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Complete bull*hit, another week goes by, another bloodbath on PVInsights.  And meanwhile it has started snowing in some parts of China.  Booming demand propelling earnings to new highs.  Yeah right.

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So PVInfo/PVIns/ET all agree that things suck.  But from ET this morning,

Regarding the downstream cells and modules, the major players are still stable, while the smaller ones are waiting for purchase orders.

and

The manufacturers that are active in the market are mainly the top-tier ones with a steady flow of purchase orders. It is getting harder and harder for the small and medium-sized manufacturers to remain afloat.

Is there any reason to think that perhaps prices are finding as near term bottom for the top tiers in light of those comments?  That maybe we shake out some small companies while the big players maintain pricing over the next 6 months  due to already booked contracts?

I'm guessing you'll all say I'm being too optimistic to think that the majors can maintain current pricing while possibly expanding margins a little bit, but I had to ask for your thoughts anyway.

The thought would be that China sees some demand return ahead of their new year and perhaps the US keeps seeing some stockpiling/safe harbor.  

It just all seems to be going south and I don't disagree, just trying to find a potential silver lining for the CSIQ/JKS and even FSLR's of the world that they can keep from racing the little guys to the bottom.

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I think JKS and CSIQ will expand margins in Q3 & Q4 through a combination of cheap spot sourcing and high ASP module contract sales.  However the honeymoon should be over when current contracts are worked through going into Q1 and on.  At the latest in Q2 it should look very nasty on the module side if prices stay where they are right now... 

I don't see the possibility of prices recovering in the mid-term through a shake-out of Tier 2s and 3s.  There's just so much overcapacity out there that things will stay nasty for a long while unless demand jumps above 150GW or so which will take a coupla years at least...

JMHO, eager to hear what others think...

 

 

 

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8 minutes ago, Klothilde said:

I think JKS and CSIQ will expand margins in Q3 & Q4 through a combination of cheap spot sourcing and high ASP module contract sales.  However the honeymoon should be over when current contracts are worked through going into Q1 and on.  At the latest in Q2 it should look very nasty on the module side if prices stay where they are right now... 

I don't see the possibility of prices recovering in the mid-term through a shake-out of Tier 2s and 3s.  There's just so much overcapacity out there that things will stay nasty for a long while unless demand jumps above 150GW or so which will take a coupla years at least...

JMHO, eager to hear what others think...

 

 

 

If subsidy free PV plants in China (what is not finalized this year), will be shifted to H1/2020, and on top of that if 2020 is going to be the last year with subsidies, as latest news from China suggest, then we should expect installation rush, similar to that in USA, when ITC expires... I think 2020 PV policy will be known by the end of 2019...

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10 minutes ago, MVA said:

If subsidy free PV plants in China (what is not finalized this year), will be shifted to H1/2020, and on top of that if 2020 is going to be the last year with subsidies, as latest news from China suggest, then we should expect installation rush, similar to that in USA, when ITC expires... I think 2020 PV policy will be known by the end of 2019...

If the ITC is removed Fslr will be in deep doodoo

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27 minutes ago, Klothilde said:

I think JKS and CSIQ will expand margins in Q3 & Q4 through a combination of cheap spot sourcing and high ASP module contract sales.  However the honeymoon should be over when current contracts are worked through going into Q1 and on.  At the latest in Q2 it should look very nasty on the module side if prices stay where they are right now... 

I don't see the possibility of prices recovering in the mid-term through a shake-out of Tier 2s and 3s.  There's just so much overcapacity out there that things will stay nasty for a long while unless demand jumps above 150GW or so which will take a coupla years at least...

JMHO, eager to hear what others think...

 

 

 

What suggestions based on past history do you have to suggest the upstream component should increase creating margin issues?

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2 minutes ago, SCSolar said:

What suggestions based on past history do you have to suggest the upstream component should increase creating margin issues?

I don't understand your question.  The margin issues I'm suggesting for Q1 are due to module ASPs coming down while sourced wafers and cells stay at rock bottom.

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2 minutes ago, Klothilde said:

I don't understand your question.  The margin issues I'm suggesting for Q1 are due to module ASPs coming down while sourced wafers and cells stay at rock bottom.

But you are suggesting a rise in margins from Q2 for Q3/4. That is from component price declines. So after earnings rise due to lower components how much will the asp decline be? Contracts do not just end come Jan 1, many like Fslr are multi year.

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1 minute ago, SCSolar said:

But you are suggesting a rise in margins from Q2 for Q3/4. That is from component price declines. So after earnings rise due to lower components how much will the asp decline be? Contracts do not just end come Jan 1, many like Fslr are multi year.

CSIQ for example: From May - Canadian Solar Signs 1,800 MW Module Supply Agreement with EDF Renewables North America (goes through 2023) 

 

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2 minutes ago, SCSolar said:

But you are suggesting a rise in margins from Q2 for Q3/4. That is from component price declines. So after earnings rise due to lower components how much will the asp decline be? Contracts do not just end come Jan 1, many like Fslr are multi year.

Multi year contracts usually have formula price formation, connected to industry (regional) benchmark... Of course it would be perfect if CSIQ have multi year contract with fixed price...But we don't know...

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5 minutes ago, MVA said:

Multi year contracts usually have formula price formation, connected to industry (regional) benchmark... Of course it would be perfect if CSIQ have multi year contract with fixed price...But we don't know...

And like Fslr many multi year contracts have fixed ops for the builders therefore they lock in an ASP range that makes it profitable. Just sayin not everything is current spot at year taken

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4 minutes ago, MVA said:

Multi year contracts usually have formula price formation, connected to industry (regional) benchmark... Of course it would be perfect if CSIQ have multi year contract with fixed price...But we don't know...

But even if formula, it usually works like this: (PV index for month prior the month of shipment) + 2% premium (for something)  or -2% discount (for something) = Sale price (EXW). In any case index is used from the past. And if ASP declines then formula based price is always higher then the spot price. But, of course, if ASP is growing then formula price is below current spot price. These are confidential details between seller and buyer, so we never know....

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19 minutes ago, SCSolar said:

But you are suggesting a rise in margins from Q2 for Q3/4. That is from component price declines. So after earnings rise due to lower components how much will the asp decline be? Contracts do not just end come Jan 1, many like Fslr are multi year.

FSLR is a lucky exception due to the unique situation in the U.S.  Most module contracts run for shorter times or have variable pricing.  Qu explained the pricing mix a few con calls back.  I put the average between 3-6 months and assume convergence with spot after 6 months or so.

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23 hours ago, Klothilde said:

Horrible market commentary at PVInfolink.  The english version comes out tomorrow, but even with the bits google translator throws at me here I'm horrified:
https://www.pvinfolink.com/post-view.php?ID=310

Here's the english version you guys, it didn't get better.  I think we need to light a candle for the CN2. https://en.pvinfolink.com/post-view.php?ID=255

"...Tendered projects in China are being constructed later than expected, leading to a general market expectation that more PV projects contracted through auction will be pending construction until the first half of 2020 and thereby aggravate the already pessimistic sentiments shared in the PV industry. The Chinese mono PERC module price has declined rapidly over the past two to three months to RMB 1.75–1.85/W; this low price range is penetrating into overseas markets, causing foreign mono PERC module price to fall from USD 0.25–0.26/W to USD 0.23–0.245/W, the next year’s mainstream price quote for modules. Moreover, with the market likely to keep falling short of predication in Q4, module quotes may continue to decline for overseas markets in the first half of 2020..."

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This is slowly turning into more than just vibes you guys:

China’s much-trailed second-half solar rebound has failed to materialize
https://www.pv-magazine.com/2019/10/25/chinas-much-trailed-second-half-solar-rebound-has-failed-to-materialize/

This may be of interest to the traders among you guys:
"...Major module manufacturers are lowering their shipment expectations for the second half as well as their annual figures..."

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On 10/26/2019 at 1:00 PM, Klothilde said:

This is slowly turning into more than just vibes you guys:

China’s much-trailed second-half solar rebound has failed to materialize
https://www.pv-magazine.com/2019/10/25/chinas-much-trailed-second-half-solar-rebound-has-failed-to-materialize/

This may be of interest to the traders among you guys:
"...Major module manufacturers are lowering their shipment expectations for the second half as well as their annual figures..."

"PV installation in the past nine months added up to only around 16 GW of generation capacity. If that figure is borne out, even the most pessimistic predictions for this year – that China would add 30 GW of new solar – would require 14 GW of new project capacity in less than 10 weeks to appear anything other than wildly optimistic."

 

That comments and the slack demand heading into 2020 is a driving factor in what is now being forecast as further ASP declines as companies move overseas for shipments and the ASP is suggested to be $0.23-$0.25 early in 2020.

http://guangfu.bjx.com.cn/news/20191025/1015953.shtml

"Single-crystal PERC components have rapidly fallen in price in the past 2-3 months, and the low price of RMB 1.75-1.885 per watt has been slowly transmitted to overseas markets, making the single-chip PERC components in overseas markets from 0.25-0.26 yuan per watt. US dollars up and down, to the recent mainstream components of overseas components to the next year, the price of 0.23-0.245 US dollars. And because the market may continue to be worse than expected in the fourth quarter, it is expected that the overseas market prices will continue to fall in the first half of next year."

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"While there is no indication of a much-trailed second-half boost in solar demand in China, overseas orders continue to persuade the big Chinese solar manufacturers to expand, with Risen the latest producer to report blossoming net profits of RMB783 million (€100 million) for the first nine months of this year, on operating income of RMB9.77 billion."

https://www.pv-magazine.com/2019/10/29/german-supplier-fields-orders-for-10-gw-of-perc-cell-production-lines-in-three-months/

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China's 2019 solar demand has been lowered to 20-24GW after reporting only 16GW after 3 quarters. The 3rd quarter installs was under 5GW. Those demand spikes in the second half, then hoped for by Jinko in Q4 looks dead.

 

http://guangfu.bjx.com.cn/news/20191031/1017276.shtml

 

On this basis, Hong Kong consultancy AECEA once again lowered its forecast for China's new solar installed capacity this year - 20-24 GW, far below the 35-40GW forecast at the beginning of this year.

This is not the first time AECEA has lowered its domestic installation expectations for 2019. At the beginning of this year, AECEA expects China to add 35-40GW of PV installed capacity, which is slightly lower than other analysts' forecasts. As time goes by, no new PV policy will be announced at the national level until mid-year, AECEA will expect to lower To 28-34GW; with the release of the new regulations, the list of parity projects and bidding projects will be announced in turn, AECEA will adjust the installed capacity to 38-42 GW; but the project has been difficult to land, the new installed capacity is expected to be lowered to 24-32 GW Now, once again, it is lowered to 20-24 GW.

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I wonder if this will impact JKS's total shipments for 2019 as they were counting on a big chunk out of China in Q4.  They probably diverted some of the China allotment to other international markets but was it enough and did they have to sacrifice margin for that?  Anybody got any vibes?

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Anyone think we've priced in China yet?  I've made a lot of great trades in FSLR since earnings, but problem is I'm holding that big bag of garbage much higher.  At these levels, I'm on the fence as to what's priced in and what isn't.  And in the end, I keep coming back to the narrative that they could run FSLR up (probably others too) over the next 3-6 months still.  But also torn because it seems like solar traders/investors are too smart for their own good sometimes and are pricing in earnings for 2021 at this point and I may not get that earnings growth narrative to play out for the next year.  My head also isn't spinning and my stomach isn't turning yet, which usually happens at a bottom.  I wish it would start spinning.  I'd also like for FSLR insiders to quit dumping shares what seems like every day.  Not a good look.

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2 hours ago, Mark said:

Anyone think we've priced in China yet?

But also torn because it seems like solar traders/investors are too smart for their own good sometimes and are pricing in earnings for 2021 at this point and I may not get that earnings growth narrative to play out for the next year. 

No and

 

The problem with solar has been and still is, that government policy impacts the demand and profitability something fierce as grid with storage is not a reality at this point in most parts of the world(even China). We have seen from Spain , Germany the EU China and the U.S. Policy changes over the past decade that has caused major slumps in the industry.

 

As of now you have a major push to Mono which is wiping out what had been the dominant tech for solar. This temporary tech adjustment is going to continue to impact prices for the next several quarters in my opinion.

 

Market demands appear to flattening for solar over the next 4 years at around 126+/-MW a year.

https://www.greentechmedia.com/articles/read/global-solar-pv-installations-to-reach-record-high-in-2019

 

I expect that due to supply side economics pushed by China, there will continue to be oversupply that keeps  pricing pressure on for the next few years. I expect that upstream supply will continue to fall. This is a must if China is going to hit their targets of costs declining to the $0.15 range by 2024-2025. The lower costs should lead to increased demand beyond the numbers identified. Just a year or 2 ago  before China's process, there were numbers that 20-40% more demand in 2023.

 

https://www.solarpowereurope.org/wp-content/uploads/2018/09/Global-Market-Outlook-2018-2022.pdf

 

Based on current numbers, companies need to maintain a $0.04 price spread to cover Opex and interest. This means the ASP can not fall much below the current low ends of $0.22-$0.23 for high end PERC mono.

 

If you are looking for data points, I would go back to cash costs. I expect for high efficiency you could have costs in the $0.16-$0.17 range(2.5Si+4.5Wafer+4.5Cell+7.5Module). Take away 1 cents for cash cost and you are looking at $0.1575 flat bottom. Add in the $0.035 for Opex and interest you would have an ASP of $0.20 for high efficiency Perc. Add profit you are at $0.20-$0.021.

 

At these price levels you are looking at those to succeed need 15GW-20GW of capacity or more. You would be thinking at 1/10th cent increments in gross per watt 15GW would net $15M. So a half penny would net $75M. 

 

These number above are in view and why analysts were questioning future FSLR solutions to compete.

 

This market is starting to look a lot like the transistor capacitor market where you sell billions and billions to make millions and millions and a short term shortage can cause a small spike in gross per watt that can  increase profits 4 fold. You will get down to 5-10 Giants in the scenarios above. Most likely those 5 to 10 Giants will be subsidiaries of major conglomerates. This would imply some companies being acquired by those companies.

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LG said it expects solar sales to grow further in the current quarter, as a consequence of rising demand in emerging solar markets along with solid demand from the U.S. and Europe. “But competition in terms of power, efficiency and price will intensify,” said the electronics giant.

https://www.pv-magazine.com/2019/10/31/solar-sales-recover-for-electronics-brands-lg-kyocera-and-panasonic/

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The problem is not that demand is not growing.  The problem is that supply is growing way faster than demand, obliterating ASPs and margins for everybody along the chain.  There are big companies like Longi who are expanding at crazy rates with the goal of wiping out smaller competitors like JKS and CSIQ.  It used to be China against the west in the past, now the war is inside of China.

Does this make sense?

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2 hours ago, Klothilde said:

The problem is not that demand is not growing.  The problem is that supply is growing way faster than demand, obliterating ASPs and margins for everybody along the chain.  There are big companies like Longi who are expanding at crazy rates with the goal of wiping out smaller competitors like JKS and CSIQ.  It used to be China against the west in the past, now the war is inside of China.

Does this make sense?

Business is a dog eat dog world. Mono is trying to assert and dominate the Multi world. Longi and others are trying to obsolete 80-100GW of multi capacity that was built up by 2017.

Module manufacturers have been basically making little profit since 2009. That is because they are using traditional Chinese supply  side economics. The theory is as you lower prices you create more demand. They way you lower prices is by increasing mass of scale and innovate. The general rule of thumb is for every doubling of capacity, the cost to produce gets cut in half. That has pretty much born out for Solars that back in 2008 were building panels for $3/watt when the market was around 8GW.  At 128GW today, they should be building panels at close $0.175. That is pretty close to where costs are landing for Multi when you back out profits of the upstream.

 

In order to reach true grid, they need to keep expanding. The model would suggest another 50-70GW of capacity would need to be added in order to reduce the costs low enough for Grid. Then you need another 30-50GW for profits. This would suggest sustained profits when global demand is around 200GW. That is another 4-7 years at adding 15-20GW a year.

 

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What I still don't understand is the willingness of Chinese banks to finance this crazy expansion.  There must be zillions in stranded assets that will never recoup the initial invest.  I can imagine there are enough rich maniacs in China willing to risk their own fortunes, but that the banks throw money at them so carelessly is a riddle to me.  What's your take on that?

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