In 2011, for the photovoltaic industry, it was an extraordinary year. The installed capacity of photovoltaics in the world far exceeded the actual demand and caused excess capacity. However, this year may be the real test of the photovoltaic industry. According to industry sources, the actual demand for global photovoltaics declined last year. As there is still considerable inventory undigested, it is expected that global PV products will continue to exhibit oversupply in this year, and polysilicon prices will hardly rise significantly. As an important part of the photovoltaic industry, the price of polysilicon also fell in a straight line last year, and the cost of crystal components was the key to profitability.
Convinced that no one would object to the argument that it is a challenge to make predictions for the photovoltaic industry. Although we can do our best to prepare for all possible consequences or variables, unforeseen political decisions or better-than-expected weather conditions (eg, Germany at the end of 2011) can lead to different results. But now it seems that we are right this time: we predicted in 2010 that "EMEA installation volume will drop by 80% in the first quarter of 2011. This data plus output will increase to the maximum in order to meet the strong demand in the second half of 2010. Demand is expected to quickly reverse the current imbalance between supply and demand, and the average PV module price is expected to show a downward trend again."
As early as mid-2010, IMS Research had predicted that there will be an oversupply in 2011, which will cause suppliers to face difficulties. However, the expansion will continue and the production line will continue to produce more components, so that the inventory level will rapidly expand. After efforts to catch up with demand for one year in 2010, the entire industry is still expanding.
Throughout 2011, IMS Research expects demand growth to be at least 20%, but no one agrees with us. Until September 2011, PV module suppliers still stated that “the installed capacity cannot exceed 20 GW, but it is very likely to reach 16 GW.†Our recent analysis and survey show that the actual installed capacity in 2011 exceeded our expectations and reached 26 GW. (Please note that this is the amount of installation rather than the amount of power connected to the grid). So why did the supplier lose a lot in 2011? Most industries may be pleased with the 30% increase in demand, so why can't they see demand and why PV manufacturers are so embarrassed in 2011?
First, the 30% increase in demand is less significant than the expansion of most suppliers. These suppliers doubled their output this year. Many suppliers are still able to increase their shipments in 2011, but they are not enough to prevent newly installed production equipment from using a large amount of funds and not using enough, or to prevent stock levels from growing too fast. Despite the growth in component demand, it is as if there were no growth at all, compared to the three-digit increase in 2010. Second, despite the large increase in shipments and installations throughout the year, most of the demand is at the end of the year. In fact, nearly 40% of installations occurred in the last quarter. This means that the relatively weak demand in the first half of the year has pushed up the inventory of the channels and dragged down the prices, because many suppliers have suffered losses in sales, waiting for a good time to return. The fierce price competition throughout 2011 means that the industry’s PV module revenue has actually fallen by 15%. The output of components, shipments, and installations have all improved, but the supplier's revenue has not improved.
Costs have been reduced, but the failure to catch up with the price was a year when the price plummeted. There are many articles about the sharp drop in the average sales price in 2011. However, the matter is actually very simple. That is, European demand abruptly ended at the beginning of 2011. Most of the reason was that Italy cancelled the feed-in tariff but the expansion did not stop. script. The result is that components can be easily sold at 2010 prices, and the market suddenly becomes very competitive. As GW's components are flooding into the market and the differences between products are very small, intense price competition naturally occurs. But many people are surprised that the price is so low. The price of crystalline silicon at the end of 2011 was lower than 45% at the end of 2010, even exceeding the forecast of the most daunting price drop.
Noble economists emphasized that in order to significantly reduce prices (and to survive), costs must be reduced, but this time it does not work. No supplier can reduce prices and costs at the same speed, and the entire industry's profitability will definitely realize this. The average gross profit of crystalline PV module suppliers fell to single digits, but it was close to 20% a year ago.
For crystal module manufacturers, the biggest difficulty in reducing costs is the relatively stable price of polysilicon. Although many reports have claimed that the price of polysilicon has declined rapidly and reached a record low, especially in the second half of 2011, the fact is that low-priced silicon is sold by low-end suppliers in the spot market. With most of the photovoltaic-grade silicon signed long-term supply contracts, the fluctuation of spot prices has little effect on the actual average price of suppliers buying polysilicon.
How can a supplier realize profit again?
It is expected that the stimulus policy will likely be substantially reduced in 2012, so the cost structure of component suppliers will still maintain a stable long-term polysilicon price. They hope that future cost reductions can stop the decline in polysilicon prices. This is very likely to happen in 2012, especially considering that the expansion of Tier 1 suppliers is expected to go online this year (planned many years ago). The polysilicon production of Tier 1 producers is expected to reach 300,000 MT in 2012, which is sufficient for 40 GW installation projects. However, the installed capacity is expected to reach approximately 26-28 GW. Only the first-tier manufacturer's output is sufficient to meet the needs of the entire market. GCL et al. claim that suppliers whose costs have been reduced to 20 US dollars per kilogram have to work hard to compete with large polysilicon producers. This will create a breathing space for the downstream manufacturers' cost structure.
In the face of the impending drop in polysilicon prices, many suppliers have begun accepting fines for canceling long-term supply contracts in order to switch to buying polysilicon, wafers, and batteries in the spot market, or to renegotiate contracts.
Looking back at 2011, it was a bit similar to 2009 (changes in government subsidies led to a rapid decline in demand, which led to oversupply, falling prices, and a strong rebound at the end of the year. Many people were surprised by the increase in installed capacity). However, there is a clear difference, that is, there will no longer be an expansion of demand as in 2010, and 2012 will be destined to become another year of hardship for suppliers.
Convinced that no one would object to the argument that it is a challenge to make predictions for the photovoltaic industry. Although we can do our best to prepare for all possible consequences or variables, unforeseen political decisions or better-than-expected weather conditions (eg, Germany at the end of 2011) can lead to different results. But now it seems that we are right this time: we predicted in 2010 that "EMEA installation volume will drop by 80% in the first quarter of 2011. This data plus output will increase to the maximum in order to meet the strong demand in the second half of 2010. Demand is expected to quickly reverse the current imbalance between supply and demand, and the average PV module price is expected to show a downward trend again."
As early as mid-2010, IMS Research had predicted that there will be an oversupply in 2011, which will cause suppliers to face difficulties. However, the expansion will continue and the production line will continue to produce more components, so that the inventory level will rapidly expand. After efforts to catch up with demand for one year in 2010, the entire industry is still expanding.
Throughout 2011, IMS Research expects demand growth to be at least 20%, but no one agrees with us. Until September 2011, PV module suppliers still stated that “the installed capacity cannot exceed 20 GW, but it is very likely to reach 16 GW.†Our recent analysis and survey show that the actual installed capacity in 2011 exceeded our expectations and reached 26 GW. (Please note that this is the amount of installation rather than the amount of power connected to the grid). So why did the supplier lose a lot in 2011? Most industries may be pleased with the 30% increase in demand, so why can't they see demand and why PV manufacturers are so embarrassed in 2011?
First, the 30% increase in demand is less significant than the expansion of most suppliers. These suppliers doubled their output this year. Many suppliers are still able to increase their shipments in 2011, but they are not enough to prevent newly installed production equipment from using a large amount of funds and not using enough, or to prevent stock levels from growing too fast. Despite the growth in component demand, it is as if there were no growth at all, compared to the three-digit increase in 2010. Second, despite the large increase in shipments and installations throughout the year, most of the demand is at the end of the year. In fact, nearly 40% of installations occurred in the last quarter. This means that the relatively weak demand in the first half of the year has pushed up the inventory of the channels and dragged down the prices, because many suppliers have suffered losses in sales, waiting for a good time to return. The fierce price competition throughout 2011 means that the industry’s PV module revenue has actually fallen by 15%. The output of components, shipments, and installations have all improved, but the supplier's revenue has not improved.
Costs have been reduced, but the failure to catch up with the price was a year when the price plummeted. There are many articles about the sharp drop in the average sales price in 2011. However, the matter is actually very simple. That is, European demand abruptly ended at the beginning of 2011. Most of the reason was that Italy cancelled the feed-in tariff but the expansion did not stop. script. The result is that components can be easily sold at 2010 prices, and the market suddenly becomes very competitive. As GW's components are flooding into the market and the differences between products are very small, intense price competition naturally occurs. But many people are surprised that the price is so low. The price of crystalline silicon at the end of 2011 was lower than 45% at the end of 2010, even exceeding the forecast of the most daunting price drop.
Noble economists emphasized that in order to significantly reduce prices (and to survive), costs must be reduced, but this time it does not work. No supplier can reduce prices and costs at the same speed, and the entire industry's profitability will definitely realize this. The average gross profit of crystalline PV module suppliers fell to single digits, but it was close to 20% a year ago.
For crystal module manufacturers, the biggest difficulty in reducing costs is the relatively stable price of polysilicon. Although many reports have claimed that the price of polysilicon has declined rapidly and reached a record low, especially in the second half of 2011, the fact is that low-priced silicon is sold by low-end suppliers in the spot market. With most of the photovoltaic-grade silicon signed long-term supply contracts, the fluctuation of spot prices has little effect on the actual average price of suppliers buying polysilicon.
How can a supplier realize profit again?
It is expected that the stimulus policy will likely be substantially reduced in 2012, so the cost structure of component suppliers will still maintain a stable long-term polysilicon price. They hope that future cost reductions can stop the decline in polysilicon prices. This is very likely to happen in 2012, especially considering that the expansion of Tier 1 suppliers is expected to go online this year (planned many years ago). The polysilicon production of Tier 1 producers is expected to reach 300,000 MT in 2012, which is sufficient for 40 GW installation projects. However, the installed capacity is expected to reach approximately 26-28 GW. Only the first-tier manufacturer's output is sufficient to meet the needs of the entire market. GCL et al. claim that suppliers whose costs have been reduced to 20 US dollars per kilogram have to work hard to compete with large polysilicon producers. This will create a breathing space for the downstream manufacturers' cost structure.
In the face of the impending drop in polysilicon prices, many suppliers have begun accepting fines for canceling long-term supply contracts in order to switch to buying polysilicon, wafers, and batteries in the spot market, or to renegotiate contracts.
Looking back at 2011, it was a bit similar to 2009 (changes in government subsidies led to a rapid decline in demand, which led to oversupply, falling prices, and a strong rebound at the end of the year. Many people were surprised by the increase in installed capacity). However, there is a clear difference, that is, there will no longer be an expansion of demand as in 2010, and 2012 will be destined to become another year of hardship for suppliers.
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