Market Analysis

Market Analysis March 2012 - Free fall ends

Free fall ends

Although the uptrend in prices, above all with regard to Chinese Tier 1 manufacturers, was still recognizable at the end of January, prices (including those for crystalline modules) have again fallen slightly in February. As a result, the values of the price index in all categories lie below those of the previous month. This is due to the fact that increasing numbers of orders were placed with pvXchange (now sologico) for modules from Tier 2 manufacturers to cover for the scarcity of modules available in Europe. In contrast, prices remained constant for Tier 1 manufacturers and, for several module types, were in fact even higher than the January values.

In the case of crystalline modules, the percentage price drop slowed to levels not seen since April 2011. A very calm first quarter, only very slowly increasing demand, and rising warehouse stocks have led to an ongoing and very significant monthly fall in prices since May 2011. The free fall of module prices now seems to have stopped for the time being as a result of a strong Q4 in combination with unusually high demand registered in January 2012.

Continuing uncertainty in Germany with regard to planned changes in feed-in tariffs led to a temporary run on warehouse stocks to enable completion of planned and approved projects before any scheduled cutbacks take effect. For a time it was extremely difficult to obtain certain module types from Chinese Tier 1 manufacturers. At the same time, due to the lack of clarity about what the REA amendments would bring, most dealers were also reluctant to place follow-up orders with manufacturers.

Concurrent with the joint announcement by the Ministries of the Environment and Economics on February 23 that scheduled compensation cuts in Germany for March 9, several dealers increased prices of modules from Tier 1 manufacturers. Tier-2 manufacturers took advantage of this opportunity to reduce their own warehouse stocks, in part at slightly reduced prices. This meant that the enormous volume of modules from both Tier 1 and Tier 2 manufacturers stockpiled by European distributors at the end of 2011 was almost completely cleared.

This situation will, however, only continue until the changes to the REA are enacted by the German Federal Parliament and the outlook for solar in Germany becomes clearer. When compensation cuts are implemented after the end of the transitional period, the price drops will presumably begin to increase once again, as the fundamental global problem of excessive capacity still exists. Globally, other factors are contributing to a difficult market for manufacturers. In the USA, trade litigation with an uncertain outcome is in progress against Chinese manufacturers; in addition, considerable cuts in compensation are on the way in Germany and other European markets. We therefore expect that manufacturers will begin to feel pricing pressures as early as Q2.