August 2018: Upstream down, downstream up

Stock price index: The major impact of demand destruction in China has been the collapse of upstream pricing. Polysilicon prices fell from $17 to $12 despite most major plants shutting down for “annual maintenance” ahead of schedule. Wafer prices have been reduced from CNY 4.80 to 3.30, and module cost will reach low $0.20s ahead of schedule, allowing a mid to high $0.20s module price for major markets. Year-to-date, the stocks of Daqo New Energy (DQ), Wacker, REC Silicon, GCL-Poly, LONGi, Tongwei, Canadian Solar, and JinkoSolar have dropped 35%, 25%, 45%, 49%, 40%, 42%, 21%, and 41% respectively.

Next year is expected to be a tremendous one for U.S. projects, driven by low costs and a pull in of demand ahead of ITC phased reductions. Year-to-date, Vivint Solar and Sunrun stocks have increased 46% and 156%. For July, the Guggenheim Solar ETF (TAN) increased 1.7% versus the S&P 500 and Dow each up 4.7%. The top five performing stocks in the U.S. are SolarEdge (SEDG), Vivint Solar (VSLR), Sunrun (RUN), Canadian Solar (CSIQ), and DQ, which gained, 21%, 19%, 15%, 9.3%, and 8.5% respectively. Downstream company stocks keep performing due to the lower module price and pull-in of demand. Upstream manufacturer stocks slightly recovered due to short-term price stabilization caused by the shutdown of capacity.

On July 25, the China Photovoltaic Industry Association (CPIA) issued its H1 2018 statistics and H2 2018 forecast. It forecast 2018 China demand of 35 GW+, indicating 10 GW+ in the second half (China installed 24 GW in H1). According to CPIA, China produced 140 MT of poly, 50 GW wafer, 39 GW cell, and 42 GW module in H1, year-on-year growth of 24%, 39%, 22%, and 24% respectively. For 2018, it estimates the utilization rate across wafer, cell, and module could drop to 67%, 58%, and 48%.

In the U.S. it will be interesting to see how domestic manufacturers react to the new policy in China and its effects on the U.S. market.

Jesse Pichel, ROTH Capital Partners

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