Market research firm iSuppli has warned that solar module inventory held in the supply chain increased significantly in the first quarter of 2009, due to continued capacity additions and weaker than expected demand. Average inventories throughout the solar supply chain actually increased by 64.3% in Q109, according to iSuppli. Combined supply chain inventories (average days) that include polysilicon and wafers as well as cells and modules actually increased to more than 121 days in Q109, up from 74.2 days in Q108.
“The worldwide solar industry for the first quarter added the equivalent of one-and-a-half months of excess inventory in just one year,” said Dr. Henning Wicht, principal analyst, photovoltaics research, for iSuppli. “With new polysilicon capacity coming online this year, the PV industry will suffer further price erosion, at all nodes of the value chain.”
Indeed, research undertaken by PV-Tech in March 2009 highlighted that there had been a 50% or more increase in polysilicon capacity projections from the major producers through 2012, compared to just nine months earlier.
Polysilicon spot market prices are expected to continue to fall due to overcapacity, falling to approximately US$50 per kilogram by the end of the year, and down by 72% from US$180 per kilogram at the beginning of 2009, iSuppli said.
With the additional polysilicon and wafer capacity coming online from new polysilicon players as well as established players, Wicht expects the spot market will be flooded with excess capacity, driving prices down to manufacturing cost levels. Even with this price decline, inventories are set to rise throughout this year and persist into 2010.
Wicht also believes that many solar cell manufacturers are still required to take deliveries of polysilicon due to their long-term contracts, while polysilicon producers need to maintain production levels as much as possible in order to cover the new fixed costs of bringing online new capacity, often in the US$1 billion expenditure range.
However, some of the polysilicon suppliers have recently conceded to price declines negotiated by major customers, but in several occasions the tonnage being shipped has increased.
According to the iSuppli analyst, integrated PV manufacturers are being impacted by these developments greater than others, even though they often have the lowest manufacturer cost structures.
By having operations in all three core production sectors (polysilicon, wafer and cells), days of inventory have climbed to more than 161 days in the first quarter, up from 86 days during the first three months of 2008. This level of inventory build impacts business operating margins as price declines force write-downs as well as being tied to internal supply dynamics.
Cell and module manufacturers are experiencing significant increases in inventory, with levels rising to 105 days from the third-quarter level in 2008 of 47 days. This is due, in part, to pressure from wafer and polysilicon suppliers desiring that their customers adhere to shipment schedules negotiated in 2007 and 2008.
However, the concerns over module inventory build at SunPower in recent quarters would seem to be easing after reporting last week that module production had been better matched to demand. As demand picked-up from Q1, SunPower was able to reduce its inventory levels in Q2.
Overall, the supply chain inventory issues will only be curtailed when demand in end-markets returns and a period of inventory burn has taken place.