After being under pressure for three years, the photovoltaic sector finally showed signs of recovery this month. Against the background of weakening in other sectors, the photovoltaic sector began to strengthen. The main reasons are that Dehui Technology and Ginlong Technologies in the inverter industry released better-than-expected mid-term performance forecasts, and in research notes, Ginlong Technologies expressed optimism about the photovoltaic industry in the second half of the year; on the other hand, the National Development and Reform Commission and four other departments jointly issued the "Special Action Plan for Energy Efficiency and Carbon Reduction in the Aluminum Electrolytic Industry", which proposes the implementation of non-fossil energy substitution. Actively support electrolytic aluminum enterprises to expand the application of non-fossil energy sources such as wind power, photovoltaics, hydropower, biomass energy, etc., and in principle, no longer add self-owned coal-fired units, and support existing self-owned coal-fired units to implement clean energy substitution. Support electrolytic aluminum enterprises to actively increase the consumption of renewable energy through green certificate and green electricity transactions, construction of renewable energy power generation projects and other means.

With the catalysis of the two positive factors, the photovoltaic inverter sector rose first, and each link in the industry chain followed suit. As the highest upstream link in the entire photovoltaic industry, silicon materials are the most lucrative when the photovoltaic sector continues to rise. At present, the fundamentals of the inverter link have bottomed out. So will the silicon material industry usher in a reversal?

The supply of silicon materials 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 a while. In 2021 and 2022, high profits from polycrystalline silicon attracted large-scale expansion of industry capacity. Industry supply grew rapidly. According to data disclosed by the Silicon Industry Branch of the China Nonferrous Metals Industry Association, China's production of polycrystalline silicon will reach 1.43 million tons in 2023, a year-on-year increase of 76.33%. In 2024, only considering the production of head-listed companies, the Tongwei Co., Ltd.'s Yunnan 200,000 tons and Inner Mongolia 200,000 tons of high-purity crystal silicon project, and Daqo New Energy's Inner Mongolia Baotou Phase II 100,000 tons of polycrystalline silicon will be put into production one after another, further increasing industry supply.

On the basis of overcapacity, the new production capacity in 2024 will continue to depress the price of silicon materials. Since the end of March, the price of silicon materials has re-entered a rapid decline channel.

According to data from the Silicon Industry Branch, the price has continued to decline. Recently, the price of silicon materials has shown signs of stabilization. Since the quotation fell in July, the quotation has remained unchanged for three consecutive weeks. As of July 24, the prices of N-type block silicon and granular silicon, including tax, have reached 400,000 yuan/ton and 36,500 yuan/ton, respectively. The prices of P-type recycled material, dense material, and cauliflower material, including tax, are 361,000 yuan/ton, 343,000 yuan/ton, and 312,000 yuan/ton, respectively.

According to the Wisdom Wealth APP, the recent rapid decline in the price of silicon materials is mainly due to the rapid accumulation of industry inventory. According to data from the Silicon Industry Branch as of May 24, the inventory of the silicon materials industry has reached 303,000 tons, and the production of silicon materials in May was about 180,000 tons. The inventory cycle of the silicon materials industry has exceeded 1.5 months.

At the current level of silicon material prices, except for granular silicon, other manufacturers have begun to lose cash costs. Therefore, many companies have begun to shut down and overhaul.

The Silicon Industry Branch said: There are 19 domestic enterprises producing polycrystalline silicon, and 14 have begun to be shut down for overhaul. Two of them are gradually returning to normal production status. In June, two large factories put into production basically reached their production capacity, but the overall increase in new production capacity was less than the reduction in maintenance. Domestic polycrystalline silicon production in June was 161,500 tons, a month-on-month decrease of 19.21%. In July, there was no new production capacity release for silicon materials, and the previous period of production capacity has basically reached full production. At the same time, enterprises are conducting inspections in an orderly manner, so the Silicon Industry Branch expects the supply of polycrystalline silicon in July to continue to be reduced to about 150,000 tons.

From the consumption side, according to brokerage statistics, in June 2024, component exports amounted to US$2.702 billion, estimated at 0.114 US dollars/W, and exported 23.68GW, an increase of 2.0% month-on-month and 42.2% year-on-year. From January to June, cumulative component exports were 128.7GW, a cumulative year-on-year increase of 28.85%. At present, both components and inverters in Europe have basically consumed their inventory, coupled with the impact of European interest rate cuts, subsequent shipment volumes will continue to rise. In Asia, Africa and Latin America, the shipment volume has increased well this year, and Ginlong and Dehui both 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 greatly, with an installed capacity of 23.33GW, a year-on-year increase of 35.6%.

Overall, the total demand in June from both domestic and foreign markets is 47.01GW. Even considering factors such as melting ratio, silicon materials are still in oversupply, as 0.15 million tons of silicon materials can produce about 70GW of components.

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

On July 25th, infolink stated that in terms of supply, the month-on-month supply volume has decreased more than the initial expected value, which is expected to cause a trend of reduced supply in August, that is, there is still a high probability of a significant decrease in overall supply volume in August. In terms of inventory, due to the obvious reduction range and trend of the supply side, and relatively clear signals of price bottoming out, relevant parties including some production companies have increased their procurement volume, which is actually slightly higher than the current market demand scale based on the actual production. The pressure of stockpiling has been reduced slightly.

Overall, although the sales of components are good both domestically and internationally, the reversal of the component industry chain is later than that of power inverters and other auxiliary materials due to overcapacity in the component industry chain. Therefore, the reversal 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 18% from the bottom in early this month.

According to the Zhiliao Finance APP, Daqo New Energy is a high-purity polycrystalline silicon company and an upstream link in the photovoltaic industry chain. Its performance is closely related to changes in the photovoltaic industry. From 2020 to 2022, benefiting from the improvement of the photovoltaic industry boom, the price of silicon materials rose sharply, and the net income attributable to the mother of Daqo New Energy during the period 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 polycrystalline silicon production, and the sharp decline in silicon material prices, Daqo's performance has also declined sharply. In 2023, the net income attributable to the mother of the company dropped by nearly 70% to 5.763 billion yuan, and in the first quarter of 2024, the decline was close to 90%, to 0.331 billion yuan.

In the case of a large drop in silicon material prices, Daqo New Energy is expanding on a large scale. In December 2023, Daqo New Energy announced a plan to invest 15 billion yuan to build a silicon-based new material industrial park. The project is planned to be built in two phases, with one phase planned to invest 7.5 billion yuan and build an annual output of 50,000 tons of polycrystalline silicon and supporting 150,000 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 50,000 tons of polycrystalline silicon and supporting 150,000 tons of industrial silicon and 1 million circular silicon core projects.

Due to the large scale expansion of production capacity in the industry driven by high profits in the polycrystalline silicon industry in 2021 and 2022, China's polycrystalline silicon output in 2023 reached 1.43 million tons, a year-on-year increase of 76.33%. Under the background of a significant increase in supply and a continuous decline in prices, enterprises with cost advantages have higher risk resistance capacity. As a leading company that has been deeply cultivating the silica materials industry for many years, Daqo New Energy's advantages in market share and production costs cannot be ignored. Data shows that the domestic polycrystalline silicon production volume in 2023 exceeded 1.43 million tons, and Daqo New Energy's polycrystalline silicon production volume was 0.1978 million tons, accounting for approximately 13% of the domestic polycrystalline silicon production volume, ranking among the top tier of the industry in scale.

In terms of cost control, data shows that the production costs of Daqo New Energy's polycrystalline silicon from Q1 2023 to Q1 2024 were 53.45, 50.34, 47.77, 46.25, and 45.99 yuan/kg respectively, showing a continuous downward trend and leading the industry. In contrast, the cost of silicon materials for second-tier enterprises is around 50,000 to nearly 60,000 yuan/ton.

Overall, although some links in the photovoltaic industry have bottomed out, the silicon material industry has not yet seen a reversal and still needs to wait. However, on the one hand, the current price of polycrystalline silicon has fallen to the cash cost of most enterprises, and the industry's widespread losses will reduce the pace of new capacity investment, and high-cost capacity will accelerate its exit; on the other hand, enterprise maintenance will be carried out orderly, and the supply of polycrystalline silicon will also decrease. Therefore, it may not be easy for the silicon material prices to experience a big drop again, and it is also difficult to rise in the short term.