China’s troubled solar industry may be approaching a tipping point

(Bloomberg) — China’s solar power producers just got through a bloodbath of an earnings season, but there are tentative signs that the massive glut plaguing the industry may be starting to ease.

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Longi Green Energy Technology Co. and five other top solar firms posted combined losses of $2 billion in the first half after a factory-building frenzy in recent years created excess capacity that drove prices to record lows. Some smaller companies have already been forced to restructure, while rising trade tensions with the US and Europe could put exports at risk.

The financial pain appears to be planting the seeds for a recovery, although a significant rebound is unlikely until next year. Goldman Sachs Group Inc. sees an imminent wave of factory closings that would help rebalance the market, while Morgan Stanley believes equipment prices have already bottomed out.

Longi said he hoped to “push the industry out of the mire of low-price competition” as he raised solar wafer prices this week. TCL Zhonghuan Renewable Energy Technology Co. also said this week it would raise prices on three types of wafers, according to a Chinese media report.

“I don’t know if prices can go down beyond this point, it’s too much even for the biggest players,” said Cosimo Ries, an analyst at Trivium China in Shanghai. “It’s going to be another pretty painful year and maybe longer before that capability is released.”

The plight of the Chinese solar industry can be traced back to three years ago, when a surge in demand for panels drove up prices and unleashed ambitious expansion plans that led to far too much supply.

The sector ended 2023 with the capacity to produce 1,154 gigawatts of solar modules – more than double the capacity two years earlier. Estimated demand for this year is just 593 gigawatts, according to BloombergNEF.

The health of China’s solar industry, which accounts for about 80 percent of global production, is critical to the fight against climate change. His efforts underscore how difficult it is to match production and demand in the many fast-growing sectors related to the energy transition.

The growing rivalry between the US and China is also making life difficult for Chinese manufacturers. Washington plans to double import tariffs on the country’s solar equipment to 50 percent and is also targeting Chinese companies that have set up factories in Southeast Asia.

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Trade relations between Beijing and the European Union, a major market for Chinese solar equipment, are also deteriorating. A growing fight over subsidies has sparked a dispute that started with electric vehicles and has since spread to pork, dairy and brandy.

“Chinese manufacturers are responding to weak profitability and uncertainties related to market access limitations in the US and EU,” Goldman analysts including Trina Chen said in a note this month. “The Chinese solar industry is heading into the final stage of a down cycle, with a cyclical low likely in 2025.”

Longi’s earnings suffered the most as its net losses rose to 5.2 billion yuan ($740 million) in the first six months of the year, after making profits of 9.3 billion in the same period since 2023. Tongwei Co. and TCL Zhonghuan Renewable Energy Technology Co. Each posted losses of more than 3 billion yuan. JA Solar Technology Co., Xinjiang Daqo New Energy Co. and GCL Technology Holdings Ltd. were also in the red for the period.

“Facing the rapid expansion of the industry’s production capacity over the past two years and the complex global business environment, the industry has entered a period of deep adjustment,” Longi said in the earnings statement.

Several executives of top Chinese firms have called on the central government to step in to help the industry recover. The menu of options presented included regulating which new factories can be built, cracking down on less efficient facilities, limiting price cuts and promoting consolidation.

Some of these actions are already taking place. Earlier this month, Tongwei bought Jiangsu Runergy New Energy Technology Co. in the first major industry consolidation move during this down cycle, and several other firms’ expansion plans have been delayed or canceled.

Still, it will likely take another six to 12 months for prices to return to break-even for solar firms, Morgan Stanley analysts including Eva Hou said in a note.

“The industry will either need to further tighten production costs or take capacity building to a higher level to bring supply chain prices back to a sustainable level,” she said.

–With assistance from Stephen Stapczynski.

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