China Solar Sector:Solar product prices rose for third straight week;near-term undersupply
Solar product prices have increased recently
Solar product ASPs along the entire industry chain have risen for three straight weekssince October. According to global ASP data published by PVinsights, polysilicon priceshave risen 7.9%, multi-wafer/cell prices have risen 20.4%/14.4% and mono-wafer/cellprices have risen 11.3%/14.0% since end-September.
Recent price rise is the result of multiple drivers
Main reasons behind recent price rise: 1) Prices bottomed: After the installationuptrend ended in H116, ASPs declined across the board since July,polysilicon/wafer/cell/module ASPs retreated 24.0%/35.4%/30.8%/19.8% in Q316, insome cases falling below the cash cost of tier 1 manufacturers, and gross profit isbasically nil for tier 2 manufacturers. 2) Demand has picked up since October: afterNDRC released a Request for Comment on 29 Sept to cut the PV tariff, which set theprice adjustment date to 30 June or 30 Sept 2017, stocking and order taking havestarted since October, targeting a new installation increase. 3) Supply is shy ofdemand in the near term: Upstream – polysilicon manufacturers generally shut downsome product lines for maintenance in Q4, leaving them unable to meet rising demand.Although production lines in operation are operating at full capacity, shutdown lineshave not resumed production. Mid-stream – some producers have lowered operatingrates and laid off workers due to the sharp Q3 cell/module price decline. Currentcapacity can only fulfil low-price orders signed in Q3, while the operating rate of tier 1manufacturers can only reach a max of c80%. 4) Channel hoarding and restocking:Traders generally hoard polysilicon/multi-wafer in Q4 and sell in Q1 of the next year tobenefit from the price difference, while manufacturers also tend to restock in Q4.
Price uptrend to remain in the next two months
Our channel checks suggest the supply/demand gap is in place for some PV productsand the price uptrend may continue into Nov/Dec. Price rise expectations since early Octmay further drive the hoarding/restocking of traders/manufacturers, pushing prices upin turn. With order materialisation from the last installation increase and the restart ofcapacity that has been shut down or in maintenance, we expect volume and prices torise along the entire solar industry chain over the next two months.
Still positive on tier 1 photovoltaic firms: reiterate Buy on Longi and GCL
We do not think the market has fully factored in opportunities for tier 1 photovoltaicfirms with capacity & cost advantages when the new round of demand growth comes.