China's solar self-discipline drives turnaround for top silicon producers

The recovery followed a 50% jump in polysilicon prices since July, after the government warned against cutthroat competition seen across sectors, including solar manufacturing

China’s largest producers of polysilicon for solar panels have signaled a turnaround in the industry’s fortunes after steep losses over the past couple of years. 

In something of a victory for the industry’s self-discipline measures, top manufacturer Tongwei Co.’s third-quarter earnings on Friday saw losses narrow dramatically, to 315 million yuan ($44 million) from 844 million yuan a year ago. Earlier in the month, No. 2 producer GCL Technology Holdings Ltd.’s solar materials business swung to a profit of 960 million yuan, from a 1.81 billion yuan loss. 

 

The recovery was underpinned by a 50 per cent surge in polysilicon prices since the start of July, when the government began ratcheting up its rhetoric against the cutthroat competition that’s a feature of many sectors including solar. The industry’s own efforts to address so-called involution began in December, and include a 50-billion-yuan fund to retire excess capacity. 

 

GCL’s earnings were particularly noteworthy, according to Citigroup Inc. “As the cost leader in the polysilicon industry, GCL’s profit turnaround is a milestone achievement of the anti-involution actions in China solar sector,” the bank said in a note. It expects profitability to continue this quarter.

 

Another big Chinese producer, Daqo New Energy Corp., is slated to report its third quarter on Monday. In comments last month, its chief financial officer predicted a significant improvement and said the industry has already “marked a clear bottom.”

 

For all of its focus on anti-involution, the government has largely sat on the sidelines while panel makers have sought their own fixes to overcapacity. In its earnings release, GCL laid out its success in “collaboration with upstream and downstream partners across the industrial chain to achieve mutual benefit for all stakeholders.”

 

Whether that kind of coordination will be enough to keep the industry on track is uncertain. After a period of breakneck growth, China’s solar installations are slowing as generators are forced to compete more directly with coal, the country’s mainstay fuel. Panel exports, meanwhile, are subject to the growing protectionist tilt around the world. 

 

Citigroup for one believes that the government is still preparing to intervene. Based on its checks with the regulator, “it would be reasonable to expect new measures to be set up, though details are undisclosed,” it said.