Cloudy Skies Remain for Taiwan's PV Industry
2012/11/30 | By Ken LiuMainland China's photovoltaqic (PV) manufacturers, hit by antidumping probes in major markets (notably America and the European Union), have started looking for cooperation with Taiwanese suppliers while scaling down production at their own facilities. To the Taiwanese suppliers, this looks pretty much like a windfall.
But M.J. Wang, a market research fellow at the Industrial Economics & Knowledge Center (IEK) of the government-backed Industrial Technology Research Institute (ITRI), thinks otherwise, warning that the trade investigators might turn on Taiwan. Given the island's huge production capacity and small domestic market, that could be disastrous. Taiwan and mainland China together boast eight of the world's top 10 solar cell makers, which together supply 40% of the world's needs.
In a preliminary ruling on dumping charges against mainland China, the American government has slapped a punitive tariff of 31-250% on PV modules exported from the mainland. The European Union and India are looking into similar charges.
The antidumping assault has driven the mainland's PV-equipment manufacturers to cut production and seek partnerships with Taiwan's manufacturers in an attempt to minimize their losses.
For example, GCL-Poly Energy Holding Ltd., which is reportedly the world's No. 1 manufacturer of solar products, has announced a 15-day vacation during the mainland's Oct. 1 National Day holidays.
Trina Solar Ltd., another of the world's top 10 solar-energy companies, also plans to reduce output.
LDK has brought all of its polycrystalline silicon production lines to a halt and reduced the yield rate of its silicon wafer production to around 70%. Originally, the company turned out 15,000 metric tons of polycrystalline silicon and over 20 gigawatts of silicon wafers a year, making it the mainland's No. 2 silicon-wafer maker.
Trimming Production
Realizing that wild undercutting competition supported by an enormous production volume lies behind the international antidumping investigation, LDK President Tong Xingxue urges his industry peers to escape from this kind of irrational competition by trimming production.
Vicious competition led to a loss of US$424 million for LDK in the first half of this year, far more than the total losses of all solar-energy manufacturers listed on Taiwan's over-the-counter market.
Tong recently visited Taiwanese solar-module makers Gintech Energy Corp., Neo Solar Power Corp., and Solartech Energy Corp. to talk about cooperation and introduce his company's high-performance crystalline silicon wafers to them. He feels that there is a lot of room for cooperation between Taiwan and mainland China's PV industry, with the mainland having the advantage of production capacity while Taiwan has quality. His company intends to boost cooperation with Taiwanese manufacturers as a new avenue for survival.
Motech Industries Inc. executives report increasing contracts from the mainland, implying an intensification of the effects of trade sanctions on the mainland's industry. The executives say that they are optimistic about the mainland's reduction in production volume, which will help ease the global overcapacity problem.
The Motech executives decline to disclose details of the contacts from the mainland, but informed sources estimate that the ratio of contract manufacturing in the company's total output has jumped to around 30% in recent months, up from just 5-10% previously.
Solartech executives say that a number of mainland Chinese manufacturers have approached them about contract manufacturing deals following the imposition of sanctions.
Swean Lin, president of Green Energy Technology Inc., notes that contracts from mainland China have grown to account for around 20% of his company's total revenue. Prior to the imposition of punitive tariffs in the U.S. and the inauguration of dumping investigations in Europe, he says, Taiwanese companies had been his main contract buyers.
Green Energy Technology's chief executive officer (CEO), Hurlon Lin, points out that the market has become very cautious since the U.S. applied antidumping measures and Europe's antidumping policy created uncertainly about China's PV industry.
IEK's Wang points out that so far, Chinese companies have offered contracts only for production destined for the American market. The mainland's manufacturers, he stresses, will work hard to expand their share of the European market, which remains the biggest destination for Taiwan-made solar equipment despite a reduction from 70% to 50% in its share of total exports.
“It is not impossible that Europe will eventually turn its investigation toward Taiwan, although it is currently busy dealing with the mainland China case,” Wang cautions. “Some European solar-equipment suppliers have noticed that the huge production capacity of Taiwan's PV industry is out of proportion to the island's low consumption of the products.”
Market Collapse
Wang believes that in spite of the U.S. antidumping tariffs and Europe's investigations, the PV industry will continue to suffer from oversupply for some time and the market collapse will go on indefinitely. “If no markets emerge to provide new support for the industry,” Wang predicts, “Taiwan's solar-cell industry will be set back five years, to a production value of less than NT$80 billion [US$2.6 billion at NT$30:US$1].”
According to a study carried out by TrendForce, a market research firm, most of the first-tier crystalline-wafer makers in mainland China, Taiwan, and South Korea were in the red in the first half of this year. Although the cost of making a waver averaged US$1.05 to US$1.14, the median selling price was around US$1.03.
TrendForce explains that the mainland's manufacturers are vigorously cutting down on their inventories, exacerbating the price collapse and pushing it into the second half of the year.
A bright spot for Taiwan's struggling PV industry has recently appeared. The National Development Fund of the Executive Yuan, Taiwan's Cabinet, has agreed to extend NT$10 billion (US$333 million) in loans to the island's PV-equipment suppliers to encourage them to install solar-power plants--still a profitable business--overseas.
The manufacturers say that the loan is attractive to them, since the return on investment in solar-power plants is quite lucrative—an estimated 8-15% in Taiwan, 8-12% in America, and 16-30% in Japan.
The Ministry of Economic Affairs (MOEA) estimates that the loan will help the island's solar-energy industry as a whole generate additional revenues of NT$62.5 billion (US$2.08 billion) and create 6,000 jobs a year.
Senior MOEA officials point out that Taiwan's PV industry is being hit hardest by the demand-supply imbalance in the global PV market, because the island's manufacturers have concentrated on solar cells instead of system equipment for power plants.
The officials believe that the if island's solar-system suppliers install power plants overseas, they will encourage their domestic peers in the midstream and downstream sectors to go with them in a bid to win business deals together.
Local PV-equipment manufacturers, including the Gintech Energy Corp., Neo Solar Power Corp., and Gigastorage Corp., have expressed interest in taking advantage of the Development Fund's loan offer.
According to the Development Fund, its loan program can help five to 10 local manufacturers develop overseas markets, mostly in Europe, America, and Japan. The loans will be limited to a maximum of NT$1 billion (US$33 million) each, and the maximum cumulative amount of loans to a single company will be NT$2 billion (US$66 million). The maximum cumulative amount of loans extended to companies under the same parent firm is NT$3 billion (US$100 million).
The maximum interest rate on the loans will be set at the six-month LIBOR (London Interbank Offered Rate) plus 3%. The maximum term of the loans is 10 years. (September, 2012)