Consolidation and negative solar surprises


PV Crystalox issued a statement this morning, which said that due to photovoltaics "adverse" market conditions – weak market demand, increased production capacity and high inventories – it expects trading conditions to become "more challenging" in the second half of 2011.

"If the current trading conditions were to persist, the Group may incur an operating loss in the second half," said the company.

This has led Jefferies to issue an industry note saying the statement confirms the analysts’ beliefs that the strong downward pressure on prices across the value chain will "force" solar industry consolidation over the coming 12 months.

The analysts say they think it is "next to impossible" for PV Crystalox to post a profit in the second half of the year as a result of the "enormous" price pressure from Chinese companies like GCL-Poly.

Jesse Pichel, managing director of CleanTech Equity Research and equity analyst at Jefferies additionally tells pv magazine that "GCL (…) is winning share selling wafers at 55 cents, giving its five top customers a competitive advantage (JA Solar, Trina, Canadian Solar, Hanwha Solar One, etc.)."

They analysts go on to say that the near future "does not bode well" for PV Crystalox and photovoltaic wafer manufacturers like REC, ReneSola and LDK Solar, due to over capacity.

Pichel adds that polysilicon oversupply will set prices at USD$45 per kilogram in the second half of the year, and between $35 and $40 in 2012. "We model that based on the production costs of the incremental players." he explains.

While Jefferies believes that solar demand is on the up, it predicts that "except for Wacker Chemie (…) and maybe SMA (…), all European solar companies and many Chinese ones will have negative surprises in Q2."

Pichel adds that the first quarter of the year was particularly good for Chinese solar companies, which did "better than average" with sales down just five percent in comparison to minus 10 percent as seen in previous years.

"For 2Q," says Pichel, "companies will have to burn through higher cost inventory, which will make the quarter difficult for those with higher cost inventory. Companies like Trina and Yingli indicated 30 percent growth for 2Q on a sequential basis – these companies are winning share."

Overall, Jefferies says the sluggish market conditions will lead to consolidation over the next year. "Mergers and acquisitions are likely as are plant closures and restructuring particularly amongst European names," concludes the industry note.

Although he could not divulge specific details of likely company mergers or takeovers, Pichel did tell pv magazine that the Chinese and Korean companies are "natural consolidators". Furthermore, he said that the companies most likely to be affected will be the high cost ones. "Many of the larger ones in Asia are lowest cost," he said.

Consolidation is a common part of any industry life cycle; it is also not a new concept for the solar industry, with many companies having recognized, and begun preparing for its presence for a while now.

SolarWorld’s Frank Asbeck, for example, stated back in February that unless photovoltaic companies invest in new technologies, they will become "victims of consolidation".

Meanwhile, in April, BHF Bank released a report which stated that the coming years will be marked by an oversupply of components. This, coupled with lower feed-in tariffs, will see average annual price declines of over 20 percent, and will lead to consolidation in the industry, thus spelling the end for a number of European manufacturers.

In an interview, Wim Goethals, head of finance Americas for Enfinity also told pv magazine that he believes one of the key future photovoltaic trends will be consolidation.

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