Morgan Stanley Fund: Leading silicon wafer companies join hands to raise prices, is the "good days" for photovoltaics coming?

According to the information from the Wise Finance APP, Morgan Stanley Fund stated in a report that in the past two years, the photovoltaic industry, as an important representative of new quality productivity, has experienced repeated bottoming out due to temporary overcapacity and insufficient demand. However, at the end of August, the industry seemed to be undergoing a change, with the two leading silicon wafer companies in China announcing price increases for silicon wafers. Currently, the prices of the photovoltaic industry chain are at a low point. In the future, overseas markets may enter an interest rate reduction cycle, interest rates are expected to decline, and the increase in photovoltaic project returns may stimulate demand beyond expectations. The sector is currently expected to be low, undervalued, with low institutional holdings, and the sector's allocation cost-effectiveness is worth paying attention to.

The "Darkest Moment" of the Photovoltaic Industry

In recent years, China has been continuously developing new energy transformation, and the photovoltaic industry is an important way to promote China's green and low-carbon energy transformation and achieve green and low-carbon development. Since 2021, the photovoltaic industry in China has rapidly expanded, with many manufacturers entering the industry, rapid release of production capacity, and the lack of complete unity in technical routes and frequent iterations leading to the "overlapping" state of the photovoltaic industry chain. Profit margins are gradually narrowing, and prices in multiple links are breaking through the cost line.

Since 2022, the Chinese silicon wafer market prices have fluctuated downward, with prices of various types of silicon wafers falling. In June 2024, the market price of monocrystalline silicon wafers (156mmX156mm) from first-tier manufacturers was only 1.2 yuan/piece.

Source: Wind, Data Range: August 2011 - August 2024

Against this backdrop, the frequent occurrence of project terminations or delays by photovoltaic companies has followed. Data from the China Photovoltaic Industry Association (CPIA) shows that the scale of terminated/delayed projects in the silicon material, silicon wafer, cell, and module segments reached 300,000 tons/15GW/60GW/20GW respectively, with over 20 related projects. Influenced by overcapacity and the low prices in the industry chain, the industry's operating rate is also at a low level, with the main chain segment at around 60%, high inventory levels, and even cases of some companies halting production.

Survival of the Fittest, Beneficial for Long-term Industry Development

Despite experiencing the "darkest moment" in the past two years, the leading position of the Chinese photovoltaic industry globally remains solid.

Domestically, in recent years, there has been a "surge" in installation demand. According to data from the Ministry of Ecology and Environment, China's new photovoltaic installations reached 55GW in 2021, 87GW in 2022, and a significant increase to 216GW in 2023.

Source: Ministry of Ecology and Environment

In terms of "going global," according to customs statistics, in 2023, China's new energy vehicles, photovoltaic products, and lithium batteries, the "new three products," had a total export value of 1.06 trillion yuan, breaking the trillion-yuan mark for the first time, with a growth of 29.9% Chinese companies have moved beyond the 1.0 stage of being the "global factory" and have advanced to the globalized 2.0 stage of "proactively" going global.

The overcapacity in the photovoltaic industry will affect the profitability of the entire industry chain in the short term, but in the medium to long term, it will drive the "survival of the fittest" within the industry, allowing more competitive companies to stand out and even expand overseas, while those lagging behind in capacity will gradually exit the market.

The Silicon Branch of the China Nonferrous Metals Industry Association has also recently stated that in the medium to long term, as capacities in various links of the industry chain are cleared out at an accelerated pace, market prices are expected to return to reasonable levels. After experiencing a short-term period of selling pressure, the market supply and demand are expected to continue to improve in the medium to long term, and prices are also expected to gradually stabilize.

Recovery Expected, Cost-effectiveness Highlighted in the Photovoltaic Industry

Currently, the photovoltaic industry chain is in the adjustment phase after expansion, experiencing the "growing pains" of growth. In fact, in terms of policies, photovoltaics have always been one of the industries that the country pays attention to, with favorable news frequently reported.

Just on August 21st, the National Development and Reform Commission and the National Energy Administration issued the "Implementation Plan for Large-scale Equipment Renewal in Key Energy Areas," proposing that by 2027, the investment scale in key energy areas will increase by more than 25% compared to 2023, achieving equipment renewal and technological transformation in fields such as photovoltaics, and mentioning support for grid-type transformation of photovoltaic power plants. Over the past decade, there have been multiple iterations and upgrades in both technology and equipment in the photovoltaic industry. With the maturity of third-generation photovoltaic technology, there will be improvements in both cost and conversion efficiency, benefiting energy equipment manufacturers, supporting component manufacturers, and new material suppliers