China solar market in late 2009 spells glut

A new report from Thomas Weisel Partners said China’s solar market has challenges ahead with rising costs for raw materials like spot wafer and polysilicon and slowing market conditions next year.

The increasing availability of polysilicon from smaller producers from across Asia, coupled with the fast pace of ingot to module capacity being added are the helping drive the oversupply conditions (see China solar industry faces rising silicon costs).

“We still see an oversupply situation developing in late 2009 or early 2010,” said Jeff Osborne, research analyst with Thomas Weisel Partners in the report. He noted that the biggest swing factor on the demand side is smaller, rapidly growing regions in Eastern Europe, Middle East, and the Benelux region.

The researchers said the credit crunch and deteriorating economic conditions globally could lead to slower decision making. With uncertainty looming in U.S. and Spain, solar producers have been continuing to highlight smaller emerging markets (see China Technology Development goes solar).

“We continue to see an industry shakeout in which there will be more losers than winners,” said Osborne. “In particular, we see smaller non-public silicon cell and module vendors struggling, especially module-only producers,” he added.

The report said challenging capital markets environment over the last 3 to 6 months for the solar complex has forced emerging polysilicon producers to sign contracts for greater amounts then will likely be delivered.

“We favor silicon producers that have secure supplies of silicon, scale, vertical integration and solid balance sheets,” the research report said.

Despite longer term concerns, the demand for solar modules remains healthy with companies experiencing pricing pressure upwards of 2% to 4%, the report said. The spot wafer and polysilicon prices are also elevated.

“We remain optimistic about the prospects for thin film based solar cells and remain positive on the equipment sector,” Osborne said.

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