As a result of an industry-wide capacity glut, China’s photovoltaic sector may be set for a new round of competitive destocking as the decline in factory operating rates that began early this year shows no sign of ending.

“The drop in operating rates is the result of losses, with some firms unable to survive much longer,” an industry insider and former executive at a leading listed Chinese PV business told Yicai, adding that the main cause is still overcapacity in the industry.

“Since October, operating rates at first- and second-tier manufacturers have started to diverge significantly, with that of small producers, many of which are newcomers in the PV industry, falling sharply,” the person noted.

The decline in product prices since January is to blame for these losses. The price of upstream silicon materials was down by more than 70 percent at one point from a peak at the end of last year, while silicon wafer prices have roughly halved in the same period.

Meanwhile, mainstream PV panel prices have gone below CNY1 (14 US cents) per watt for the first time, nearly halving to between 94 and 99 Chinese cents (13 and 14 US cents).

With the onset of winter and the year-end holidays in Western countries, solar panel exports are in a period of seasonal weakness, putting additional pressure on prices, the insider told Yicai.

The industry is about to enter a new destocking phase as solar panel makers are expected to cut operating rates further this quarter so as to clear their inventories. Second- and third-tier manufacturers, as well as new industry players, face being weeded out as a consequence of sharply lower product prices and falling operating rates.

Amid destocking, product prices in all parts of the PV industry chain may bottom out again before the Chinese New Year in early February, while downstream module prices may reach a low point in the first half of next year, according to a report by China Securities. Afterward, prices and profits will see an L-shaped recovery, it predicted.

（Picture: Veer）