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JinkoSolar Holding Co., Ltd. Message Board

  • floppy_6 floppy_6 Apr 3, 2012 8:25 PM Flag

    Demand vs. Competitive capacity

    Auriga issued a report calling worldwide demand 2012 on 27.4GW to 30.4GW (depending on China btween 5.5GW and 8.5GW), Germany 5GW, Italy 3.7GW, US 3.3GW, Japan 2.5GW, France 1.1 GW, Autrilia 900MW, India 800MW and canada 750MW etc.

    I am confused on this piciture. If this world does demand this much GW in this year, there are two scenarios for the capacities contending this demand.

    1) Moderate ASP: that is 90c or above. Then most of players may continue produccing. In this case, you have capacity somewhere 45GW countering this 30GW demand.

    2) Marginally profitable ASP - 80c to 85c or even below 80c.

    Under this ASP, you can count out lots of uncompetitive capacities - namely most Taiwan players, FSLR, CSUN, HSOL, even I suspect JASO not be competitive since they were always evasive on their true cost. After you count out these uncompetitive players, who is and how much the competitive supply is left to serve this 30GW demand? Less than 30GW? If less, why this market is full of rumor of 75c ASP? Why there are still players insisting on engaging in sucicidal behaviors?

    Beat me. Most of the stocks I shorted fell below the option striking prices. In other world, I am as long as anyone. The chinese torture on you starts to have same effect on me. Gee! Geegeegee.

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    • trina became tier1 because the product was proven to deliver good output. also they build regional offices in all over europe and e.g. have for germany direct support from munich and a shipping warehouse in central europe - rotterdam.

      you dont become tier1 because of low inventory. you become tier1 because of good products and proven output over time.

      jks e.g. had always low inventory but is considered tier2-3 in europe. if you search the solar forum you find 16000 hits for stp, 12000 yge, 8000 tsl, 5000 csiq. jks 500 or so.

      for every noname from china it will be extremly difficult to still become tier1 now.
      the only ones who can do this are the conglomerates who with their brand can get tier1 in 1-2 years. and potentially some shop from china if it is bought by bank of china and just gets everyhing for free.

      If you e.g. look at ldk and sol they really failed so far to get close to tier1. the same is true for csun, jks, hsol etc etc.

      why risk to go with a new brand if tier1 has the same or almost equal price ? and yes, it took a long time for japanese and korean brands to get the quality sign - tsl, yge, stp has this today already. that is the difference.

    • ABC

      ///I said this before. a solar system costs 30-50K US$. would you buy a car which no one has been running for 3 years ? would you buy it from a company you never heard of ? no. you rather buy hyundai, GM, bmw, toshiba or whatever you know off. solar systems are larger investments than cars. ///

      Interesting comment lets look at how these perceptions became.

      Japanese automakers cars were considered cheap junk that people would not buy in the US back in the 60's. It took 20+ years before these cars were accepted as a reliable product and demand started to grow. When demand started to grow, the US put in place protectionism and tarrifs to raise the costs of these cars. That did not matter as the reliability of these cars was proven sound and of quality exceeding US cars and with subsidies and then cheap labor, these cars still cost less. 10 to 15% less. That was several hundreds of dollars back in the 70's and 80's when a car cost $2-$3,000 dollars.

      The Hyundai you mentioned as a car to go buy was junk and up until this past Elantra and Sonata model looked as cheap unreliable junk. Hyundai has been selling cars in the US for 20 years. Not one person looked at Hyundai as a first choice or a second or third choice. They were a last choice and only bought because they were cheap and you could get a new one for the cost of a 4 year old japanese car.

      What changed for these areas of manufacturing was perception from them being a cheap low cost piece of junk? Time and marketing and very deep pockets and enough people buying 1 of them at a time while they were considered cheap.

      This shows that low cost junk can eventually grow into perception of quality and thus demand if the companies can exist long enough.

      Things made in Taiwan had the same cruddy reputation, 30 to 40 years ago. Made in malaysia or singapore was looked as junk also.
      But over time these perception are removed.

      The Europe market and US markets do not matter for these small Tier3 companies. As peace noted, They require the regional support to create the demand and thus the longevity before there products become looked at as being usable in other areas of the world.

      5 years ago I bought a system using Mitsubishi modules. Trina was not around to be an offer. Sharp was, Sunpower was Sanyo was.

      In the 2008 collapse, Trina was a very small company with tens of MW of shipments. 3 years later they were viewed as a Tier1? Why? Because during the downturn they had low levels of inventory. After the downturn, they were the low cost producer and they drained their low levels of inventory and used their low cost inventory to undersell the world with low cost modules. Perception changed and now Europe accepts them as quality. This only took 3 years. Cycle of acceptance are getting shorter.

      Sure big projects will always go with top products. They will get the leverage of low price bidding into the project. But those small companies that you call tier3 now just need a small market for now since they are a small company. Peace has it right, with 5GW-7GW in China, if those small companies get some of the support of the regional governments, then they will function as a company and exist. It could also give them time to penetrate new markets where solar never existed and there is no brand recognition.
      Yes eventually 2 or 3 of the early large solars may be a dominant force, more likely the large conglomerates you mention own 80-90% of the Terawatt market that will be around in 10 years.

      The only hope for solars now is that prices stabilize in the low $0.80 by the 2nd half.

    • peace.

      of course the german sentimend on modules matter.
      many of the large scale european installs are done by german installers.
      even stp is bringing a german firm to china to help on project builds.

      also - if you ever worked in sales like situations the first thing you asked for is references. so if I want to build a 50 MW plant in bulgaria I will ask the module suppliers if they have done similar things before. tsl, yge, stp, csiq will then pull-out installs of that size - tier3 cant show this.
      so ultimately if you dont have a brand you are sunk IMO - in all markets except china I say.

      I have seen many large projects in eastern europe e.g. - I have not heard of one of them where I dont know the module supplier.
      the only companies who can compete here as well are the global brands who also do solar now - comps like tsmc, kyocera and friends. that brand brings credibility as well.

      I said this before. a solar system costs 30-50K US$. would you buy a car which no one has been running for 3 years ? would you buy it from a company you never heard of ? no. you rather buy hyundai, GM, bmw, toshiba or whatever you know off. solar systems are larger investments than cars.

    • I don't think Germany market matters that much now - yes, the demand is still there but the ASP won't contribute to earnings at all. So it is a sucker's game there.

      Only meaningful places are the US and Japan, maybe East Europe too.

      The decline in module costs is mostly the result of decline in price of components and consumables. It has a limit too - so the cost is still 55 cents for non-silicon and 15 cents for silicon. Adding 12-15 cents for misc, 82-85 cents ASP is needed for break even.

      So while Germans have their rating of module makers, it may not translate into elsewhere in the world.

      The small China module makers mostly aim at domestic market, so a boom in China's market will keep them alive longer.

    • Snake,

      I only have three-words to answer you -


      Have a nice long weekend.

    • Snake

      Based on your post,I see CSIQ and SOL as the top 2.
      CSIQ based on GCL wafer supply and SOL based on low opex (with 50% of opex is research)and new Poly plant.

    • Floppy

      item1: Agree big variances that deals with contracted vs non contracted. Large variances always converge within the next quarters as proven overtime as the contracts get re-adjusted to market rates.

      Item2: Not overly relevent to costs other than a good ol boys club. Equipment is more critical and partnership with research institutions and primary equipment vendors is more important. Everybody can buy the next gen anti reflective coatings, reactors, furnaces and crucibles saws etc from supply vendors.

      item3: Scale of efficiency is an illusion being sold. The only advantage on scale is the potential of purchasing quantities ability to negotiate lower supply costs, but as noted recently in the downturn, being large can be a negative as the quantity of inventory held can be a detriment. It took LDK a year of writedowns and inventory drain back in 2009. It is taking TSL a half year or more this time around as they are bigger and LDK who knows this time around

      At last, Yingli's costs are some of the worst. They are on Par with LDK, TSL and STP as a cost per MW for Opex. For Interest they are on par with LDK and STP but not TSL. Take any small company that does not have the reaches but buy and sell primarily locally within China and you have the ability to have costs similar to a STP or TSL or YGE but with far less debt and far less Opex.

      The real cost reductions are not coming from improved manufacturing know how. The drastic reductions are from the material supply agreements. Remember, not only has China been to ramp Wafer cell and module capacity, they have also ramp substrates chemicals , sheetings and everything else that is used to make Solar finished products. Some companies don't need to go outside China anymore. They can buy local. Some that want a slight leading edge partner with Dupont. But that is only a 2-4% gain on costs or pennies that is lost on the over bloated capex and debts.

      Don't think the costs are because of massive research dollars spent. The China market is going to be a bloodbath. Many local companies vying for projects. That is why most of the Top Tier have stated they will pick and choose their projects where it makes sense.

      Problem is TSL guided 6-700MW , YGE guided 700MW, LDK is guiding 600MW or so in China, STP is forcasting a large portion of projects. This looks and smells like 100 companies in China bidding for a bunch of 5 to 25MW projects. Local companies in regions will get a slice of it and will be cost competative for all the reasons I am suggesting.

      Yes many will go bankrupt, but there equiptment that is new will remain fo rthe next buyer. That will allow others to acquire and grow. That is the way JKS came out of nowhere was through aquisitions.

      While I do not see cost structures supporting $0.70 in 2012 profitably based on current costs, I do see $0.75-$0.80. That puts a select few at above $0.80 and those will be shipping primarily oversees.

      I still go by the gross target of $0.55 processing 5 grams at $0.25 for a cost of $0.675 by years end for most all. This processing could be down to $0.50 in 2013 and Si down to $0.08 for some. From this you could see $0.70-$0.75 in 2013 as supportable.

      This still looks to me to be $0.10-$0.15/watt. At $0.10 companies like YGE will need to ship 1.3-1.4GW a quarter when costs ramp. At 15 cents they will need nearly 900MW in a quarter to turn a profit based on Opex and Interest at 130M per Q.

      I will go with the non vertical strategy. Make cells and modules. Those that spent big in the past like YGE and LDK and Jaso and acquired all that debt, they will have problems on getting returns. They are better off being bought by a conglomerate looking to enter the markets in the next year or 2.

    • what I have seen in boom cycles is that every module availabe was installed.

      what I see in normal business cycles and in down cycles like this is that at least in europe people just stick to the known brands.
      namely tier 1 - stp, yge, tsl.
      in that order.
      then tier1b. csiq.

      some comps cooperate with german brands like "schüco" and oem for them.
      then nothing.
      maybe ldk, sol as tier 2b or so but they are really never recommended anywhere (by the installers).
      go use google translator and go through photovoltaikforum and see what is installed. you have around 20 offers per day.
      therefor my view is that there is no long-term market for no-names from china. at least in europe.
      from all I understand from the US is that it will be similar.

      a solar system costs twice as much as a car. companies without brand and good r&d will vanish.
      r&d is also one of the key reasons I sold jks - they are not investing enough IMO.

      with many european brands going "offline" - like q-cells etc the china tier1 will become first choice. latest report shows that china has above 50% market share in germany already.
      this will be mostly tier1 stuff as installers are scared of not being able to guarantee output for 20 years with no-name modules.
      the more comps go bancrupt the more wholesale and installers and retail look at long-term topics like - will my module supplier still exist in 20 years.

    • Snake,

      There are a few issues I think it not that simple -

      1) Q4 ASP ranges from STP $1.18, YGE $1.10, TSL/CSIQ $1.02 to JKS $.96. For new-comers, they are likely to only get the ASP below JKS's. That adds disadvantage.

      2) R&D and Key personels: All listed companies had spent years of R&D to achieve higher conversion efficiency. And the key employees really possessing know-how only circle within the big firms - Peter Xie after being fired by HSOL went to GCL to be solar projects manager. The factory manager at JKS was the factory manager at YGE. Even small firm like CSUN, their R&D head was the classmate with Shi at in Austrilia.

      3) Scale of efficiency. I can't imagine how someone has 200-300MW could effectively compete against big-5 who all have near 2GW capacity.

      At last, if Yingli can't make money at ASP below 86c, I don't know how long ASP can remain that low or how crazy these Chinese can maintain being insane?

    • The problem is that there was no new capacity in low tiers. All those under 100MW bought anything to make modules. Big houses would get newer equipment with the cash flow, selling legacy equipment to wannabes. Think of HSOL, with Hanwha entering late to the business, they cannot put out a brand name module if life depended on it. In China module assembly is still largely a manual process. Scale matters, if you produce less modules it costs more, 20% scale add on reduces cost by around 6%. I know of only single company Talesun which has apparently all brand new stuff and around 2GW of cap. but they sell to a third level market stands, brand name works. Those do not produce conversions either. Have a look at some of those websites. Their modules are 14% conversion, with 190MW being a dominant product. Look at the results at AMAT, literally freeze on sales. IMS and Solarbuzz think there is 37GW opportunity for machinery swap by 2015. Who is going to buy this, Nexolon which holds to 1GW of capacity for 3 years now, got listed in 2011 and cannot pay bills to its Filipino partners right now with 18M in cash?
      We start moving cells to 20% efficiency and modules to 16% plus and this will be it. H2, the prices will go up.

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