The Solar Industry Has Experienced Ups and Downs in The Eight Years From 2004-2011

Managing a business is like managing a battle. The many problems and challenges require the management to have good organization and coordination skills. Mostly importantly, the management has to make the right decisions during hardships. The solar industry has experienced ups and downs in the eight years from 2004-2011. 2004-2008: The golden era of long-term polysilicon supply contracts The solar industry boom started in 2004 due to low entry barriers. The capacity expansion since then has been astonishing. However, the industry is heavily dependent on government policies, therefore, bound to face strong fluctuations. Industry sources indicated that before the financial crisis in 2009, the supply of polysilicon was scarce. Hence the strategy of downstream firms at the time was to outrace competitors in securing long-term supply contracts in order to stay competitive. The most iconic example would be China-based Suntech signing a 10-year supply agreement with US-based MEMC starting 2007. The contract was worth US$6 billion. The contract enhanced Suntech's expansion while peers struggled to secure materials, and it became the world's largest solar cell firm. Some firms who had refused to sign long-term contracts soon realized that the price of materials seemed to be increasing with no ceiling in sight. In the end, these firms were also forced to sign the contracts. But contracts signed towards the end of 2008 would turn out to be a huge burden. In third-quarter 2008 when the global financial crisis hit and the Spanish government changed its incentives policies, spot price of polysilicon started to plummet from the high level of US$400/kg. In 2009, the price dropped to as low as US$100/kg. For firms that signed the long-term contract when price was at its height faced strong pressures. However, the industry still had faith in the end market demand at the time. 2009-2010: Expansionists versus conservatives During the financial crisis in 2009, unpaid leave measures were introduced in the solar industry. However, when demand returned fast and furiously in 2010, many firms faced employee shortages. China-based solar firms continued to expand during the financial crisis. GCL-Poly began production of solar wafers in 2009. When demand returned in 2010, the firm expanded capacity more rapidly and became an industry leading company with strong market share. Other China-based vertically integrated firms also expanded. Many China-based firms who had mainly produced modules were now expanding to the upstream cell and wafer sectors. Compared with the solar firms in Taiwan, China-based peers had better control over distribution channels. 2011: Only the wise can weather the storm Early In 2011, the solar industry experienced a wave of supply contract signings. However, as demand quickly dwindled in the second quarter, the spot price of polysilicon quickly dropped below US$100/kg and reached US$20/kg in the fourth quarter. Many have been wondering if the decision to enter a long-term supply contract with material providers is a good one. The necessity of signing long-term supply contract has been questioned by solar firms since 2004. Suntech announced the termination of the supply contract with MEMC in 2011. Another question facing the solar firms is whether they should - or how they can - efficiently clear out inventories with capacity utilization rates falling rapidly since second-quarter 2011. They also need to tackle the mounting pressure from managing their cash flow. Industry sources noted that the industry is still sprouting and bound to face many challenges and turbulences. Many firms pointed out that the bright side of these fluctuations is that weaker firms will be forced to exit the market while the firms with solid strengths will remain. This is definitely beneficial to the industry in the long-run. Source: www.digitimes.com