EnergyTrend, a division of TrendForce, reports that the global PV market is seeing slowing demand after the Chinese New Year holidays. Peak installation seasons in the U.S. and Japan have passed, and the demand related to China’s efforts to connect its PV power plants to the grid is also subsiding as this mission is set to be completed at the end of June. Chinese and Taiwanese cell suppliers will be the first to be impacted by the weakening demand since most of their orders come from vertically integrated manufacturers in China, said Corrine Lin, assistant research manager for EnergyTrend. Prices of Chinese cells have been falling following the Chinese New Year holidays, and Taiwanese cell suppliers have also been slashing their prices to earn more orders.
Taiwanese cell suppliers previously also exported to Europe and Japan in addition first-tier Chinese PV companies. However, this strategy of reducing the risk of relying on one regional market began to break down last year, when Japanese PV companies reduced their orders for Taiwanese cells due to domestic subsidy cuts. To save costs, Japanese clients switched from the pricier Taiwanese cells to the more economical products from vertically integrated Chinese manufacturers. Consequently, Taiwanese cell exports to Japan were roughly halved in 2015. As for the European market, demand there has been in a lengthy slump. Hence, Taiwanese cell industry is again relying on orders from major Chinese clients and their OEM partners in Southeast Asia to consume its enormous capacity.
“Last year’s PV cell shortages were mostly the result of installation rush in China,” said Lin. “A weakening in China’s domestic demand will therefore affect Taiwanese cells first since they are already overpriced.” If major Chinese clients – Trina Solar, Jinko, Canadian Solar, and JA Solar – decided to scale back their cell purchases, Taiwanese cell suppliers will suddenly have a massive excess capacity problem. Under this circumstance, any one cell supplier cutting prices will create a domino effect as other suppliers will follow suit and reduce their prices as well.
Despite intense negotiations between Taiwanese cell suppliers and their downstream clients, the average price of Taiwanese cells has already dropped sharply in the past two weeks, from above US$0.342/W to around US$0.335~0.338/W. There is also increasing price competition from many second- and third-tier Chinese PV manufacturers that try to capture more orders and keep up their capacity utilization rates. The average price of Chinese cell have fallen from RMB 2.45/W before the Chinese New Year to about RMB 2.3/W this month. This downtrend is expected to persist.
Lin added that China’s domestic PV demand for 2016 will be far below the earlier estimate of 20GW due to several factors. First, changes in the subsidy policy will have an impact on China’s market outlook. Secondly, there are limits to the amount of tradable PV electricity going into the country’s power grids, and the overall rate of PV electricity being “abandoned” is rising. Furthermore, newly expanded capacities of numerous manufacturers will cause serious oversupply problem. Both Taiwanese and Chinese cells have already witnessed a price decline of more than US$0.01/W this month. In order to maintain their margins, cell suppliers will have to negotiate down wafer prices. On the whole, PV prices are now coming down from their peaks in March because the weakness in the cell market have led to price declines across the supply chain. If manufacturers have yet to set up production facilities outside China and Taiwan or develop a more flexible business strategy, they may see losses in the second quarter.