22 Nov 2011
Five of the world's largest producers of PV cells and modules posted a combined operating loss of nearly $200M in the latest financial quarter.
China’s leading manufacturers of crystalline silicon photovoltaic wafers, cells and modules have each posted substantial losses in the third quarter of 2011 – highlighting the challenges faced by the industry as supply continues to outstrip demand significantly.
The supply chain mismatch has been largely instigated by the Chinese manufacturers’ own investment in production capacity, in anticipation of strong demand growth this year. But that demand has failed to live up to expectations, particularly in the third quarter, which has seen only a muted recovery. The price of solar wafers, cells and modules has been plummeting as a result.
The over-expansion and subsequent price crash has already sparked an official complaint against the Chinese firms, from the US subsidiary of the German manufacturer SolarWorld. And the latest financial results from five of those companies show that while they are shipping a lot more modules than they were a year ago, they are also making substantial losses.
Between them, market-leading Suntech Power, Trina Solar, LDK, Jinko and JA Solar reported an aggregate operating loss of nearly $200 million for the third quarter, with Suntech – which recently became the first manufacturer to pass the milestone of 5 GW in total PV shipments – saying that it expected to see strong competition and market consolidation over the next two quarters.
Suntech’s senior management team said that the company would make large cuts to its operating expenses in response to the market conditions. It is expecting a 20% sequential decline in shipments in the closing quarter of the year, and now says that its total shipments this year will be only 2 GW, not the 2.2 GW it previously forecast – even though domestic sales are now accelerating, thanks to the Chinese government’s recent introduction of a feed-in tariff to support installations.
Overall, Suntech said that shipments grew 36% over the third quarter of last year, although revenues increased only 9% over that period, reaching $809.8 million. Planned capacity expansion projects at the company, and an associated $250 million in capital expenditure earmarked for 2012, are now on hold.
Trade war latest
The results from JA Solar appear symptomatic of the global pressure on prices. JA posted revenues of $388 million in the quarter, down 31% year-on-year, despite a 6.5% increase in shipments (measured in MW of peak power output) over the same period. The company also slashed its shipment guidance for 2011, from 1.8 GW to only 1.6 GW.
The story was much the same for LDK and Trina, while Jinko showed the most dramatic year-on-year shipments increase of 91%, although this only translated to a 24% revenue increase. LDK, which sells wafers as well as modules, racked up the largest individual operating loss, of more than $77 million, after seeing its revenues drop 30% from the equivalent period of last year.
Although LDK more than doubled its module shipments year-on-year to 192 MW, the impact of the supply chain adjustment can be seen much more clearly in the company’s figures for wafer sales. In the third quarter of 2010, LDK shipped 569.5 MW worth of wafers, but that number crashed to just 292.5 MW in Q3 2011.
As well as showing an aggregate operating loss of nearly $200 million for those five companies in the latest quarter, the figures imply that average selling prices of solar products from the top-ranking Chinese suppliers have dropped by approximately 30% over the past year.
The precipitous drop in PV prices is at the heart of the official complaint made to the US International Trade Commission by SolarWorld and six other anonymous US firms, who allege that the price crash has effectively been bankrolled by the Chinese government in a bid to take market share from western suppliers. And the Q3 figures certainly support the notion that the Chinese companies have gained market share at a significant financial cost.
The next step in the trade dispute will be a December 2 vote by the USITC to determine whether or not exports from China have harmed US manufacturers, while reports from both Bloomberg and Reuters in recent days have suggested that manufacturers in China may ask for a similar investigation into imports of polysilicon material from the US.
A report compiled by the US Solar Energy Industries Association (SEIA) in collaboration with Greentech Media earlier this year suggested that, while China dominated the US trade balance in terms of PV module sales, it was US firms that dominated the supply of polysilicon, with an annual trade surplus of more than $2 billion.