Ris­ing Chi­nese mod­ule prices a cause for con­cern, says Mer­com re­port

Af­ter fall­ing by ap­prox­i­mately 5 per cent in the sec­ond quar­ter of 2017, for the first time in years, the av­er­age sell­ing price of Chi­nese mod­ules has in­creased quar­ter-overquar­ter in In­dia.

Electronics Bazaar - - In The News - By Baishakhi Dutta

The av­er­age sell­ing price (ASP) of Chi­nese mod­ules in In­dia has risen by al­most 12 per cent in Au­gust 2017 when com­pared to Q2 2017. In com­par­i­son, the price of th­ese mod­ules had dropped by 12 per cent be­tween Q2 2016 and Q3 2016.

Worst case sce­nario

This is the worst case sce­nario that Mer­com Cap­i­tal Group, the mar­ket in­tel­li­gence firm, had been warn­ing about. For the past two years, it has been stress­ing that “ag­gres­sive bid­ding in an ef­fort to cap­ture mar­ket share with the as­sump­tion that com­po­nent costs will con­tinue to fall, no mat­ter what, is a risky strat­egy.” De­vel­op­ers not just in In­dia, but across the world, have been mod­el­ling their auc­tion bid­ding strate­gies based on the as­sumed per­pet­ual fall of Chi­nese mod­ule prices. This has worked most of the time, and de­vel­op­ers have be­come a bit too ‘com­fort­able’ with this strat­egy, re­sult­ing in ag­gres­sive bid­ding in In­dia, which has reached new heights with gov­ern­ment agen­cies cheer­ing the low bids as an in­cred­i­ble achieve­ment.

Short term fluc­tu­a­tions do not usu­ally make a huge dif­fer­ence, but if mod­ule prices con­tinue to rise or even stay flat for a cou­ple of quar­ters, it will start hurt­ing the de­vel­op­ers who can­not wait in­def­i­nitely to pro­cure the low­est priced panel.

We need to re­mem­ber that the price drop was steeper than ex­pected in Q2 2017, even though high Chi­nese de­mand firmed up mod­ule prices in June be­fore the feed-in tar­iff dead­line at the end of the month.

Fac­tors driv­ing the rise in price

Polysil­i­con and wafer prices have in­creased sig­nif­i­cantly since June. Polysil­i­con prices are up by 19

per cent since June, though th­ese have started to flat­ten out later. A ma­jor polysil­i­con pro­ducer re­duced its polysil­i­con and wafer pro­duc­tion sig­nif­i­cantly due to tech­ni­cal and main­te­nance is­sues re­sult­ing in some wafer short­ages, which pushed wafer prices higher.

Ac­cord­ing to Mer­com In­dia’s chan­nel checks, mod­ule prices quoted by Chi­nese com­pa­nies ranged from US$ 0.32 to US$ 0.37 (~` 20.5 to 23.6)/W in Q3 2017. So far this year, in­stal­la­tions in China have crossed 35GW, which is al­ready more than the en­tire 2016 in­stal­la­tions com­bined. For 2017, so­lar in­stal­la­tions in China could rise to nearly 45GW aided by the 5.5GW Top Run­ner Pro­gram, which car­ries a dead­line of Septem­ber 30, 2017, and the Poverty Al­le­vi­a­tion Pro­gram, which is a year-round, cap­i­tal sub­sidy driven pro­gram strongly sup­ported by both the lo­cal and cen­tral gov­ern­ments. Mod­ule de­mand for 2018 in­stal­la­tions in China will be­gin in De­cem­ber 2017.

There is, how­ever, the ques­tion of how the Su­niva anti-dump­ing case un­der way in the US against China and other coun­tries will turn out. The first hear­ing in the case, sched­uled on Septem­ber 15, 2017, will be fol­lowed on Septem­ber 22, 2017, by an In­ter­na­tional Trade Com­mis­sion (ITC) de­ci­sion on whether harm was caused to do­mes­tic so­lar man­u­fac­tur­ers.

If the ITC finds that do­mes­tic man­u­fac­tur­ers in the US were harmed by the ex­ports of China and other coun­tries, there will be a fol­low-up hear­ing on Oc­to­ber 3, 2017, fol­lowed by ITC rec­om­men­da­tions to Pres­i­dent Don­ald Trump on Novem­ber 13, 2017. The pres­i­dent will then de­cide on Jan­uary 12, 2018, whether he ac­cepts the ITC rec­om­men­da­tions. If the pres­i­dent agrees with the rec­om­men­da­tions, the ef­fec­tive date of rem­edy will be Jan­uary 27, 2018. If the pres­i­dent does not agree with the ITC rec­om­men­da­tions, he will have un­til April 12, 2018, to pro­pose his own rem­edy. This time­line gives a roadmap for how long the un­cer­tainty could last, and a gen­eral frame­work for when the case could start af­fect­ing de­mand.

That said, re­gard­less of which way the Su­niva de­ci­sion goes, the de­mand for mod­ules from the US is bound to de­crease af­ter the rul­ing. If an anti-dump­ing duty is im­posed, then de­mand from the US is likely to crash im­me­di­ately after­ward. Even if no anti-dump­ing duty is im­posed, de­mand will still fall as there will no longer be a rush to pro­cure pan­els. The less drawn out the case, the bet­ter for the In­dian so­lar in­dus­try.

The un­cer­tainty is chal­leng­ing for the In­dian so­lar in­dus­try and comes at a bad time. A case has also been filed by In­dian so­lar equip­ment man­u­fac­tur­ers against the dump­ing of Chi­nese so­lar cells and mod­ules, for which the Di­rec­torate Gen­eral of Anti-dump­ing & Al­lied Du­ties (DGAD) is ex­pected to rec­om­mend a de­ci­sion by the end of Septem­ber.

Im­pli­ca­tions

Ac­cord­ing to the Q2 2017 Mer­com In­dia So­lar Quar­terly Update, de­vel­op­ers were ex­pect­ing mod­ule prices to be in the US$ 0.285 (~` 18.35)/W range in Q3 2017 (al­most 20 per cent less than the cur­rent Q3 prices) and to fall fur­ther to the US$ 0.27 (~` 17.39)/W range in Q4 2017. De­vel­op­ers have been mod­el­ling their auc­tion strate­gies around th­ese pro­jec­tions.

Con­sid­er­ing the un­cer­tainty, it does not make sense for de­vel­op­ers to par­tic­i­pate in fu­ture auc­tions un­til there is more clar­ity on mod­ule prices.

The In­dian so­lar in­dus­try can ex­pect some tur­bu­lence ahead. The lin­ger­ing sit­u­a­tion caused by the anti-dump­ing cases is likely to slow­down auc­tion ac­tiv­ity in the short term, as well as pose pro­cure­ment chal­lenges for In­dian de­vel­op­ers, if the prices don’t re­verse in a few months.

(Source: ‘Ris­ing Chi­nese Mod­ule Prices Pose Sig­nif­i­cant Short-Term Chal­lenge for In­dia’s So­lar In­dus­try’ pub­lished by the Mer­com Cap­i­tal Group)

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