China's silicon giants sign up long-term orders, and the new companies may have a narrow escape

Recently, an interesting phenomenon has appeared in the Chinese solar industry: in the silicon industry, crazy production expansion has taken place, and the industry generally believes that the future production capacity will be left in the background of some uncertainty, and the silicon material is long-term. The deadline is generally between 5-8 years. For the buyer, the core reason for the contract is to ensure the safety of the supply chain.

However, in the recently held 2022 polycrystalline silicon industry development forum,Lin Ruhai, executive vice president of the Silicon Industry Branch, predicted that by the end of 2025, the domestic and foreign silicon supply could meet the installed demand of about 1500GW photovoltaic.According to CPIA's projections, "only" 330GW of new pv installations will be added globally by 2025 in an optimistic scenario. Obviously, from the buyer's perspective, it is difficult to explain the frequency of long-term orders.

However, if you stand on the perspective of the seller, you may be able to find the answer to the question: long-term contract can help the seller to effectively lock in customers, thereby forming a customer resource advantage. Especially when the market enters the stage of overcapacity, even if the market competition intensifies and the "price war" starts, the enterprise can still guarantee the shipment volume and operating rate. It can be seen that while many "new players" are in full swing and full of hope, the sophisticated giants have quietly built "steps" at the gate.

The big three take 91% of the long-term orders

According to the incomplete statistics of HFCN, there have been 24 long-term orders of silicon materials since 2021, with a total scale of 3.5656 million tons and a value of 962.715 billion yuan (after tax, the price of silicon materials is 305,100 yuan/ton, the same below), and the contract term is generally about five years. Among them, the big three of silicon materials Tongwei, GCL Technology, Xinte energy took a total of 90.7% of the long order.

In addition to the big three silicon materials, DAQO ENERGY and Asia Silicon INDUSTRY, the two old silicon materials manufacturers, respectively, achieved a scale of 160,900 tons and 100,200 tons, with a contract value of 43.43 billion yuan and 27.057 billion yuan. And just yesterday, Southern Glass Group announced that it and Trina Solar reached a 4-year, 70,000-ton long contract worth 21.21 billion yuan.

New players face fierce competition

The customers of the Big Three cover almost all the leading companies in the silicon wafer and module sector, and these companies have the vast majority of the market share in the photovoltaic industry. CPIA data show that in 2021, the CR5 of silicon wafer segment and component segment was 84.0% and 63.4%, respectively.

Although these leading enterprises will not rely on a single supplier, most of them only purchase about 5%-10% of the largest supplier, but if the photovoltaic big three as a whole, at least locked about 30%-50% of the silicon demand of these high-quality customers in the next five years. This does not include the small and medium-sized orders signed between subsidiaries that do not meet the requirements of the letter. At the same time, in the coming time, there will be new silicon material long-term order.

By signing long-term orders of silicon materials and locking high-quality customers, the three giants of silicon materials can effectively avoid the influence of crazy expansion of the market and intensified competition on their own shipments, and can also effectively digest their new capacity to maintain or even improve their market share in the high-speed growth market.

HFCN said that according to the production capacity statistics of polysilicon in production and new enterprises, it is expected that by the end of 2025, China's silicon material production capacity will exceed 5 million tons, and if overseas supply is included, a total of about 1,500 GW of photovoltaic installed demand can be met. But in an optimistic scenario, CPIA forecasts 330GW of new installations by 2025

It can be expected that in the next 3-5 years, the silicon link is bound to usher in fierce market competition again, and even collapse tide. However, for the long order has signed to 2026 or even 2030 silicon three giants, there is no need to worry too much, can fully "volume rise" to hedge the impact of "price drop" on the business performance of enterprises. However, for many "new players", they need to face limited customer resources, operating rate and other problems. Once there is a serious "price war", it will inevitably lead to financial crisis, and the bankruptcy of some enterprises is inevitable.

According to HFCN's calculation, by the end of 2022, the design capacity of silicon wafer link will reach 731GW, far exceeding the supply level of 1.15 million tons (about 403GW) of silicon material link. However, the relative size of the third-party silicon chip market has been shrinking due to the increasing market share of CR5 components, which are integrated business models. When the silicon supply bottleneck is gradually lifted, the silicon wafer link will also face fierce competition, weak silicon wafer manufacturers will also quit the stage of history, which will lead to the decline of silicon demand.

Therefore, for the "new players" in the silicon sector, although they can fully enjoy the dividends of the industry in the short term, from the medium and long term perspective, high-quality customer resources and production cost advantages are the key to the long-term survival of enterprises, otherwise they cannot escape the fate of "flash in the pan".