Photo source: Visual China

Blue Whale financial reporter Wang Xiaonan

Following the signing of a 425,000-ton procurement contract with GCL Technology in April, Longji Green Energy also signed a sales contract for high-purity crystalline silicon products with Tongwei Co., Ltd. on May 10, with an estimated total amount of about 39.1 billion yuan. With the disclosure of the 2023 Annual Report and the 2024 Quarterly Report, the entire PV industry is no longer booming as it used to be, and pressure on performance and falling stock prices seem to be a common situation. In the first quarter of this year, industry giants Tongwei Co., Ltd. and Longji Green Energy both lost net profit while their revenue declined. The two giants chose to join forces to heat up.

Two major PV giants join hands again

On the evening of May 10, Tongwei Co., Ltd. announced that six of the company's subsidiaries (hereinafter referred to as the “seller”) recently signed sales contracts for high-purity crystalline silicon products with Longji Green Energy and 9 of its subsidiaries (“buyer”), agreeing that between 2024 and 2026, the buyer will purchase no less than 862,400 tons of high-purity crystalline silicon products. The purchase price will be determined on a monthly basis. The total contract transaction amount is based on the final transaction amount.

Based on the average domestic N-type material transaction price of 45,300 yuan/ton announced by the Silicon Industry Branch of the China Nonferrous Metals Industry Association in the latest issue (May 8, 2024), the total amount of this contract is estimated to be about 39.1 billion yuan (tax included).

In 2023, the price of high-purity crystalline silicon products dropped sharply. According to statistics from the Ministry of Industry and Information Technology, domestic high-purity crystalline silicon production in 2023 exceeded 1.43 million tons, an increase of 66.9% over the previous year. According to Antec statistics, the average price of monocrystalline dense materials dropped from 176,200 yuan/ton at the beginning of the year to 58,300 yuan/ton at the end of the year, a decrease of 66.91%.

Price fluctuations will inevitably affect performance. Tongwei Co., Ltd. stated that this contract is a long sales contract. The signing is conducive to stable sales of the company's high-purity crystalline silicon products, and has a positive impact on business performance.

As a leading “silicone+battery” company in the industry, Tongwei Co., Ltd. has continued to promote the construction of high-purity crystalline silicon production capacity in recent years.

In 2023, the 120,000-ton high-purity crystalline silicon project of Yongxiang Energy Technology of Tongwei Co., Ltd. fully met production standards in the fourth quarter. Meanwhile, construction of 200,000 tons of high-purity crystalline silicon projects in Yunnan and 200,000 tons of high-purity crystalline silicon in Inner Mongolia is expected to be put into operation in the second and third quarters of 2024, respectively. At that time, Tongwei Co., Ltd.'s high-purity crystalline silicon production capacity will reach 850,000 tons. In addition, Tongwei Co., Ltd. has successively planned supporting industrial silicon projects in Inner Mongolia and Sichuan.

The counterparty, Longji Green Energy, is the world's largest manufacturer of monocrystalline silicon products, and its partnership with Tongwei Co., Ltd. has also attracted market attention. Speaking of which, Longji Co., Ltd. and Yongxiang Co., Ltd., a subsidiary of Tongwei Co., Ltd. signed separate cooperation agreements in January and March 2017 to cooperate on projects in the field of monocrystalline silicon rods and high-purity crystalline silicon.

In January 2017, Yongxiang Co., Ltd., a subsidiary of Tongwei Co., Ltd., and Longji Green Energy and Tianhe Solar jointly invested in the construction of a 5GW monocrystalline silicon rod project in Lijiang by funding a joint venture. The registered capital of the joint venture was 800 million yuan. The three invested 120 million yuan, 480 million yuan and 200 million yuan respectively. Immediately after March of the same year, Yongxiang Co., Ltd. and Longji Green Energy jointly established a joint venture as the main investor in a high-purity polysilicon project with an annual output of 50,000 tons. The registered capital of the joint venture was 1.2 billion yuan, and the two held 85% and 15% of the shares respectively.

Subsequently, in 2018, 3 companies under Tongwei Co., Ltd. signed cooperation agreements with 4 companies under Longji Green Energy on the sale and procurement of polysilicon products, selling a total of about 55,000 tons of polysilicon.

In June 2019, Tongwei Co., Ltd. and Longji Co., Ltd. reached a cooperation agreement on high-purity crystal silicon and silicon wafers, and the two sides signed a strategic cooperation agreement. In September 2020, the two sides made adjustments based on the strategic agreement signed. In addition to the capital increase and share expansion of Yongxiang New Energy established in 2017, Longji plans to invest in Tongwei, Yunnan (the 40,000 ton high-purity silicon project in Baoshan, Yunnan), with a shareholding ratio of 49%. The two sides aim based on the annual trading volume of 101,800 tons of polysilicon materials.

Since then, the two leading companies have also signed related procurement contracts. In March 2022, Tongwei Co., Ltd. signed a polysilicon procurement agreement with Longji Green Energy for more than two years. The contract agreed that the total procurement volume was as high as 203,600 tons. According to market price estimates at the time, the contract amount reached 44.2 billion yuan.

This time, the two sides once again signed a large-scale “long order” for the procurement of high-purity crystalline silicon, which is also considered a continuation of the previous cooperation. In recent years, Longji Green Energy has achieved new breakthroughs in fields such as BC batteries, and there is a high demand for raw materials. It needs to further support the development of its own crystalline silicon photovoltaic cell-related business through large-scale procurement of silicon materials. Earlier, on April 3, Longji Green Energy also signed a long-term procurement contract for about 425,000 tons of granular silicon with Jiangsu Zhongneng, a wholly-owned subsidiary of GCL Technology.

Behind the news group heating, performance declined

The reason behind the two leading PV companies signing the big deal is that the photovoltaic industry is currently undergoing structural adjustments.

On May 8, the Silicon Industry Branch of the China Nonferrous Metals Industry Association released the latest silicon price. The transaction price range for N-type silicon was 43,000 yuan/ton to 48,000 yuan/ton, with an average transaction price of 45,300 yuan/ton, down 7.93% from the previous month; the transaction price range for P-type dense materials was 38,000 yuan/ton to 43,000 yuan/ton, down 8.88% from the previous month.

Obviously, the price of silicon is still falling. Compared with the high of 300,000 yuan/ton or more in 2022, the price of silicon has now dropped by nearly 90%. Judging from the current situation, the current price of silicon materials may have already fallen below the cost of non-leading companies, or even close to the cost of leading companies. Tongwei Co., Ltd. also stated in its 2023 annual report that the overall operation of enterprises in the industry is under pressure and there is significant differentiation. Some companies have experienced slow product sales, operating losses, and investment projects have been postponed or cancelled.

Impacted by falling silicon prices, the performance of Silicon Boss Tongwei Co., Ltd. was also impacted. In 2023, the revenue growth rate of Tongwei Co., Ltd. declined again after a lapse of 7 years, and net profit to mother fell sharply by 50% after a lapse of 11 years. Last year, the revenue of Tongwei Co., Ltd. was 139.104 billion yuan, down 2.33% year on year; net profit to mother was 13.574 billion yuan, down 47.25% year on year.

By the first quarter of this year, the performance of Tongwei Co., Ltd. had not picked up. In the first quarter of 2024, the company's revenue was 19.57 billion yuan, down 41.13% year on year; net profit loss to mother was 787 million yuan, down 109.15% year on year, while in the first quarter of 2023, its net profit was 8.601 billion yuan.

Old friend Longji's profitability is not very good. Last year, when Longji Green Energy's revenue increased slightly by 0.39%, its net profit to mother also decreased by nearly 30%. Similarly, this year, Longji Green Energy also published a quarterly loss report. Its revenue was 17.674 billion yuan, down 37.59% year on year; net profit loss to mother was 2.35 billion yuan, down 165.03% year on year.