Sinolink: The inflection point of photovoltaic glass prices is foreseeable, with great potential for price increases and now is the right time to layout the bottom.

Sinolink released a research report stating that short-term supply of photovoltaic glass is expected to remain low or even further decrease, and a price turning point can be expected after the holiday. Currently, the willingness and capability of second and third-tier companies to resume production are both weak. The pace of cold repair capacity resumption is controllable, with limited and controllable future supply growth, assuming aggressive resumption of production, the industry's average daily melting volume is estimated to increase by only 3% year-on-year by 2025, with significant price elasticity in the short term. Considering that most second and third-tier companies are in a low-profit state and lack both expansion capacity and motivation, top companies are expected to maintain a faster pace of production capacity growth than the industry as a whole, thus regaining market share and consolidating their leading position. Sinolink's key points are as follows: Profit pressure accelerates cold repair, photovoltaic glass supply drops to 23H1 levels Since 2024, the combined daily cold repair of photovoltaic glass production lines has reached 29,400 tons, accounting for 23% of existing production capacity. As of January 9, 2025, the total daily melting volume of domestic photovoltaic glass in production lines was 89,700 tons (nominal capacity). Considering that some companies are temporarily closing or reducing production to alleviate inventory and production pressures, actual industry supply is even lower, estimated to have decreased to levels seen at the beginning of 2023. Against the backdrop of rapidly declining supply, industry inventory of photovoltaic glass peaked in November and fell from 38.65 days to 33.69 days by January 9, 2025. Short-term supply is expected to remain low or even further decrease, with a price turning point expected after the holiday January and February are traditionally slow seasons for component demand, and the logistics suspension during the Spring Festival holiday affects the transactions of photovoltaic glass. During the Spring Festival period, industry inventory usually increases to some extent. With increased operational and inventory pressures, it is expected that there will be further cold repair capacity for older small kilns and tail-end companies with strong operational pressure. Post-holiday recovery in component demand drives glass demand up, potential increases in photovoltaic glass supply include partial production recovery from temporary closures, cold repair capacity resumption, and new capacity release. The release of supply from partial closures is faster but controllable in total (reaching nominal capacity once fully recovered), while the resumption of cold repair and new capacity ignition require a certain climbing period, and given the cautious attitude of companies towards restarting production lines in the current state, it is expected that short-term supply of photovoltaic glass will remain low or even decrease further, with a possible turning point in prices after the Spring Festival. Weak willingness and capability of second and third-tier companies to resume production, controllable pace of cold repair capacity resumption The core work of cold repair of glass production lines involves replacing refractories in kilns, repairing and upgrading kilns, requiring a significant amount of investment. Since 2022, second and third-tier photovoltaic glass companies have been at a low-profit level, with 2H2 of 24 entering a deep loss state. It is expected that some companies may not have the financial capacity to actually implement cold repair after long-term deep losses leading to production halts. In addition, the resumption of cold repair lines is similar to the commissioning of new lines, requiring a climbing period of 3-6 months, during which certain climbing costs need to be borne. Furthermore, after ignition, production capacity is rigid and difficult to adjust, and considering the significant operational pressures on second and third-tier companies, it is expected that most of these companies lack both the capacity and motivation to resume production until significant recovery in photovoltaic glass prices and profits. It is expected that the main companies with the capacity and willingness to resume production in the current cold repair lines are those holding large kilns, which account for approximately 25%. Given the high concentration of the photovoltaic glass sector, it is expected that the pace of cold repair capacity resumption will be controllable. Limited and controllable future supply growth, assuming aggressive resumption of production, the industry's average daily melting volume is estimated to increase by only 3% year-on-year by 2025, with significant price elasticity in the short term Since 2H2, the photovoltaic glass industry has been under significant profit pressure, with varying degrees of delays and suspensions in construction capacity. It is expected that, before significant recovery in industry prices and profits, the release of new production capacity will remain cautious, with major companies with the financial strength and willingness to expand production. Therefore, future supply growth will be limited and controllable. Considering the potential supply increase from the recovery of partial closures, cold repair capacity resumption, and new capacity release, assuming an aggressive resumption of production by 2025, the industry's average daily melting volume is estimated to be approximately 106,500 tons, and the year-on-year increase is only 3%. The corresponding monthly output of components for peak supply under conservative/neutral/aggressive assumptions is 62/67/74GW. Considering the relatively rigid nature of photovoltaic glass production capacity and the need for a certain period for supply release, if downstream component demand grows rapidly, photovoltaic glass prices will have a significant upward elasticity. Photovoltaic glass is one of the most critical links in the photovoltaic industry chain, with stable profits for leading companies, and the duopoly market share is expected to increase. Top photovoltaic glass companies, XINYI SOLAR and Flat Glass Group, maintain a profit margin gap of over 10% with second and third-tier companies due to advantages in raw material procurement, yield rates, etc. Given the accelerating clearance of older small kilns in the context of profit pressure, the cost curve of the photovoltaic glass sector is expected to remain steep, highlighting the advantages of big kilns for leading companies. In January 2025, XINYI, Flat Glass Group, accounted for 44% of production capacity, reaching a previous high of 53%. Considering that most second and third-tier companies are in a state of insufficient capacity and motivation due to low profitability, top companies are expected to maintain a faster pace of production capacity growth than the industry average, thus regaining market share and consolidating their leading position. Investment Recommendations Short-term supply of photovoltaic glass is expected to remain low or even decrease further, with a price turning point expected after the holiday. Future supply growth will be limited and controllable, with an aggressive resumption of production resulting in a 3% year-on-year increase in the industry's average daily melting volume by 2025, and significant price elasticity in the short term. Glass is one of the most optimal links in the photovoltaic industry chain, with stable profits for leading companies, and the duopoly market share is expected to increase. Key recommendations: XINYI SOLAR (00968), FLAT GLASS (06865), Flat Glass Group (601865.SH), Recommended to watch: Shandong Jinjing Science & Technology Stock (600586.SH). Risk Warning: Downstream installation demand lower than expected, risks of industry supply releasing too quickly, risks of capacity policy relaxation, fluctuations in raw material prices.Assess the risk.Je suis trs heureux de vous rencontrer.