China's Polysilicon Leaders Announce Production Cuts Amid Oversupply Crisis

China’s photovoltaic (PV) industry is currently facing significant challenges, including recent production cuts in solar PV modules. Now, the industry is grappling with another round of production cuts, this time in the polysilicon sector.

These cuts, announced by major polysilicon manufacturers Tongwei Co., Ltd. and Daqo New Energy, come at a time when the industry is trying to deal with oversupply, decreasing prices, and fierce competition.

As per reports, Tongwei and Daqo have both announced phased production cuts as part of their strategy to cope with rising electricity prices and the ongoing adjustment phase in the PV sector. Tongwei has planned to scale down production at its polysilicon plants in southwest China while carrying out necessary technological upgrades and maintenance. This is intended to reduce operating losses and improve the company’s overall production efficiency. Similarly, Daqo has decided to reduce output and focus on maintenance work at its facilities in Xinjiang and Inner Mongolia, aiming to enhance the stability of its equipment and reduce operating costs.

Yet another firm, GCL Technology, has also confirmed its own production cuts. These major companies control over 1.6 million metric tonnes of polysilicon production capacity. This reduction is a necessary step to address the oversupply situation that has been driving prices down since late 2022. The goal of these cuts is to bring stability to the market by reducing excessive supply, which has caused persistent price declines.

The reports suggest that the polysilicon market has been facing an oversupply issue for more than a year, particularly since late 2022. This oversupply has led to a sharp drop in prices, which hit a three-year low of 33.5 yuan per kilogram by mid-2023. For many companies, this has meant significant financial losses.

Further, as per reports, Tongwei Co. reported a net loss of 3.97 billion yuan in the first three quarters of 2024, while Daqo New Energy suffered a net loss of 1.1 billion yuan. GCL Technology also faced a loss of 2.97 billion yuan. However, thanks to cost-cutting measures, particularly lower electricity expenses during the rainy season, these companies have shown some improvement in their financial results for the third quarter of 2024.

In response to these ongoing challenges, the Chinese government and industry bodies have been pushing for greater self-discipline within the PV sector. In November 2023, the Ministry of Industry and Information Technology (MIIT) organised a symposium focused on the high-quality development of the industry, where they emphasised the importance of reducing irrational competition and encouraging technological innovation. These measures are aimed at ensuring the long-term, sustainable growth of the PV industry. Additionally, in December 2023, MIIT highlighted the risks of overcapacity in the PV sector and called for more careful planning of new manufacturing projects.

According to the reports, in addition to the polysilicon segment, other segments such as silicon wafers, modules, and solar cells are also facing overcapacity issues.

Further, the reports say that the PV industry is now entering what is known as the destocking phase, a process where inventory levels are gradually reduced to stabilise polysilicon prices. According to a local survey, polysilicon production in China is expected to decrease by 15.2 percent month-on-month in December 2024. Inventory levels, which had previously surged to over 290,000 metric tonnes, have started to decrease, signalling that the industry is beginning to address the excess supply. While there have been slight price increases due to these cuts, the market is expected to remain under pressure, especially with weak demand in the early part of 2025.

However, the production cuts by leading polysilicon manufacturers like Tongwei, Daqo, and GCL Technology are critical steps in stabilising the market and addressing the overcapacity issues that have plagued the industry. While these reductions are a necessary short-term measure to improve market conditions, the road to recovery for the polysilicon market will require a careful balance of supply and demand, continued technological innovation, and self-discipline within the industry.

Although there may be some recovery in the coming months, challenges remain, and the industry must adapt to a changing market landscape to ensure long-term sustainable growth.