After being under pressure for three years, the photovoltaic sector finally improved this month. Against the backdrop of weakness in other sectors, the photovoltaic sector began to grow stronger, mainly due to the better-than-expected mid-term performance forecast of Dehui shares and Ginlong Technologies in the inverter industry. In addition, in the research summary, Ginlong Technologies expressed optimism about the photovoltaic industry in the second half of the year, while the National Development and Reform Commission and other five departments jointly issued the "Special Action Plan for Energy Conservation and Carbon Reduction in the Electrolytic Aluminum Industry," in which it proposed the implementation of non-fossil energy substitution to actively support electrolytic aluminum enterprises to expand the application of non-fossil energy such as wind power, photovoltaics, hydropower, biomass energy, etc. In principle, no new self-owned coal-fired units will be added, and existing self-owned coal-fired units will be replaced with clean energy. It supports electrolytic aluminum enterprises to actively increase the consumption of renewable energy by conducting green certificate and green power transactions and building renewable energy power generation projects.

Under the catalysis of two big good news factors, the photovoltaic inverter sector rose first, and various links in the industry chain subsequently rose one after another. As the upstream sector of the entire photovoltaic industry, silicon materials have the most abundant performance during the continuous rise of the photovoltaic sector. Currently, the fundamentals of the inverter section have bottomed out. Will the silicon material industry also see a reversal?

Silicon material supply still exceeds demand, and the reversal still needs to wait.

Compared with the inverter, the rise of the component industry chain seems to have to wait. In 2021 and 2022, the high profits of polysilicon attract industry-wide expansion of production capacity, and industry supply is growing rapidly. According to data disclosed by the Silicon Industry Branch of the China Nonferrous Metals Industry Association, polysilicon production in China will reach 1.43 million tons in 2023, a year-on-year increase of 76.33%. In 2024, only considering the listed companies, there will be Tongwei Co., Ltd.'s Yunnan 0.2 million tons and Inner Mongolia 0.2 million tons of high-purity crystalline silicon projects, and Daqo New Energy's Inner Mongolia Baotou Phase II 0.1 million tons of polysilicon will be put into operation successively, further increasing industry supply.

On the basis of overcapacity, the new capacity put into production in 2024 continues to put pressure on silicon material prices. Since the end of March, silicon material prices have entered a rapid decline channel again.

With reference to data from the Silicon Industry Branch, the price has continued to decline, and the recent silicon material prices have finally shown signs of stabilization. Since the daily price fell in July, the price has remained unchanged for three consecutive weeks. As of July 24th, the prices of N-type block silicon and granular silicon inclusive of taxes had reached 0.04 million yuan/ton and 3.65 million yuan/ton, respectively, and the prices of P-type recycled materials, dense materials, and cauliflower materials inclusive of taxes were 0.0361 million yuan/ton, 0.0343 million yuan/ton, and 0.0312 million yuan/ton, respectively.

According to the data of the Silicon Industry Branch, the rapid decline in prices was mainly due to the rapid accumulation of industry inventories. As of May 24th, the inventory of the silicon material industry had reached 0.303 million tons, and the silicon material production in May was about 0.18 million tons. The inventory cycle of the silicon material industry has exceeded 1.5 months.

At the current level of silicon material prices, other manufacturers except granular silicon have begun to operate at a loss of cash cost, so many companies have begun to shut down for maintenance.

The Silicon Industry Branch stated that there are 19 domestic enterprises producing polysilicon, of which 14 have begun maintenance shutdowns, and 2 are gradually returning to normal production status. In June, two large factories put into production have basically reached full production capacity, but the overall new production capacity is less than the reduction in shutdowns. The domestic production of polysilicon in June was 0.1615 million tons, a month-on-month decrease of 19.21%. Silica supply for July is expected to continue to decline to about 0.15 million tons, according to the Silicon Industry Branch, as there is no new capacity released and the previous capacity put into production has already reached full production, while companies are conducting maintenance in an orderly manner.

From the consumption end, according to brokerage statistics, component exports in June 2024 were US$2.702 billion, estimated according to 0.114 US dollars/W, exporting 23.68GW, a month-on-month increase of 2.0% and a year-on-year increase of 42.2%. From January to June, component cumulative exports were 128.7GW, a cumulative year-on-year increase of 28.85%. At present, whether it is components or inverters in Europe, the inventory has basically been consumed to a reasonable range, and coupled with the impact of Europe's interest rate cut, subsequent shipments will continue to increase. In the Asia, Africa, and Latin America directions, shipment growth has been good this year, and both Ginlong and Dehui have expressed bullishness on the sustainability of these countries.

In terms of domestic installation, on the basis of a large amount of installation in 2023, the installation volume in June 2024 continued to increase significantly, with an installed capacity of 23.33GW, a year-on-year increase of 35.6%.

In total, domestic and foreign demand totaled 47.01GW in June. Even according to a calculation of 2.1 g/W, 0.15 million tons of silicon material can produce about 70GW of components. Considering the factors such as melting ratio, silicon material still has supply exceeding demand.

However, there are also some optimistic news. On July 24th, the Silicon Industry Branch stated that according to the data from the General Administration of Customs, the import volume of polysilicon in June 2024 was 3,761.6 tons, a month-on-month decrease of 7.31%, and the average import price of polysilicon was US$23.73/kg, a month-on-month increase of 43.64%. The export volume of polysilicon was 3,683.9 tons, a month-on-month increase of 23.02%, and the export price of polysilicon was US$7.31/kg, a month-on-month increase of 8.58%.

On July 25th, infolink stated that from the perspective of supply, the month-on-month supply volume decline was larger than the initial estimated value, which is expected to cause a trend of supply-side contraction in August. That is, there is still a high probability of a large decrease in overall supply volume in August. In terms of inventory, due to the obvious trend of supply-side contraction and clear signals of price bottoming out, related parties including some production enterprises have increased their purchasing volume, which is actually slightly higher than the current actual production demand in the market. As a result, the pressure on inventory backlog has been relieved to some extent.

Overall, although domestic and foreign sales of components are good, the reverse of the component industry chain will be delayed compared to power inverters and other auxiliary materials due to supply overcapacity in the component industry chain. Therefore, the reverse of silicon materials still needs to wait.

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However, there have been some changes in various links in the market. The stock price of Daqo New Energy (DQ.US) in silicon materials has risen by 18% cumulatively from the bottom at the beginning of this month.

According to the WiseMoney APP, Daqo New Energy is a high-purity polysilicon company, which is an upstream link of the photovoltaic industry chain. Its performance is closely related to the changes in the photovoltaic industry. From 2020 to 2022, benefiting from the improvement of the photovoltaic industry's prosperity, the price of silicon materials has greatly increased. During this period, Daqo New Energy's net income attributable to the parent company was 1.043 billion yuan, 5.724 billion yuan, and 19.121 billion yuan, respectively.

With the intensification of competition in the photovoltaic industry, the overcapacity of polysilicon production capacity, and the sharp drop in silicon material prices, Daqo's performance has also declined sharply. In 2023, the company's net income attributable to the parent company will drop by nearly 70% to 5.763 billion yuan, and in the first quarter of 2024, the decline will be close to 90% to 0.331 billion yuan.

In the case of the sharp drop in silicon material prices, Daqo New Energy has expanded on a large scale. In December 2023, Daqo New Energy announced plans to invest 15 billion yuan to build a silicon-based new material industrial park. The project is planned to be built in two phases, the first phase plans to invest 7.5 billion yuan, and build an annual output of 0.05 million tons of polysilicon and supporting 0.15 million tons of industrial silicon, and 1.2 million circular silicon core projects. The second phase plans to invest 7.5 billion yuan and build an annual output of 0.05 million tons of polysilicon and supporting 0.15 million tons of industrial silicon, and 1 million circular silicon core projects.

Due to the large-scale expansion of capacity by the industry in 2021 and 2022, the production of polysilicon in China reached 1.43 million tons in 2023, a year-on-year increase of 76.33%. Under the background of a sharp increase in supply and a continuous decline in prices, enterprises with cost advantages have a higher ability to resist risks. As a leading enterprise deeply cultivating in the silicon material link for many years, the advantage of Daqo New Energy in market share and production cost cannot be ignored. Data shows that the domestic production of polysilicon exceeded 1.43 million tons in 2023, and Daqo New Energy's production of polysilicon was 0.1978 million tons, accounting for about 13% of the domestic production of polysilicon, ranking in the first echelon in the industry.

In terms of cost control, the data shows that the production costs of Daqo New Energy's polysilicon from Q1 2023 to Q1 2024 were 53.45, 50.34, 47.77, 46.25, and 45.99 yuan/kg, showing a continuous downward trend and leading the industry. By comparison, the cost price of polysilicon from second-tier enterprises is about between 50,000 yuan/ton and close to 60,000 yuan/ton.

Overall, although some links in the photovoltaic industry have reached the bottom, the silicon material industry has not yet reversed and still needs to wait. However, on the one hand, the current price of polysilicon has fallen to the cash cost of most enterprises, and the industry's overall losses will slow down the progress of adding new production capacity, and high-cost production capacity will accelerate its exit. On the other hand, enterprise maintenance will be carried out in an orderly manner, and the supply of polysilicon will also be reduced. Therefore, it may be difficult for silicon material prices to fall further and it is also unlikely to rise in the short term.