With multiple favorable policies and cost accounting pricing, can the polysilicon industry chain break out of the "prisoner's dilemma"?

In-depth rectification of "involution-style" competition, promoting the transition of the industry from "price competition" to "quality competition," can the cost accounting standards and price compliance guidance rescue the oversupply issue in the polycrystalline silicon industry chain? It has been learned that on July 27, the Photovoltaic Industry Association released the group standard for cost accounting in the photovoltaic industry, followed by the State Administration for Market Regulation launching price compliance guidance for the photovoltaic sector on July 31. They comprehensively employed methods such as reminders, compliance discussions, and administrative guidance to guide photovoltaic companies in regulating their pricing competition behaviors. These two signals primarily target "polycrystalline silicon," and as a result, on August 3, all polycrystalline silicon futures contracts hit the daily limit. Meanwhile, Tongwei Co., Ltd. in the A-share market also hit the limit, while Xinjiang Daqo New Energy on the STAR Market and XINTE ENERGY (01799) in the Hong Kong market rose by over 8%. Downstream companies such as JA Solar Technology, LONGi Green Energy Technology, and TCL Zhonghuan Renewable Energy Technology also saw price increases. However, the news resulted only in a one-day pulse, with stocks and futures continuing to adjust downward in the following three trading days. Notably, on August 6, eight major domestic polycrystalline silicon companies, including Tongwei Co., Ltd., GCL TECH, Xinjiang Daqo New Energy, and XINTE ENERGY, jointly signed an anti-involution "Initiative" in Shanghai, committing that the sales prices of all photovoltaic products should not be lower than the corresponding costs calculated according to the group standard "General Principles of Cost Accounting Model for the Photovoltaic Industry." This news further stimulated the rise in polycrystalline silicon and related sectors, with XINTE ENERGY seeing an increase of over 15% the next day. So, does this policy expectation indicate that the industry's fundamentals have turned a corner, or is this just another "wolf is coming" scenario? The policy intensifies the price game in the industry chain. In fact, the polycrystalline silicon industry chain is at the upstream of the photovoltaic industry chain, and the sector has welcomed an unprecedentedly favorable policy, which provides long-term development assurance for the industry. Major policy documents, including the "14th Five-Year Plan" for carbon peaking, the "14th Five-Year Plan" for renewable energy development, and the "Energy Conservation and Carbon Reduction Action Plan in the Energy Sector (2026-2028)," have recently been released, likely reshaping the upstream industry chain from the demand side. The "14th Five-Year Plan" for renewable energy aims for a total installed capacity of renewable energy power generation to reach around 3.5 billion kilowatts by 2030, with an annual power generation of approximately 6 trillion kilowatt-hours. Among this, wind power and CECEP Solar Energy's total installed capacity will exceed 2.8 billion kilowatts, achieving annual generation of over 4 trillion kilowatt-hours, accounting for 30% of the power generation. The "14th Five-Year Plan" for carbon peaking proposes to reduce carbon dioxide emissions per unit of GDP by 17% from 2025 levels by 2030, with non-fossil energy consumption accounting for 25%, ensuring timely achievement of the carbon peaking target. By 2025, the combined installed capacity of wind and photovoltaic energy will reach 1.84 billion kilowatts, with a generation share of 22%, representing an increase of 52.2% and 36.4%, respectively, compared to policy targets. However, it should be noted that the photovoltaic industry's cumulative installed capacity ratio has reached 30%, and the sector is facing two major issues: first, a sharp decline in new installed capacity, with a 66% drop in the first half of 2026; second, the upstream supply side still suffers from severe overcapacity. At the upstream of the industry chain, on one hand, the annual capacity of polycrystalline silicon exceeds 3.5 million tons, with Tongwei, GCL, Daqo, Xinte, and Dongfang Hope combining for over 60% of the total, while the capacity utilization rate remains below 50%. On the other hand, the industry is continuously accumulating inventory, and with low operating rates, demand is not keeping pace with production speed; also, the power costs in the southwestern region are declining during the flood season, further stimulating regional capacity release. In August, three silicon plants scheduled maintenance to reduce output, while three others increased production. Overcapacity + high inventory + declining new installs have led to continuous bottoming out of polycrystalline silicon prices. The industry's initiative to sell at no less than cost price shows that the cash cost of the polycrystalline silicon industry is between 40,000 to 50,000 RMB, with a price difference of nearly 10,000 RMB/ton between cash costs and total costs, while spot prices are still far below 40,000 RMB, resulting in widespread losses within the industry. If the polycrystalline silicon price is adjusted to above 40,000 RMB, battery and module pricing will also rise accordingly. Consideration must be given to terminal acceptance and the impact of price increases on sales volumes. In fact, the competition between upstream and downstream in the industry chain has only just begun. Under policy guidance, the industry chain is no longer a "prisoner's dilemma" dominated by the market. The terminal industry chain is driven by policy, and local authorities are actively responding by setting photovoltaic installation targets. New installed capacity is expected to recover growth in the second half of the year; upstream price competition will accelerate the elimination of outdated capacity, and sales will become differentiated, with companies possessing technological advantages likely to gain larger market shares. The polycrystalline silicon industry chain has suffered continuous losses. The certainty driven by policy brings growth expectations for the photovoltaic industry chain over the next five years, but currently, from upstream silicon materials to polycrystalline silicon and downstream battery modules, industry participants have faced consecutive losses, as high inventory and weak demand coexist, and low-price involution has led the industry into a vicious cycle of "selling at increasing losses," culminating in significant losses in the first half of 2026. Many companies in the industry chain have disclosed mid-term forecasts, generally reporting losses of between 3 billion to 5 billion RMB. In terms of net profit attributable to shareholders, Tongwei, TCL Zhonghuan Renewable Energy Technology, LONGi Green Energy Technology, and JA Solar Technology together expect a loss of 13.6 billion to 15.4 billion RMB, with the leading polycrystalline silicon company Tongwei Co., Ltd. estimating a loss of 4.8 billion to 5.4 billion RMB, and the leading battery module manufacturer LONGi Green Energy Technology projecting a loss of 3.4 billion to 3.8 billion RMB. Over the past two years, these four companies have cumulatively incurred losses exceeding 28 billion RMB. Years of losses have led to cash flows that cannot be replenished through operations, and the industry's debt ratio continues to rise. Facing substantial debts, some companies continue to lower prices to regain cash for debt repayment, further intensifying the involution competition and losses. In terms of cash equivalents, as of March 2026, Tongwei, Daqo, TCL Zhonghuan Renewable Energy Technology, LONGi Green Energy Technology, and JA Solar Technology hold cash equivalents of 17.475 billion RMB, 1.825 billion RMB, 7.814 billion RMB, 52.622 billion RMB, and 23.306 billion RMB respectively. Among them, Tongwei is the leading upstream company, with high-purity polysilicon capacity of about 900,000 tons, outpacing peers. Its market share in polycrystalline silicon has remained the highest globally for many years, with sales of high-purity polysilicon reaching 384,800 tons in 2025 and a domestic market share of 30%. Additionally, the company is a leading player in the downstream sector, with CECEP Solar Energy achieving global leading shipment volumes for nine consecutive years, realizing battery sales of 103.03 GW in 2025 and about 15% of global market share. However, the companys rapid expansion in scale in the past has resulted in financial concerns. As of March 2026, the companys assets amount to 186.99 billion RMB, but liabilities reach as high as 138.8 billion RMB, with interest-bearing debts (loans and bonds) at 72.272 billion RMB. The asset-liability ratio and interest-bearing debt ratio are 74.23% and 38.65%, respectively, with cash to interest-bearing debt ratio standing at only 0.24. Given the continual operational cash flow losses, filling the debt gap is challenging. In contrast, some of their peers are adopting a policy of rest and recuperation, such as Daqo, which sold very little, with a revenue decline of 79.22% year-on-year in Q1. However, the company has a very low debt ratio and no interest-bearing debt, with total liabilities of only 3.055 billion RMB and an asset-liability ratio of just 7.4%. In this scenario of price involution and the prisoner's dilemma, companies with low debt ratios operate fearlessly, while those with substantial debt gaps face fierce competition, leading to further price declines, making survival the foremost concern. XINTE ENERGY is a leading polycrystalline silicon company listed on the Hong Kong stock market, with a capacity of 300,000 tons ranking fourth in the industry. The main difference between it and Tongwei lies in extending the polycrystalline silicon industry chain to terminal demand, with investments in wind energy, photovoltaic power station construction and operation, showing a relatively balanced revenue distribution. By 2025, the revenue share from polycrystalline silicon is expected to decline to 19.17%, leading to lower sensitivity of the companys performance to polycrystalline silicon prices. This company may also play a key role in hedging; it accounts for over 40% of the polycrystalline silicon warehouse receipts on the Guangzhou Futures Exchange. The industry's dilemma stems from chaotic market competition. Every company, including Tongwei and Xinte, is driven by shareholders' interests in making decisions. However, the intervention of the "invisible hand" is expected to help the industry chain return to the proper track. Referring to the developmental trajectory of the lithium carbonate industry chain last year, which turned from huge losses to profitability, a consensus on profit redistribution in the industry chain is needed. If companies implement the cost accounting and pricing system for polycrystalline silicon, it will drive the industry toward positive development. Policy-driven valuation may welcome a turning point. The industry's initiative applies the "General Principles of Cost Accounting Model for the Photovoltaic Industry" to standardize the cost calculation scope, coefficients, and models across the entire industry chain from "silicon materials - wafers - cells - modules," guiding companies toward reasonable pricing. According to calculations by China Securities Co., Ltd., as of the end of July, the complete cost profit margins for silicon materials/wafers/cells/modules are approximately -49.98%, -73.45%, -16.27%, and 0.18%, respectively. It can be seen that the downstream components of the industry chain still have profits, with bigger shares of profit redistribution mainly occurring upstream, providing ample pricing room, while the downward adjustment space is small, preventing significant rejections in terminal demand. The terminal industry chain aligns with national policy directions, serving as a core strategy for achieving the "dual carbon" goals, which will guide the development prospects over the next five to even thirty years. Profit redistribution is expected to address the pain points across all segments of the industry chain, facilitating a high-quality energy transition. In the capital market, the polycrystalline silicon industry chain is likely to see a valuation reversal. On one hand, industry valuations have fallen to rock bottom starting in 2022. Companies like Tongwei, Xinte, Daqo, LONGi, and TCL Zhonghuan Renewable Energy Technology have experienced consecutive declines in market value, with many stocks losing over 80% relative to their peaks, except for minor rebounds in 2025; on the other hand, policy guidance is directing pricing, and surplus capacity is anticipated to accelerate clearance, which should significantly enhance the industrys fundamentals. Major investment firms are also turning their attention to sector targets. Yuan International is optimistic about XINTE ENERGY, believing the companys main business covers high-purity polycrystalline silicon, new energy power station construction, and equipment manufacturing, with a solid position in the top tier of polycrystalline silicon, while its power station construction and equipment business could hedge against some of the silicon material cycle fluctuations, indicating it is entering a valuation repair phase. The Pacific Securities is bullish on LONGi Green Energy Technology, viewing the company as a leading integrated player in photovoltaics benefiting from the collaborative strategies in energy storage, maintaining a buy rating. In summary, this time, the policy is set to be serious, guiding the terminal industry chain towards the long-term goal of energy transition. The upstream industry chains cost accounting, pricing, and profit redistribution are reshaping the industry landscape, accelerating capacity clearance, and steering the shift from "price competition" to "quality competition." While the polycrystalline silicon industry chain experienced significant losses in the first half of 2026, price adjustments in the second half are expected to improve profitability, thus creating investment opportunities for valuation recovery.