Summary of Key Points
In mid-August, there was a sudden increase in prices across the photovoltaic (PV) industry chain, but the reaction varied significantly: upstream components such as silicon material, silicon wafers, and solar cells all saw price hikes (with silicon material increasing by nearly 24% in a single day and silicon wafers by over 40% within a week), yet actual transactions were scarce (there was demand without corresponding supply). The midstream companies followed suit with price increases, while the downstream component manufacturers were hesitant to raise prices significantly, only making minor attempts or waiting and seeing. This price increase is driven by a combination of policy measures and industry efforts to curb excessive competition (inward competition), but due to high inventory levels among downstream companies and lack of recovery in terminal demand, component manufacturers are cautious. The price increases are likely to be a short-term phenomenon rather than a long-term trend.
I. Upstream Price Hikes: Much Hype, Little Sales
The price hikes at the upstream level seem substantial, but they are not as robust as they appear:
- Silicon Material: On August 14, prices surged by 23.81% to 39,000 yuan per ton, but most of these were "oral quotes" with little actual trading; companies continued to deliver goods according to previous orders, and few new buyers were willing to pay the higher prices.
- Silicon Wafers: The price for 183N wafers increased from 0.8 yuan per piece to 1.12 yuan per piece within a week (a 40% increase), and solar cell prices also rose by 26%. However, this was more of a reaction to the increases in silicon material prices rather than a surge in actual demand.
Why is this the case? Upstream companies suffered heavy losses earlier this year: the price of silicon material dropped from 55 yuan per kilogram to 31 yuan per kilogram, below the cost threshold for many producers. Therefore, they are trying to raise prices to recover costs through industry initiatives and government support, but the market is unresponsive because downstream component manufacturers have large inventories and are not eager to purchase at higher prices.
II. Component Manufacturers Hesitant to Raise Prices: Three Major Constraints
Downstream component manufacturers, who sell directly to power plants, are in a more advantageous position to understand the market, yet they are exceptionally cautious for three reasons:
1. High Inventories: Goldman Sachs estimates that the combined inventory of silicon materials used in components amounts to 235 GW, which is more than China's annual component production capacity for half a year. Even if they do not purchase silicon material now, these inventories will last until the end of the year. Thus, there is no need to buy at higher prices.
2. Lack of Terminal Demand: Domestic PV installations decreased by 66% in the first half of this year compared to the same period last year, and the traditional peak sales season (September and October) has not yet materialized. Power plants are cautious about purchasing components because a 1-2 cent increase in price per watt reduces their investment returns. Large buyers such as state-owned enterprises and local energy companies are unlikely to accept higher prices, which could result in lost orders for component manufacturers if they raise prices.
3. Fragmented Industry: While the top 8 silicon material producers account for 90% of production capacity, the leading 4 component manufacturers only account for less than 50%, with many smaller companies remaining in the market. If the top companies raise prices, smaller firms might use their inventory to purchase at lower prices, putting them at a competitive disadvantage.
III. Anti-Competition Policies: More Stringent This Year
This price increase is not accidental; it is driven by a combination of policy measures and industry self-regulation:
- Policy Measures: Since July, the Ministry of Industry and Information Technology has introduced energy consumption limits for silicon material production (to be implemented in 2027), which will restrict the resumption of operations by high-energy-consuming small firms. The industry association has standardized cost calculation methods, and the State Administration for Market Regulation has explicitly opposed "dumping below costs" (which will be prosecuted according to law).
- Corporate Self-Regulation: The top 8 silicon material producers have signed an initiative against excessive competition, promising not to sell products at prices lower than their full production costs and can report each other if they do.
This year's policies are more stringent compared to last year: last year, it was just an industry initiative, but this year, energy consumption limits and regulatory support give more power to the authorities. As a result, upstream companies are more confident in raising prices, but the lack of market response reduces the effectiveness of these measures.
IV. Will the Price Hikes Continue?
To determine whether the price increases will persist, two key factors need to be considered:
1. Demand Recovery: The current price hikes are driven by cost pressures, not a surge in demand (power plants are not purchasing large quantities of components). If demand does not improve, higher prices from upstream companies will be ineffective, and they may eventually have to lower their prices.
2. Elimination of Outdated Capacity: Low silicon material prices led to the closure of many small production facilities last year, but if prices rise, these firms might resume operations, increasing supply and putting pressure on prices again. Only when outdated capacity is truly eliminated and supply and demand are balanced can prices stabilize.
According to Goldman Sachs, this price increase is more like a temporary adjustment to restore costs. If terminal demand does not improve, prices will likely return to their previous levels, as the PV industry remains demand-driven. Relying solely on upstream companies raising prices will not solve the underlying issues.
Conclusion: The current price increases in the PV industry chain are an attempt by upstream companies to recover from losses, but without the cooperation of downstream manufacturers, they represent a temporary phenomenon. Whether prices can stabilize in the long term depends on demand during the peak season and the elimination of outdated production capacity. Consumers do not need to worry about significant price increases for PV products (such as home-use panels) because component manufacturers are hesitant to raise prices, so there will be no major fluctuations in market prices for the time being.