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Market Watch

A Year of Turbulence for the Solar Industry

Consolidation, trade wars and price drops rule in the second half

October 22, 2012

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The first half of 2012 was tumultuous for the photovoltaic (PV) industry. The overall economic downturn continued to impact prices across the silicon supply chain—extending from polysilicon to solar modules. As a result, most PV component suppliers reported losses, according to the IHS iSuppli Photovoltaics Service at information and analytics provider IHS.

Installation rates were weak during the first two months of 2012 but gradually picked up starting from March, driven by Germany with more than 1.2 gigawatts (GW) of PV systems installed due to upcoming feed-in tariff (FIT) changes in April. Starting from April, however, global PV installation rates became quite weak again mainly because of poor European demand.

There were only about 600 megawatts (MW) worth of PV systems installed during April and May in Germany, while installations in the other major EU market, Italy, were also quite slow for the same period. However, June saw another big boom in installations, with both Germany and Italy delivering strong results.

For most of the other major markets, such as the U.S., Japan and China, as well as some secondary European economies including Greece, the U.K. and Bulgaria, the volume of installation volume in the second quarter outpaced that of the first.

This allowed total second-quarter installations to increase by 20 percent compared to the first quarter. Even so, the results were far less than seen in the fourth quarter of 2011 when more than 10GW of solar systems were installed, with Germany alone establishing 3GW in December, and Italy contributing another 2.5GW.

Global PV Installations by Quarter


Supply was high, prices dropped significantly

The oversupply situation in the first half was such that at each node of the solar supply chain, from polysilicon to solar modules, supply capacity had been at least 50 percent higher than demand.

Owing to weak demand in the first quarter, most Chinese PV suppliers were only able to run their fabs at low utilization rates. The situation improved when market demand revived slightly in the second quarter by almost 20 percent, with utilization among suppliers picking up much more than demand, resulting in a greater amount of stock in the channel.

The oversupply situation in the silicon supply chain, together with demand falling short of expectations, caused a significant drop in prices. Following the drastic price drop in 2011, IHS Solar saw prices decline further, down from 9.6 percent to 19.3 percent, extending from polysilicon to crystalline silicon (c-Si) solar modules.



Outlook for second half


Given the policy changes and existing high channel stocks built in the second quarter, IHS forecasts a sluggish module market in the third quarter, which will force suppliers to lower utilization from second-quarter levels. In the meantime, trade wars will negatively affect demand in Europe in the fourth quarter, when the market will be mainly driven by sales to China, the U.S. and Japan.

IHS expects fierce consolidation among PV suppliers to take place until mid-2013, with most of the Tier 2 and Tier 3 Chinese players to start filing for bankruptcy.

IHS sees prices dropping further, with the polysilicon spot price to fall below $20 per kilogram late in the third quarter and early in the fourth quarter. Chinese c-Si module prices will drop to the $0.60/watt level on average in the fourth quarter.

The accelerating price drops also mean that supply and demand will come back into balance earlier than previously expected,  with increasing demand expected in the first and second quarter of 2013.

First and Second Quarter Installations for 2012 and 2013

Based on the recent study on supply and demand dynamics, IHS believes market prices in the silicon supply chain will start to revive in the second quarter of 2013, with at least half of ineffective Chinese capacity contributed by Tier 2 and Tier 3 companies to die out at the wafer to cell sectors.

For trade disputes such as the EU anti-dumping case, IHS anticipates that tariffs are unlikely to be imposed on Chinese PV products thanks to the “public interest test” built into the process. And while it’s clear that an investigation will be initiated by the European commission, the likelihood appears remote of a big negative impact on EU PV demand in the fourth quarter resulting from the anti-dumping investigation.

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