The solar module market will see an oversupply continue unless there are production cuts to fend off ballooning inventory levels.
According to Solarbuzz, the global photovoltaic market has seen global demand slow to just one percent quarter on quarter, although year on year growth is up 20 percent from the same time last year. Meanwhile, inventory levels have continued growing with dropping demand.
To deal with the oversupply, some manufacturers have started cutting back production and shipments. In China, however, production targets have carried on regardless. This means that shipments are expected to outstrip demand by 4.4 gigawatts if manufacturers meet goals.
China and the US have been actively seeking to push rapid solar installations and have clawed away some of the European dominance in the market. Europe will account for 58 percent of global demand in the third quarter of 2011, compared to 78 percent last year. The US and China have the fastest growth rates in major markets.
It was thought that price drops would boost demand in the second half of this year, but this has failed to materialise, occurring slower than expected.
The industry now faces a quandary about whether to increase inventories for when the inevitable price drops come into effect. And, with a major player like Germany about to bring in reductions to its feed-in-tariff scheme, an overestimate of demand could increase inventory write downs.
This could lead to more problems next year when cell capacity is expected to jump 50 percent. Product demand will only increase by under half of that figure, so 2012 could prove difficult.
Crystalline silicon factory-gate module prices are expected to drop by 18 percent in the final quarter of the year, leading to concerns about margins. Gross margins for cell, wafer and polysilicon makers have dropped by 50 percent from the previous quarter.
As a result, companies are having to drop prices to breaking point, raising the prospect of plenty of liquidations if the oversupply keeps up.
If there aren't further production cuts, inventory levels could reach 22GW by the end of 2012. According to DisplaySearch, though, in order to keep the same levels of inventory days forecast for the end of this year, there needs to be roughly 11GW worth of cuts.