Commentary: Solar Industry Faces Rocky Road to Capacity Consolidation

Recent market attention has centered on the solar industry’s efforts to address severe overcapacity and suppress destructive low-price competition. Though there is wide consensus that production cuts, destocking, and consolidation are urgently needed, there is little agreement on the specifics, resulting in widespread speculation and confusion within the industry[para. 1].

The long-awaited polysilicon sector consolidation plan has just entered the negotiation phase. According to multiple sources, the China Photovoltaic Industry Association (CPIA) recently brought together major solar companies. A preliminary agreement was reached among 11 polysilicon companies to create a joint venture aimed at acquiring around 700,000 tons of surplus production capacity from other players, with the intention of removing this excess from the market to prevent further price deterioration[para. 2].

This crisis has placed the solar industry in a precarious position, as a significant supply-demand imbalance has driven factory utilization rates to historic lows and triggered a grueling period of below-cost competition. As a result, it is inevitable that some companies will have to exit the market. Interest in this proposed self-rescue plan—intended to stop the sector’s downward spiral—has attracted substantial capital inflows, which in turn have driven up both polysilicon futures and the share prices of market leaders[para. 3].

However, this speculative frenzy is beginning to hinder the rescue efforts. On Wednesday, the polysilicon futures benchmark on the Guangzhou Futures Exchange reached a new high, rising 7.68% to 54,700 yuan ($7,600) per ton, representing an 80% increase since late June. The following day, after position limits were imposed, prices dropped over 10%. Spot prices also climbed, hitting 47,100 yuan per ton—up nearly 40% from late June[para. 4]. This volatility is complicating negotiations, as high prices reduce companies’ willingness to sell their capacities at a discount, possibly dooming the acquisition plan if prices continue to rise[para. 5][para. 6].

CPIA responded on Tuesday with a statement that condemned some media reports about anti-competitive efforts as inaccurate, though it did not clarify which details were incorrect or deny the existence of the consolidation plan. The association acknowledged the complexity of escaping “involution,” a destructive competitive cycle, and pledged to act according to legal and market norms[para. 7][para. 8].

Caixin reports that the recent industry summit only produced a preliminary framework, with many crucial elements—like acquisition prices and the joint venture’s ownership structure—still undecided, even among leading players such as Tongwei Co. Ltd. and GCL Technology Holdings Ltd[para. 9]. Meanwhile, growing capacity further complicates matters: domestic polysilicon output increased 5.7% in July and is forecast to grow another 16% in August[para. 10].

The industry’s situation stems from an aggressive expansion starting in 2020. Over four years, China’s annual polysilicon production capacity jumped nearly sevenfold—from 400,000 tons in 2020 to 3.23 million tons by the end of 2024. This glut caused prices to plummet 90% from a 2022 peak of 300,000 yuan per ton to 34,400 yuan by late June 2024, well below the industry’s breakeven point[para. 11].

The 700,000 tons designated for acquisition will mainly come from five companies, much of which represents recent but idle investments totaling hundreds of billions of yuan[para. 12]. These facilities cost roughly 8 billion yuan per 10,000 tons to build, but acquisition offers will be discounted, though not drastically due to bank involvement in financing. Some industry voices argue that deeper cuts than the proposed 700,000 tons are necessary[para. 13].

Destocking is seen as crucial for normalizing prices—by June, inventories reached 367,000 tons (enough for 3 months of use versus the usual one month), with industry leader Tongwei holding about 30%[para. 14]. Ultimately, consolidation aims to “trade time for space,” stabilizing the market and spreading costs over time, but unresolved conflicts of interest suggest further negotiation and brinkmanship will be needed before a final solution is found[para. 15].