CICC: Cold maintenance of photovoltaic glass capacity clears out, supply-demand structure begins to repair.

CICC released a research report stating that the supply and demand of photovoltaic glass became imbalanced at the end of April this year, with inventory days continuously increasing. Currently, the inventory days are at 37.5 days, reaching a historical high. Recently, some glass manufacturers have reduced production through measures such as cold repairs, reducing kiln openings, and suspending cold-end processing. A reduction in industry supply is expected to drive a recovery in supply and demand relationships, while glass production capacity is expected to accelerate clearance, shortening the bottom cycle. CICC's main points are as follows: Supply and demand situation: Cold repair capacity has significantly increased, new construction line growth has slowed down, and the supply of photovoltaic glass is improving marginally. In terms of supply, as of September 15th, the daily melting volume of global photovoltaic glass production lines in operation was 115,670 tons/day, an 18% year-on-year increase, similar to the global growth rate of photovoltaic installations. Recently, manufacturers have adjusted capacity through cold repairs, reducing kiln openings, and suspending cold-end processing. Specifically: 1) Cold repair as of now, a total of 18,970 tons of capacity have been cold repaired. Given that the monthly glass production is already approaching the demand for modules and the kilns nearing the end of their service life are only 3,420 tons, the probability of a large-scale cold repair capacity reemergence in the industry is relatively low; 2) Reduction in kiln openings according to calculations, closing one kiln opening for every 6 lines is the most economical, reducing nominal capacity by 200 tons/day and actual shipment volume by 160 tons/day, resulting in a cost increase of 6.72%-8.65% compared to full production; 3) Suspension of cold-end processing mainly to adjust for an excess of short-term supply, with a duration of 1 quarter, needing to be combined with the first two methods. The cumulative daily melting volume of new production capacity this year has reached 21,200 tons, and based on the time of commissioning of new capacity, by the end of this year, new capacity can supply 8-9 GW of modules per month. On the demand side, the further increase in double-glass penetration rates has limited the stimulus for glass demand. In October, with the end of holidays in Europe and the seasonal peak in domestic grid connection demand, module production is expected to increase month-on-month, with the potential for supply and demand relationships in glass to be restored. Profit situation: Limited space for short-term profit recovery, closure of some kiln openings leading to cost increases, industry expected to accelerate clearance. According to calculations, the net profit per square meter of photovoltaic glass has already fallen below the 2018 cyclical low, and some second-tier and below companies have started experiencing cash losses. Looking at the continued cycles from the low point, the 2018 cyclical low lasted for a quarter, with demand in Europe recovering in Q4 and glass prices re-entering an upward trend. The current downward trend in glass prices has lasted for 5 months, with some second-tier and below companies facing losses for over half a year. Based on the current high inventory days, clearing the inventory even after demand recovery would still require about 2 months, resulting in some pressure on short-term profit recovery. Slow demand recovery in Q4, with Q1 being the traditional off-season for photovoltaic installations, may mean that this round of cyclical bottoming could last around six months. Furthermore, some photovoltaic glass manufacturers are reducing production by closing some kiln openings, which will be a factor contributing to the decline in overall profit margin for companies, aside from price and cost factors. After closing one kiln opening for every 6 lines, the cash loss is estimated to be around 0.5 RMB/square meter. Therefore, with significant profit pressure, the industry's production capacity is expected to accelerate clearance, with leading manufacturers showing a clear profit advantage. Risks: Policy risks, lower-than-expected downstream demand, risks from fluctuations in raw material prices, risks of collecting accounts receivable.