China's solar cell and panel industry is facing oversupply amid weakening demand and excess capacity. Orders started to drop in 2Q08 in the aftermath of the economic recession, especially when governments around the world reduced subsidies for infrastructure using sun-generated energy.
The domestic industry has been growing at an average rate of more than 100 percent since 2002, according to the Ministry of Industry and Information Technology. Total capacity in 2008 surpassed 2,000MW.
This progress is in synch with the line's development worldwide, with production from 1998 to 2008 rising at a CAGR of 35 percent. In 2008, overall output for solar cells reached 5,456MW, and 6,791MW for panels. Overall capacity, meanwhile, was estimated to have increased 56 percent by end-2009 despite decelerating demand. This is because several clients have already placed their orders and many suppliers are set to continue with expansion plans.
Given these factors, the yield of large domestic and international companies such as Yingli Solar and Canadian Solar is steadily rising. Small and midsize China suppliers are jumping on the trend as well.
Shenzhen Suoyang New Energy Co. Ltd will purchase related equipment to boost capacity by 30 percent as it targets to increase export sales by 50 percent. The manufacturer said although the impact of the financial crunch was dramatic, orders are rebounding.
Zhejiang Sopray Solar Co. Ltd is also positive of achieving 30 percent revenue growth. Toward this end, the maker has installed two additional production lines last year.
Some companies, however, are experiencing the opposite. Because of the economic slowdown, demand from Jiaxing Exact Optoelectronics Technology Co. Ltd's main market Europe has fallen. This prompted the maker to expect a sales slump of as much as 50 percent by end-2009. In 2008, 95 percent of its $20 million revenue came from exports.
Even so, Jiaxing Exact is eyeing the US as a potential key destination in the future. This is because while domestic business is picking up, the market there remains small.
Despite the latter, companies are pursuing expansion within China, spurred by subsidies from the government and the heightened promotion of natural energy. The Golden Sun project, for one, will shoulder up to 70 percent of the cost of building solar farms with a total capacity of at least 500MW by 2012.
The oversupply has pushed down prices of crystalline solar cells and panels by 30 to 40 percent. The former is currently quoted at $1.30 to $1.75 per watt and PV modules go for $1.80 to $2.20. Some manufacturers predict the downward trend will continue although adjustments will not be as dramatic. Other factors contributing to sliding prices are low labor and material costs. Companies are able to control the latter as component sourcing is mainly done through the spot or cash market.
In contrast, many foreign makers sign long-term contracts with their providers to secure material supply when costs are high. Such arrangements have fixed values, forcing manufacturers to procure their requirement at rates valid at the time the agreement was finalized and not at current levels, which are comparatively lower. China companies, on the other hand, are able to select providers based on their rates.
Such low quotes from China manufacturers, however, are stirring tension with some foreign competitors. Makers from the EU, the US and Australia are reporting declining orders as China companies leverage the price advantage to strengthen their foothold in these markets. More than 90 percent of the country's total output is shipped overseas. Most enterprises have direct export rights.
In the long term, the excess supply, which is predicted to continue through 2011, will usher in a consolidation in the industry. Enterprises looking to enlarge their capacity further will do so by partnering with other operations. Brand recognition will also become important to compete in the saturated market.
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