NPD Solarbuzz: Huge Chinese consumption of solar modules lead to year-low inventory levels

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China’s domestic demand for solar modules soared in the fourth quarter of 2012, according to the latest findings from NPD Solarbuzz, resulting in China becoming the main demand driver globally for the first time.

According to the market research firm, 33% of global end-market demand for modules in Q4 2012 came from China, compared to less than 10% only two years before.

“Just two years ago, the Chinese end-market was less than 10% of global PV demand,” said Michael Barker, Senior Analyst at NPD Solarbuzz. “However, during Q4 2012, a third of all global PV panel shipments ended up in China. This is the start of a new chapter for the solar industry, with China potentially taking centre stage in both the upstream and downstream channels.”

Government support for commercial and utility-scale projects were behind the boom as China attempts to hold-up its PV manufacturing industry after feed-in tariff support cuts in Europe and trade duties imposed in Chinese made solar cells in the US.

NPD Solarbuzz noted that global demand in Q4 2012 increased to 8.3GW, creating an end of year surge that was typical in the years when Germany dominated installations and feed-in tariff cuts kicked in at the beginning of each year.

Not any longer according to Barker: “The Chinese end-market has different module supplier preferences, pricing expectations, and routes to market. However, threatened by the impact of global trade barriers, the biggest challenge will fall on Chinese manufacturers that are restricted to domestic demand only.”

Barker highlighted that in 2012, demand in China accounted for almost 60% of annual demand in the country, making it impossible for domestic orientated module producers to operate manufacturing plants effectively, suggesting that for three quarters of the year they faced building inventory levels and inevitable write-downs should ASPs continue to decline, regardless of its rate of decline.

Inventory overhang

However, the boom in shipments seen late last year means that overall inventory levels have reduced. Weaker than expected demand in Europe in the second half of the year resulted in cuts to production to control inventory build.

According to NPD Solarbuzz, module inventory levels at PV manufacturers declined by 4% quarter on quarter in Q4 2012, to a year-end low of 65 days.

“Manufacturers that succeed in broadening their end-market coverage should achieve a healthy balance between quarterly production and shipment levels in 2013. In addition, hedging against the effects of the various trade wars, which are expected to be settled sometime this year, will also be essential for success moving forward,” concluded Barker.

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