China’s Solar Companies Face Margin Squeeze Despite Profit Jump

(Bloomberg) -- A factory boom in China that’s lowering the cost and boosting demand for solar panels is also squeezing the margins of the companies that make them.

Fears of overcapacity are driving investors from the sector despite soaring profits and record global installations. Shares of Longi Green Energy Technology Co., the world’s biggest panel maker, have lost 36% this year even as the company reported a 42% jump in net income in the first half on Wednesday.

“Although the global solar market is growing at a breakneck pace, solar manufacturers across the value chain will be under severe margin pressure for the rest of 2023 and into 2024,” BloombergNEF’s lead solar analyst Jenny Chase said in a research note on Tuesday. 

Prices across the supply chain have plummeted since the beginning of this year, with panel costs hitting a record low, according to BNEF. While Longi saw its gross margin tick higher to 19% in the first six months, Citigroup Inc. said margins appear to have peaked and are likely to drop as new capacity heightens competition, according to a note from the bank.

Those lower prices are boosting demand and accelerating the world’s path to carbon-neutrality. Global solar installations are set to jump 56% this year, and the world is now on track to have more than 5,800 gigawatts of capacity by 2030, according to BNEF. That’s a pace which would see the solar industry meet the requirements of scenarios under which global net zero targets are hit.

As rapid as that growth is, companies are expanding manufacturing capacity even faster. Top firms including Jinko Solar Co. and Tongwei Co. have announced plans to build new factories in just the past few weeks despite fears of oversupply. Longi’s chairman in May warned that more than half of the country’s solar manufacturers could fail in the next two to three years if companies don’t curtail expansion plans. 

The Week’s Diary

(All times Beijing unless noted.)

Thursday, Aug. 31:

• China’s official PMIs for August, 09:30
• China Electric Power Planning and Engineering Institute report, 13:50
• PetroChina earnings briefings, 16:00 in HK and 17:00 online

Friday, Sept. 1:

• Caixin’s China factory PMI for August, 09:45
• China weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:30
• Shenhua earnings webcast, 16:00

On the Wire

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