REC module sales shift to Asia; polysilicon drags on revenue

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Reduced polysilicon production dragged revenue generation down at Renewable Energy Corporation (REC) in the first quarter of 2013.

REC reported first quarter revenue down 24% q-on-q to NOK 1,278 million (US$218.4 million). EBITDA was NOK 46 million (US$7.8 million), while the company reported an EBIT negative NOK 159 million (US$27.1 million). Loss after tax was NOK 209 million (US$35.7 million), compared to a loss of NOK2,170 million in the previous quarter.

However, REC's cash position improved by NOK0.1 billion to NOK2 billion on the back of module production cost reductions and only minimal price reductions (4%), limiting write downs, which Ole Enger, CEO & president of REC said in a conference call to discuss results, was “the highlight of the quarter”.

Regional sales shift

“It is quite striking how the market distribution has changed over the last year,” noted Enger.

According to Enger, 85-90% of sales had been generated in Europe a year ago but Europe now accounted for less than 50% of sales. In particular, Japan had become a very important market for REC, according to Enger as it offers higher module ASPs and typically is more quality conscious than some other markets.

Although module shipments were down in the quarter due to shorter production in Singapore around the Chinese New Year holiday, shipments reached 182MW, compared to 190MW in the same period a year ago.

As Enger noted in the call, REC has seen sales in key European markets of Germany and Italy decline significantly. Only 30% of shipments in the fist quarter 2013 were to Germany, compared to 55% in the prior year period. Italy sank to just 1% of shipments, compared to 19% a year ago.

The big shift in shipments comes from Japan and Asia Pacific since the same period a year ago. Japan in the first quarter accounted for 25% of shipments, up from zero in the first quarter of 2012.

Polysilicon production update

Management noted that its polysilicon segment, REC Silicon undertook annual maintenance of its plants in the first quarter, lowering shipments and sales as a result. However, the company reiterated that REC Silicon expected production to be around 20,000MT in 2013, despite the temporary closure of the Silicon I Siemens reactors, which produced 2,400MT of annual solar grade chunk material.

The shutdowns impacted production costs with FBR polysilicon cost rising to US$14/kg. As production ramps again, the company reiterated its aggressive cost reduction target by the fourth quarter of the year of US$11.5/kg. However, management acknowledged that the target would be tough to meet.

FBR-based polysilicon production continues to run at an annualized capacity of about 16,500MT.

Module production update

REC’s module manufacturing arm, REC Solar is still expected to produce 800MW of modules in 2013. Increased throughput based on further optimisation of production at its integrated plant in Singapore.

However, the production target has been toned-down by 50MW from previous guidance late last year. The company said in its quarterly financial filings that the reduction was due to meeting unspecified module specification requirements for the Japanese market. The company also said that the planned production levels would require ‘in-sourcing’ of around 100MW of solar cells.

Production in the first quarter was almost at full capacity and this expected to be the situation in the second quarter.

Cost reduction programmes were ongoing, with REC Solar targeting to reach €0.47/W, including SG&A and R&D expense by the fourth quarter of 2013.

Solar cell technology developments were said to be focused on further cell efficiency gains in short wavelength (blue) light and for long wavelength (infrared) light. Further improvements to anti-reflection layers with higher transmission were ongoing with front side emitter technology development for production implementation. 

Capital spending in 2013 was said to be below NOK300 million (US$51 million).

Market outlook

Despite improving financial conditions for the company and clear demand visibility in certain emerging markets, Enger spent time in the call outlining that overall industry dynamics remained extremely challenging.

Enger attempted to dampen industry expectations for the year ahead and in contrast to recent market reports.

“We shouldn’t forget that there is still a huge overcapacity in the market. Demand has to pick up further in order to be able to absorb this overcapacity,” he said.

Commenting to PV-Tech about Enger’s take on the current industry position, Finlay Colville, vice president at NPD Solarbuzz, said: “REC’s assessment on the huge overcapacity is spot on with the industry situation today. Many observers of the PV industry are incorrectly citing supply/demand balance, but this is not correct. This is only because capacity is being underutilised and does not reflect the severe overcapacity situation from polysilicon to modules that exists in the industry.”

Enger also referred to the fact this virtually all companies along the supply chain have been losing money including REC.

“In the upstream market there have been unprecedented losses over the last 5-years I think in the order if US$100 billion losses or more,” added Enger. “Lessons need to be learnt. In the West these lessons have been learnt and China banks coming round to the same understanding.

“The recognition that everyone is losing money is also correct and was highlighted by REC. At a time when many leading tier 1 module suppliers are targeting new emerging markets and increased market-share, it has to be remembered this is still a loss-making exercise,” said Colville. “The financial position of the supply side cannot be underestimated.”

“The question everyone in the solar industry is asking is of course, at what time will the over capacity disappear,” added Enger. The REC CEO didn’t believe that anyone had the answer to that question, noting that a recovery could take six months to 18 months.

“However, the comments on when capacity/supply will balance demand are possible to predict, in contrast to REC’s comments,” noted Colville. “As a ballpark reference point, annual end-market demand hitting the 40-45GW level will be the key turning-point for the midstream cell/module makers. This figure increases for wafering and polysilicon as the overcapacity situation is worse at the poly/wafer stages. So this suggests 2014-2015 as the real supply/demand rationalisation stage and all forecasts should be based upon this assumption.”

After several years of turmoil, REC is starting to rebuild its business and look further ahead than just quarter-to-quarter. 

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