Saturday, March 17, 2012

China Encourages Solar Companies to Expand Amid Supply Glut

China set targets for increasing production capacity at key polysilicon and solar cell makers, part of the government’s plan to ensure its companies survive a slump in prices.
Employees assemble photovoltaic panels

China wants each “leading” company to have 50,000 tons a year of polysilicon capacity by 2015 and targets 5 gigawatts for each of its top solar-cell makers, according to a five-year plan posted on the Ministry of Industry and Information Technology website today.

The goal would boost supplies as prices slump, supporting Chinese manufacturers led by Suntech Power Holdings (STP) Co. and GCL- Poly Energy Holdings Ltd. (3800) Western manufactures such as First Solar Inc. (FSLR) and Hemlock Semiconductor Corp. already are reporting narrower margins and lower prices linked to rivals in China.

“In an industry that’s oversupplied, that the government announces support for so much new capacity is not a positive,” Sean McLoughlin, industry analyst for HSBC Holdings Plc in London, said today by phone. “The news that China’s aggressive ramping up of production will continue is not helpful for Western producers and their shares.”

Chinese companies supply about half of the world’s solar cells and have 45 percent of polysilicon production capacity and have expanded rapidly in recent years. Q-Cells SE (QCE), the German solar cell maker that once was the world’s biggest producer, earlier this month refinanced debt to avoid bankruptcy.

Plunging Prices

Excess capacity cut the price of solar panels in half last year, depressing margins and prompting 15 of the 17 members of Bloomberg Large Solar Index to post quarterly losses. Solar cell prices more than halved last year and the average spot price for polysilicon has tumbled 59 percent from a year earlier to $29.28 a kilogram, according to New Energy Finance.

Officials in Beijing aim to make domestic manufacturers more competitive and able to meet demand for 15 gigawatts of solar farms by 2015, Gao Hongling, deputy secretary-general of the China Photovoltaic Industry Alliance, said by phone today.

“If the scale isn’t up, there’s never enough financing for the integrated use of byproducts,” said Gao, whose organization advises both executives and ministers.

The government plan doesn’t indicate how many companies will be involved and whether the targets mean an overall capacity increase.

Leading Cell Makers

Suntech and JA Solar Holdings (JASO) Company Ltd. of China were the largest cell manufacturers globally, and GCL-Poly was the fourth-biggest polysilicon producer in 2010, Bloomberg New Energy Finance data shows. Hemlock of Michigan is the largest polysilicon maker followed by Wacker Chemie AG of Germany and OCI Co. of Korea.

China’s plan will support new equipment that will lower prices, making existing capacity owners struggle “even more to keep up,” Gao said.

The country idled almost one-third of polysilicon production in December to support prices and a supply glut in panels is likely to slash the number of domestic manufacturers to 15 from more than 300 within half a decade, according to the state-owned Energy Research Institute.

Global photovoltaic installations will be about 28.4 gigawatts this year, while manufacturing capacity may reach 45 gigawatts, according to New Energy Finance. New capacity last year was about 28 gigawatts, of which 2.2 gigawatts in China.

Poly Makers Benefit

The plan is “bullish” for cell makers and less of an issue for the polysilicon market, said McLoughlin from HSBC. China has many more large cell makers that may be considered as leading under the plan and fewer large polysilicon makers, he said.

“China imported half its polysilicon from overseas companies; this means there’s still room for domestic producers,” Gao said. “The key is whether they have capability to grab a share in the market and to lower costs.” Gao’s organization is a conduit between solar companies and the government.

The top five polysilicon producers including Hemlock and Germany’s Wacker Chemie AG (WCH), more than doubled output in 2010 from 2008, New Energy Finance data shows.

GCL-Poly Energy Holdings Ltd., China’s largest polysilicon maker, was 4,000 tons short of the new target last year, with 46,000 tons of capacity. Suntech Power Holdings Co., the world’s biggest solar-panel maker, had annual solar-cell capacity of 2.4 gigawatts as of the end of the third quarter.

The nation has idled about 30 percent of polysilicon production and won’t resume until prices recover, according to Xie Chen, an analyst from the China Nonferrous Metals Industrial Association, a trade group that advises the government.

“Chinese firms shut down not only because prices declined, but also they can’t drag costs lower than the spot price,” she said.

China installed about 2.7 gigawatts of solar farms last year, Gao said. “As planned by the country, the installation will have a steady growth year on year, which will create demand for solar-power products.”


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