Silicon Giants Cut Output Amid Antitrust Concerns
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- February 18, 2025
In recent weeks, a significant shift has taken place within the solar energy sector as leading silicon manufacturers announce cutback plans. The ripple effects of these decisions highlight the ongoing challenges faced by the photovoltaic industry, especially as market conditions continue to fluctuate. The announcement by Tongwei Co., a prominent name in the industry, on December 24, serves as a notable example of this trend.
Tongwei stated via its official social media platform that its high-purity silicon capacity exceeds 900,000 tons. However, with the arrival of the dry season in Southwest China, coupled with rising electricity prices, the company acknowledged the necessity for a phased reduction of production. With the photovoltaic sector experiencing persistent weak performance, Tongwei's subsidiary, Yongxiang Co., is set to implement modifications and maintenance across its four high-purity silicon production plants. This strategic step is intended to manage production levels effectively.
On the same day, Daqo Energy also joined the ranks of companies announcing production adjustments. The company declared its intention to gradually initiate maintenance at its high-purity polycrystalline silicon production lines based in Xinjiang and Inner Mongolia. As a key market player, Daqo's current annual production capacity stands at 305,000 tons, and its actions reflect the broader struggles faced throughout the industry.
Understanding the implications of these production reductions requires knowledge about the role of polycrystalline silicon within the solar energy supply chain. It is an upstream component, essential for photovoltaic products. Despite its critical role, the recent market dynamics have not favored producers, with polycrystalline silicon prices remaining depressed for an extended period. As a result, profitability for manufacturers has become increasingly tenuous, further compounded by rising electricity costs in the southwestern regions.
A pivotal discussion took place earlier in December, organized by the China Photovoltaic Industry Association in Yibin, Sichuan. This symposium focused on promoting high-quality and sustainable development within the photovoltaic industry. Participants emphasized the necessity of enhancing industry self-regulation to prevent excessive competition, often described as "involution." This self-imposed restraint among companies aimed to sustain a more equitable market environment was evident in their collective commitment to controlling production capacities and avoiding impulsive expansion.
Market analysts, such as Huaxin Securities, view the evolving self-regulatory framework within the solar industry as a promising development. According to them, the sector can expect a gradual reduction in inventory levels alongside lower production loads. They regard the recent production cut announcements from both Tongwei and Daqo as a testament to the industry's self-regulation efforts.
Moreover, the rising pressures of inventory management have led many silicon manufacturers to adopt strategies that reduce operational rates as a means to alleviate the overwhelming stockpile. Industry observers from Shanxi Securities predict that it may take three months or longer to address the inventory challenges adequately. They anticipate that following this adjustment period, there could be a slight recovery in prices, albeit with limited upward momentum.
Further contributing to the industry’s stabilization efforts is the impending launch of polycrystalline silicon futures on December 26. The China Securities Regulatory Commission recently authorized the Guangzhou Futures Exchange to register futures and options related to polycrystalline silicon. This addition, alongside other commodity futures like industrial silicon and lithium carbonate, marks a significant development in China’s renewable energy sector.
Despite the futures market not having a direct impact on absorbing existing silicon stocks, analysts like those at Huaxin Securities assert that it can act as a storage facility for future silicon inventories. They highlight that while the absolute figures for silicon inventories may appear high, the reality is that some lower-quality stocks may not be suitable for future use. The effective stock data is therefore likely to be lower than what the overall numbers suggest, which adds optimism regarding the futures launch and its potential positive effects on inventory clearance and production capacities.
Insights from Longzhong Information underline the multifaceted impact that the introduction of polycrystalline silicon futures will have on the industry, particularly among leading silicon manufacturers. These prominent players stand to benefit from new sales channels through futures markets, allowing them to employ hedging instruments to mitigate price volatility and ensure stable operations.
As of recent data compilations, there are several significant companies within the polycrystalline silicon sector drawing the attention of investors and analysts alike. Notable entities such as Sungrow Power Supply, Longi Green Energy, and Tongwei Co. have captured the interest of at least 15 institutional investors, establishing them as leading firms within this evolving landscape.
Looking ahead, projections for 2024 indicate continued financial turbulence for companies like Longi Green Energy and Tongwei, with expected annual losses of approximately 7.52 billion yuan and 4.97 billion yuan, respectively. These figures are grim compared to earlier loss estimates for the third quarter of the year, suggesting the possibility of further financial setbacks in the near term.
However, industry experts foresee a potential turnaround following a successful market stabilization. Predictions for 2025 and 2026 indicate a rebound in profitability, with anticipated net profit estimates for Longi and Tongwei exceeding 4 billion yuan and 7 billion yuan respectively over the next two years.
Other than the leading players, Daqo Energy is also expected to face its challenges, with projected losses of around 1.45 billion yuan for the current year and a narrower projected profit of 1.4 billion yuan by 2025. Meanwhile, companies like Shun'an Environment and South Glass A are predicted to see growth compared to 2024, showcasing potential resilience within segments of the industry.
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