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Overcapacity Hits Profitability of China’s Solar Panel Makers

The booming solar panel manufacturing in China has led to losses for the major producers who have been forced to sell their products at below-market prices.

The Chinese solar panel market remains oversupplied and this glut could last up to two more years, according to Longi Green Energy Technology.

The major PV panel producer told analysts at Citi and Daiwa Capital that China’s solar panel prices aren’t expected to exceed costs anytime soon.

“Industry-wide losses will persist amid oversupply,” Citi Research analysts wrote in a note on Monday carried by Bloomberg.

The Chinese boom, supported by cheap materials and policy support from the central and local governments, has started to bite into the profitability of solar panel manufacturers.

Longi said in its 2023 annual report that “Under the pressure of severe supply and demand imbalance, photovoltaic product prices plummeted in 2023, especially since the fourth quarter, where the bidding prices for modules continued to hit new lows.”

This year, the industry will begin reshaping as the financially and technologically weaker manufacturers will be weeded out, Longi said.

“Affected by the rapid decline in industry chain prices and the tightening of market financing policies, enterprises with high debt and product homogenization have begun to exit the market,” the company noted in April.

“As the market clears out outdated capacities, the performance of companies with leading products will gradually recover,” the Chinese manufacturer said.

However, until the recovery occurs, the industry will continue piling up losses, analysts say.

Last month, the top executives of China’s solar manufacturers flagged an “interim overcapacity” in the sector, following the rapid expansion of the past few years.

The solar manufacturing boom in China and the domestic competition for market share have prompted some manufacturers to sacrifice quality for the sake of higher profits, an executive at the world’s largest solar manufacturer said earlier this year. Companies are looking to survive in the race to the bottom in China’s solar component market and some are skimping on quality and testing.  

By Tsvetana Paraskova for Oilprice.com

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