Morgan Stanley Fund: Leading Silicon Wafer Manufacturers Jointly Increase Prices, Are Good Times Coming for Photovoltaics?

Morgan Stanley Fund has stated in a recent article that in the past two years, the photovoltaic industry, as one of the important representatives of new quality production forces, has experienced repeated bottoming out due to phase overcapacity and insufficient demand. At the end of August, the industry seemed to be experiencing a change, with two leading domestic silicon wafer companies announcing price increases. Currently, the prices of the photovoltaic industry chain are at a low point, and overseas markets may enter an interest rate cut cycle, with interest rates expected to decrease. The increase in photovoltaic project returns may stimulate demand beyond expectations. The current sector has low expectations, low valuation, low institutional holdings, and the sector allocation cost-performance ratio is worth paying attention to. The "darkest moment" of the photovoltaic industry In recent years, as China continues to develop new energy transformation, the photovoltaic industry has become an important way to promote China's energy green low-carbon transformation and achieve green low-carbon development. Since 2021, the photovoltaic industry in China has rapidly expanded, with many manufacturers entering the industry, rapidly releasing capacity, and the lack of a unified technical route and frequent iterations have led to the industry chain presenting an "internal collapse" state, with profit margins gradually narrowing and prices breaking through costs at multiple stages. Since 2022, the silicon wafer market in China has fluctuated downwards, and prices of various types of silicon wafers have fallen. In June 2024, the market price of monocrystalline silicon wafers (156mmX156mm) from first-line manufacturers was only 1.2 yuan per piece. Source: Wind, Data Range: August 2011-August 2024 In this context, the projects of photovoltaic enterprises are frequently terminated or postponed. According to data from the China Photovoltaic Industry Association (CPIA), the scale of terminated or delayed projects in the silicon material, silicon wafer, battery, and component segments reached 300,000 tons/15GW/60GW/20GW, with more than 20 related projects. Affected by overcapacity and the low prices of the industry chain, the industry's operating rate is also at a low level, with the main chain link operating at around 60%, high inventory levels, and even some companies ceasing production. Survival of the fittest, benefits the long-term development of the industry Even though the photovoltaic industry is going through its "darkest moment" in the past two years, China's leading position in the global photovoltaic industry remains stable. Domestically, in recent years, there has been an "explosion" in installation demand. According to data from the Ministry of Ecology and Environment, China added 55GW of new photovoltaic installations in 2021, 87GW in 2022, and a large increase to 216GW in 2023. Source: Ministry of Ecology and Environment In terms of "going global," according to customs data, in 2023, Shanxi Guoxin Energy Corporation's exports of new energy products, including automobiles, photovoltaic products, and lithium batteries, exceeded 1.06 trillion yuan, breaking the trillion-dollar mark for the first time and growing by 29.9%. Chinese companies are no longer in the 1.0 "global factory" state but have advanced to the "active" globalized 2.0 stage. 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 "survival of the fittest" within the industry, allowing more competitive companies to stand out and even move towards overseas markets, while lagging capacities will gradually exit the market. The Silicon Industry Branch of the China Nonferrous Metals Industry Association has also recently stated that in the medium to long term, as capacities in various segments of the industry chain are rapidly cleared, market prices may return to a reasonable level. After experiencing a short-term period of selling pain, the market supply and demand are expected to continue to improve in the medium to long term, and prices are expected to gradually stabilize. Recovery is expected, and the cost-performance ratio of the photovoltaic industry is highlighted Currently, the photovoltaic industry chain is in the adjustment stage after expansion, which is a "period of growth pains." In fact, in terms of policy, photovoltaics have always been one of the industries that the country attaches great importance to, and there have been favorable news reports. Just recently, 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 areas such as photovoltaics, and also mentioning support for grid-connected transformations of photovoltaic power plants. Over the past ten years, photovoltaics have undergone multiple iterations and upgrades in both technology and equipment. With the maturity of third-generation photovoltaic technologies, there will be an improvement in both cost and conversion efficiency, and energy equipment manufacturing enterprises, supporting components manufacturing enterprises, and new materials supply enterprises are expected to benefit from this.