharply inverted, resulting in serious oversupply issues that led to industry-wide ramificationsIf we examine the polysilicon segment, which is positioned at the upstream of the supply chain, we see that as of the end of 2023, global effective polysilicon production capacity had soared to 225.6 kilotons, with Chinese capacity alone reaching 209.9 kilotons, accounting for a staggering 93.1% of total global output
In stark contrast, demand languished at only 105 kilotons for the same period, indicating a clear surplus of capacity.
This imbalance has led to significant price deterioration, with published data revealing that polysilicon prices plunged from 190 RMB/kg at the beginning of 2023 to an alarming 65 RMB/kg by year-end—a staggering drop of 65.78%. Unsurprisingly, as a leader in the polysilicon market, Tongwei cannot remain immune to the pressures bestowed by these over-production challengesFinancial reports indicate that the company has struggled through substantial losses during the year, with estimates depicting a cumulative loss of 39.73 billion RMB in the third quarter alone, a stark juxtaposition to the 16.3 billion RMB profit reported for the same period last year.
In light of the unfavorable pricing climate, Tongwei's decision to engage in measured production cuts stands as a calculated concession to the realities facing the industry
Its announcement on December 24 indicated that ongoing adjustments were necessitated by seasonal conditions in the Southwest and the pressing need for financial prudence amid an extended market downturn.
Yongxiang Co., Ltdpossesses a notable production capacity exceeding 90 kilotons and has held the top position in global market share for several consecutive yearsDespite this, the acknowledgement of the dire state of supply-demand dynamics has propelled Tongwei to diversify its focusIn 2022, the company sought to expand its influence by progressing into the solar module segment, a strategic pivot aimed at integrating production.
Such moves are not without precedence in evolving industriesA well-known trend in sectors expanding their capabilities during dynamic changes is a push toward vertical integration, where companies capitalize on internal efficiencies to drive down costs and stabilize supply chain risk
As the industry expands and adapts to ongoing technological advancements, firms like Tongwei are positioning themselves to optimize margins while enhancing the profitability of their product segments.
After entering the module market, Tongwei's output surged significantly, with module capacity escalating from 7.2 GW in 2021 to approximately 63 GW by December 2023. Nonetheless, the landscape in which these integrated strategies operate is fraught with challengesThe increasing intensity of competition and rampant pricing pressures have hindered Tongwei’s previously advantageous cost positionDisappointingly, data suggested that in recent tenders, Tongwei's bid prices have surpassed those of competitors such as Longi Green Energy and JA Solar, signaling waning prominence in the competitive spheres where price competitiveness is critical to survival.
As we analyze Tongwei’s current trajectory, it becomes clear that dual pressures of excess capacity and spiraling debt are looming large
Over the past few years, in a frantic bid to secure market share, Tongwei has been on an aggressive expansion spree, with investments reaching 64.5 billion RMB in various locations across China for production capacity boostsThis spree, notably including a staggering 28 billion RMB injection in Ordos alone, exemplifies the scale of its ambitious growth strategyHowever, as of the third quarter of this year, the financial repercussions are manifesting; Tongwei's total liabilities have ballooned to 136.6 billion RMB, with an alarming asset-liability ratio of 69.04%. Comparatively, these figures represent a stark increase from 32.7 billion RMB and a 50.91% ratio in 2020.
In returning to Tongwei's recent choice to implement production cutbacks and operational adjustments, while this strategy might aid in rejuvenating polysilicon prices, the broader context suggests that time may not be on their side to wait for a price rebound