A massive oversupply of solar modules combined with disappointingdemand caused average inventories throughout the solar supply chain tosoar by 64.3 percent, spurring major oversupply and price erosion,according to iSuppli Corp.
Average days of inventory among solarmodule and cell makers, polysilicon and wafer suppliers and verticallyintegrated companies that provide all these items surged to more than121 in the first quarter of 2009, up from 74.2 during the same periodin 2008.
“The worldwide solar industry for the first quarteradded the equivalent of one-and-a-half months of excess inventory injust one year,” said Dr. Henning Wicht, principal analyst,Photovoltaics (PV) research, for iSuppli. “With new polysiliconcapacity coming online this year, the PV industry will suffer furtherprice erosion, at all nodes of the value chain.”
iSuppliestimates the spot price per kilogram for polysilicon, the key rawmaterial for making solar cells, will drop to $50 by the end of theyear, down by 72 percent from $180 per kilogram at the beginning of2009.
The figure presents average days of inventory for the major segments of the solar supply chain.
Source: iSuppli, July 2009
The perils of poly
Onthe demand side, the solar market is coping with a demand sinkhole thatwas left after Spain’s PV demand collapsed. Despite this, solar-cellmakers are still compelled to take deliveries from their polysiliconsuppliers due to their long-term contractual obligations.
On thesupply side, polysilicon providers recently invested billions in newfacilities, forcing them to produce in order to cover these new fixedcosts.
Integrated firms holding the bag
Someof the hardest-hit entities in the PV industry have been the fullyintegrated players. These companies, including REC, Yingli, andSolarWorld, have operations in all three nodes of the value chain:polysilicon, wafer and cells.
Inventory levels for this segmentjumped to more than 161 days in the first quarter, up from 86 daysduring the first three months of 2008.
One major reason thesecompanies have borne the brunt of the inventory surge is theirintegrated structure. These firms possess integrated wafer andpolysilicon production that help secure raw materials during periods ofa supply bottleneck in the industry.
However, the integratedfirms found their hands tied to their own capacity at various nodeswhen demand dropped off a cliff at the end of 2008.
This, inturn, created a lag time relative to other sectors in the industry thatis now just reacting to the business environment, causing the severeinventory build-ups that led to margin compression.
Cell and module manufacturers
Celland module manufacturers are currently experiencing significantincreases in inventory, with levels rising to 105 days from thethird-quarter level in 2008 of 47 days. This is due, in part, topressure from wafer and polysilicon suppliers desiring that theircustomers adhere to shipment schedules negotiated in 2007 and 2008.
Polysiliconand wafer manufacturing have done the best job of maintaininginventories in this dynamic environment. With only a modest increase to98 days from 74 days a year ago, it would seem that things are notlooking so bad at this node compared to that of cell and modulemanufacturers.
However, as the year rolls on, this node in thechain will be hit with additional capacity coming online from majorexisting and relatively new polysilicon players. Such a developmentwill lead to severe turmoil at this section of the value chain as thespot market will be flooded with excess capacity, with many looking toonly cover variable costs.
iSuppli expects to see inventories at this node in the value chain to rise throughout this year and persist into 2010.