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PV Module Industry In Oversupply Situation
Tuesday, June 26, 2012:
Global PV Module Industry In Oversupply Situation
GERMANY: The PV module industry is currently in oversupply, caused by suppliers continuing to execute large capacity expansions in 2011 as growth in demand for PV slowed, according to Sam Wilkinson, senior PV Market Analyst, IMS Research. He was speaking at the recently held Intersolar Europe 2012 conference in Munich, Germany.
PV module prices are highly sensitive to supply and demand, and prices have declined rapidly since the market slowed in early 2011. Prices will continue to fall throughout 2012, although slower than 2011. The US anti-dumping tariffs will also result in some price increases and help to slow price declines.
Supply and demand will remain unbalanced until 2014-15 when demand will 'catch-up' and utilization will return to healthier levels. PV module prices will continue to decline in the long-term, but will slow when supply and demand balance again from 2014-15.
Supply vs. demand scenario
So, why does supply far exceed demand? Commenting on the supply vs. demand scenario, he said that in late 2008, the Spanish market had collapsed and there was a global financial crisis. Next, there was slow growth in 2009, and supply far exceeded demand. However, the price declines initiated strong demand from late 2009.
The demand rebounded and soared in Europe in 2010. Installations grew by 170 per cent. There was 70 per cent of demand from Germany, Italy and the Czech Republic, respectively.
However, demand became constrained by supply. Utilization was close to 100 per cent throughout the year. Suppliers expanded capacity as fast as possible. Reduced incentives slowed demand growth to 35 per cent in 2011. Growth in Germany was stalled. It was actually slow for the first the months of 2011. Italy was frozen between feed-in tariffs (FiTs). Half of the global increase came from the UK and China.
Suppliers were still in the expansion mode in 2011. Capacity increased 2x as fast as demand. The stall in Italy kick-started rapid PV module price declines.
Some capacity expansions are likely to continue in 2012. Supply and demand growth are more evenly matched: 13 per cent vs 12 per cent, in 2012. The market is still in an oversupply situation in 2012.
How prices got affected!
How has all of this this affected prices? PV module prices are said to be highly sensitive to supply and demand. The lowest prices are considerably lower than the average prices. There were rapid price declines since Italy stalled in Q1'11.
The costs of module production fell 35 per cent in 2011, while prices fell 45 per cent. The margin/watt squeezed to just 9 per cent e/o 2011, down from 25 per cent at the start. Costs are likely to reduce 14 per cent in 2012, while gross margins are expected to shrink further.
In polysilicon pricing: spot and contract, a large proportion of polysilicon was sold under contract. Polysilicon prices did not adjust as quickly. The talk of spot pricing can be misleading, added Wilkinson.
The question arises: how can suppliers reduce costs? As per Sam Wilkinson, they can either renegotiate (or cancel?) supply contracts. Or, suppliers can improve technology and R&D, and increase efficiencies. They can also increase (or decrease?) the vertical integration. This leads to another question: is vertical integration the right approach?
Suppliers had rushed to develop vertical integration from 2009-2011. This is highly efficient when utilization and prices are high. The highly competitive pricing throughout the supply chain has changed this scenario. And now, there is the US anti-dumping tariff to contend with.
Possible outcomes of the US anti-dumping tariff
Some of the possible outcomes of the US anti-dumping tariff could be, one, the Chinese suppliers abandon the US market. This will be at least ~10 per cent of the global market. Also, the new Chinese high-efficiency cells will now not be available in the US.
Further trade-action may also take place. For instance, China could retaliate. Trade action may also take place in the EU. Chinese suppliers could also avoid paying the tax. This will produce 'tariff-free' modules by purchasing cells from outside China. It is likely that cells be purchased from Taiwan or Korea.
Finally, growth of the US market will be delayed. There will be high pricing of Chinese modules. Also, there could be temporary slowdown in the supply chain as suppliers now negotiate new supply contracts.
As for the effect on pricing, the US anti-dumping tariff would add approximately $0.04/W (4-5 per cent) to the cost (and price) of Chinese Tier-1 modules for the USA.
Therefore, how can suppliers remain profitable? How and when will supply and demand balance again? How will all of this affect pricing?
Slow growth in demand means the oversupply will continue in 2012 and 2013. Demand will only start to 'catch-up' with supply from 2014-15 onward. The supply and demand balance could be restored in 2015-16. Restoring the supply and demand balance will slow price declines. The average c-Si module prices will likely reach $0.60/W in 2016.
-- Pradeep Chakraborty