According to IMS Research, tier 2 PV module manufacturers in China have seen average utilization rates fall as low as 35% in the fourth quarter of 2011 as a result of overcapacity high inventory levels and weaker than expected demand in 2012. The market research firm noted that many tier 2 suppliers have reduced production significantly or suspended production entirely, resulting in the lowest-ever recorded utilization rates so far reported.
“During 2010 and early 2011, demand for Chinese tier 2 modules had benefited from OEM supply agreements for Chinese tier 1 and other suppliers,” commented Jessica Jin, PV market analyst at IMS Research. “As Chinese tier 1 and other suppliers are now more able to meet demand for their products with their own production capacities, demand for OEM products has declined. Combined with high inventory levels, this has resulted in the shipments of Chinese tier 2 suppliers declining each quarter in 2011, forcing suppliers to reduce production and resulting in record low utilization levels.”
IMS Research said that industry growth of 160% in 2010 led to rapid capacity additions but growth waned to 25% growth levels in 2011, creating significant overcapacity in the second tier sector.
However, factory utilization rates of Chinese tier 2 suppliers are projected to climb again in the second quarter as inventory levels decline and few adding new capacity this year. Like smaller players in the polysilicon sector shutting down production as costs are higher than selling prices; IMS noted that some tier 2 suppliers would exit the market.
Chinese tier 2 suppliers have been notably aggressive in cutting module prices to reduce inventory, according to IMS. The impact has been that module pricess were 37% in Q411 than in the same period a year ago.
According to IMS Research’s monthly PV module price tracker, distributor pricing for these modules was 16% higher than supplier pricing in December, as local distributors capitalized on end-of-year rushes in major European markets. In the fourth quarter of 2010, utilization rates had hit 80%.