Chinese Solar Makers Seen Shrinking to 15 on Supply Glut

China’s solar-panel supply glut is consolidating the industry and will likely slash the number of domestic manufacturers to 15 within half a decade, according to a research group at the nation’s top economic planning agency.

Some producers have cut factory capacity or closed plants because of the surplus, Li Junfeng, deputy director general of the Beijing-based Energy Research Institute at the National Development and Reform Commission, said in an interview.

“There’ll be no more than 15 large manufactures left in five years,” Li said by phone, without identifying them. There were 330 panel makers in China in 2008, according to the Chinese Renewable Energy Society, which said it stopped counting as it couldn’t keep up with the “multifold” increase since then.

The manufacturing explosion in China in the last decade is crashing prices for the devices that turn sunlight into power, shrinking margins for rivals such as Germany’s Q-Cells SE and crimping profit even for Chinese producers. Jiangsu-based Suntech Power Holdings Co., the world’s largest manufacturer, is forecast to report its first loss in at least six years in 2011.

The spot price for photovoltaic panels has plunged about 40 percent this year, according to Bloomberg New Energy Finance, as producers led by China increased output. The 10 largest makers of traditional panels that use silicon including Suntech, China’s LDK Solar Co. and Canadian Solar Inc. (CSIQ), together doubled capacity last year, New Energy Finance figures show.

Suntech, Solyndra

Suntech will report a $375 million loss in 2011, compared with a $262 million profit in 2010, according to the median of 26 analyst estimates compiled by Bloomberg. Sales growth will slow to 6 percent from 71 percent, the estimates show.

Three U.S. solar companies including Solyndra LLC have failed this year because they can’t compete on price. U.S. manufacturers led by Solarworld AG have asked the Obama administration to slap duties on Chinese companies, saying their competitors are using Chinese government aid to dump solar panels below production costs on Western markets.

Industry consolidation is “necessary and inevitable” to eliminate excess capacity, Li said in the Nov. 24 interview. He said it would be unrealistic for China’s government to direct the consolidation, saying it would be best left to the market.

Shares of Chinese solar companies including Hanwha SolarOne Co., Canadian Solar and ReneSola Ltd. have been falling as they slash forecasts and margins move into negative territory. The 17-member Bloomberg Large Solar Energy index is down 62 percent since mid-year, with China’s Hanwha SolarOne Co and Canadian Solar the worst performers.

Suntech, LDK May Struggle

Prices of panels and the materials that go into making them, including cells, wafers and the raw material polysilicon, have all plummeted. Suntech and LDK could struggle, according to analysts.

Suntech needs to restructure to quicken the process of lowering the cost of ancillary materials used to make solar cells, Hari Chandra Polavarapu, an analyst at Auriga USA LLC in New York, said by e-mail. The company is aiming to reduce these costs to 70 cents a watt by end-2012 while rivals like Trina Solar Ltd. (TSL), Yingli Green Energy Holding Co. (YGE) and JinkoSolar Holding Co. already achieve about 68 cents a watt, he said.

Annual demand for panels is about 25 gigawatts, according to New Energy Finance. There is a glut of about 10 gigawatts, K.N. Subramaniam, chief executive officer of Moser Baer India Ltd. (MBI)’s solar power-plant unit, said on Nov. 11.

Wafer Prices

Panel maker LDK, also the world’s second-biggest wafer producer, is hampered by the vulnerability of that component, which had the biggest decline in prices among all solar products since October, Lynda Peng, an analyst from BOCOM, said by phone.

Prices for wafers have declined 25 percent as of the week of Nov. 14 from the week of Oct. 10, according to New Energy Finance, a research arm of Bloomberg LP.

Trina and Yingli are the best-suited companies to survive a shakeout because “they have relatively lower costs,” Peng said. They have better internal purchasing and processing structures, and are able to cut costs relatively faster compared with their competitors, she said.

The number of panel makers in China mushroomed in the last five years as demand from Europe, their top market, increased because of government subsidy programs.

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at Fshen11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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