In a notable shift within the photovoltaic sector, two major players in the polysilicon manufacturing industry, Tongwei Co., Ltdand Daqo New Energy, have declared their decision to cut productionThis move has garnered attention both in the industry and from observers, highlighting the challenges of supply and demand imbalances that continue to plague the market.
On December 24, Tongwei announced plans to implement technical upgrades and repairs across several of its high-purity polysilicon plants, stating that it would gradually initiate a phased reduction in output at four of its facilities owned by Yongxiang Co., LtdConcurrently, Daqo New Energy communicated its own intentions to undertake periodic maintenance of its polysilicon production lines located in Xinjiang and Inner Mongolia, implementing a controlled reduction in output as part of this process.
The backdrop to these production cuts is a persistently unbalanced supply-demand dynamic in the photovoltaic industry, particularly in polysilicon, which serves as a critical raw material in solar energy technologies
Notably, since October of this year, the industry has seen a wave of initiatives aimed at counteracting excessive competition, which includes measures such as restraining production and resisting low-price biddingThis represents a collective effort from industry associations and companies alike to re-establish healthier market conditions.
"Our stance reflects support for the industry's self-regulatory initiatives against negative competition," remarked a representative from Daqo New EnergyThey added that a recent report from the China Nonferrous Metals Industry Association's Silicon Industry Branch noted that polysilicon production rates have decreased in response to recent industry dynamics.
Experts have pointed out that maintaining high production levels solely focused on cash flow is no longer a viable strategy, especially under conditions of oversupplyLü Jinbiao, the deputy director of the expert group within the Silicon Industry Branch, emphasized during the "ETS 2025 Solar Storage Industry Pattern and Development Trends Forum" that only a reduction in production by leading companies will help alleviate the current excess supply conditions.
The polysilicon supply chain encompasses four main segments: polysilicon production, wafer manufacturing, cell production, and module assembly
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As the upstream segment, polysilicon is critical for the entire solar photovoltaic industryCurrently, both Tongwei and Daqo are recognized leaders in this crucial market segment.
Tongwei's subsidiary, Yongxiang, boasts a high-purity polysilicon production capacity exceeding 900,000 tons distributed across three major provinces: Sichuan, Yunnan, and Inner MongoliaTheir dominance has been confirmed by holding the largest global market share for consecutive yearsDaqo operates major facilities in Shihezi, Xinjiang, and Baotou, Inner Mongolia, where it has established a capacity of 305,000 tons of high-purity polysilicon.
Recognizing the difficult situation, Tongwei stated that the winter dry season in southwest China, coupled with rising electricity prices, has compelled the company to take these stepsThey intend to align their operations with national economic strategies aimed at mitigating cutthroat competition and promoting sustainable growth within the photovoltaic sector.
Daqo confirmed that the ongoing imbalance in polysilicon supply and demand has left the industry facing significant losses
To address this issue, the company is systematically commencing maintenance on several production lines while carefully controlling production levels.
Since the beginning of 2023, there has been a rapid expansion in polysilicon production capacities, leading to a significant oversupply and subsequent drop in sales pricesConsequently, many firms, including Tongwei, Daqo, Xiexin Technology, and Xinjiang New Energy, have reported extensive financial losses for the first three quarters of 2024, totaling hundreds of millions in losses.
In light of these developments, Tongwei anticipates that the recent production reductions and maintenance activities will assist in curtailing ongoing financial losses from its high-purity polysilicon operations, thereby positively impacting overall production and profitability moving forward.
This situation is a microcosm of the broader photovoltaic industry, which is grappling with a cyclical phase of supply and demand misalignment
The persistent issue of low-cost competition is raising concerns about the sustainability of long-term growth in the sector.
On December 5, the China Photovoltaic Industry Association convened a symposium aimed at promoting high-quality and sustainable development within the sector, addressing the pressing need to prevent predatory competitive behaviorsReports indicate that representatives from 33 photovoltaic companies signed a "self-regulatory charter" to address issues such as production cuts and the prevention of destructive pricing wars.
Tongwei and Daqo were present at this significant event, demonstrating their commitment to the initiativeA spokesperson from Daqo emphasized that their production cut announcement is part of a broader movement within the industry to foster self-discipline and responsible practices.
The Silicon Industry Branch has noted that nearly all polysilicon-producing companies are currently in maintenance or reduced output phases, suggesting that leading firms have formally adopted a strategy of operating at lower capacities
This transition is seen as a crucial step toward stabilizing the market and tempering excessive supply that has driven prices down rapidly.
However, industry insiders assert that the transformation of the polysilicon supply-demand relationship is of utmost necessityOver the past three years, China has seen a dramatic shift in polysilicon production capacity, rapidly transitioning from expansion to a halt in new projectsLü Jinbiao highlighted that since 2021, capacity expansion was notably aggressive, but without new projects coming online, many existing ones are either barely operational or face operational difficulties.
Research indicates that by early 2024, the combined production capacity of 20 polysilicon companies will reach approximately 2.056 million tons, with an annual output projected at 2.65 million tonsLooking towards 2025, capacity could potentially surge to 3.5 million tons, although uncertainties linger over the actual production ramp-up of these facilities.
Lü Jinbiao stressed that according to optimistic forecasts from Bloomberg New Energy Finance regarding solar installations in 2025, the corresponding polysilicon demand could be around 1.77 million tons
When accounting for inventory levels, effective demand may drop to approximately 1.57 million tons, leading to a concerning operating rate of below 60% based on total available capacity.
Government interventions have also been introduced to address these imbalances, aiming to eliminate outdated production capacities and ensure new projects meet rigorous efficiency and sustainability standardsFor instance, new and retrofitted polysilicon projects must limit energy consumption to below specified thresholds while maintaining a minimum equity stake in project financing.
The response from industry leaders is clear: true shifts in supply-demand dynamics rely on proactive reductions from leading companiesLü Jinbiao asserts that the current adjustments are expected to lead to a broader industry consensus on reduced operational levels, which have already been initiated during this crisis.
Some industry veterans express frustration with the slow pace of change, noting that long-established polysilicon manufacturers wish to see underperforming and newer entrants to the market exit
However, they recognize that achieving a swift transition is difficultThe decision by leading firms to announce production cuts appears to be a reluctant necessity as the cash flow crisis forces their hand.
The impacts of the recent announcements from Tongwei and Daqo are precisely what the market needs to alleviate pressure and steer prices back toward rational levelsSome analysts have reported a moderate increase in transaction prices for N-type polysilicon, and favorable conditions from reduced production and heightened demand expectations could lead to an uptick in market prices moving forward.
Despite the uncertainty surrounding the timing of any significant price rebounds, analysts remain cautiously optimisticSome project that the polysilicon market may stabilize significantly by 2025, shifting from losses to break-even conditions, though this will undoubtedly challenge the strategic decision-making capacities of leading market players.