Since February, all links of the photovoltaic industry chain have rebounded collectively. Taking silicon materials as an example, the level of spot quotation for silicon materials has continued to rise significantly, including the accelerated frequency of quotation updates, which once reached about 240000 yuan/ton.

However, many institutions believe that the prosperity of the PV industry this year is in the climbing stage, and it is expected that the global PV policy environment will improve marginally this year, and the economy of PV projects is expected to be healthy, and can drive demand growth.

At the macro level, the Ministry of Industry and Information Technology and other eight departments announced that they should speed up the application of smart and orderly charging, high-power charging, automatic charging, rapid power change and other new charging and power change technologies, and accelerate the pilot application of "optical storage charging and discharging" integration.

In terms of enterprises, after the opening in 2023, in the face of the unbalanced development of the industrial chain and the constant "invasion" of external cross-border players, Longji Green Energy, Trina Solar, and Tongwei have continued to increase their production, consolidate their market share and consolidate their leading position.

| The volume and price of active orders in the market rose

The price of silicon materials continued to rise, with a weekly increase of about 11%. The mainstream transaction price of single crystal re-feeding was 2300-24500 yuan/ton, and the price difference between the highest price and the lowest price was slightly narrowed. However, the transaction price of first-tier and second-tier enterprises was still differentiated. The lowest price of re-feeding was 220000 yuan/ton, and the highest price was about 250000 yuan/ton for individual bulk orders.

At present, the number of enterprises with new orders has exceeded 10, and the market activity has increased significantly. Most of the enterprises with new orders have been signed until the middle of February, and the number of orders signed by all enterprises has increased significantly.

The main reason why the price of silicon material continues to rise and the volume of turnover is large:

On the one hand, the operating rate of silicon wafer enterprises is still at a relatively low level, and the shortage of supply supports the sharp rise of silicon wafer prices, which is higher than the cost of raw polysilicon. Therefore, the acceptance of silicon wafer enterprises for the continued rise of silicon material prices has improved.

On the other hand, the current price of silicon wafers is relatively profitable compared with the price of polysilicon, the raw material for making silicon wafers in the current period. In the early stage, the operating rate of silicon wafers enterprises has remained low, and the stock of raw materials has also been exhausted. Therefore, when the price of silicon wafers has risen to a considerable profit and the market supply is in short supply, the operating rate is inevitable to increase. Therefore, the actual turnover of silicon materials this week has increased significantly.

| By the end of 2023, the number of domestic enterprises in production will increase to more than 20

As of the first ten days of February, there were 15 polysilicon enterprises in production, with an annual capacity increase of about 1.04 million tons/year, including about 740000 tons/year of expansion projects of existing enterprises in production, and about 300000 tons/year of new projects of new enterprises. It is expected that the enterprises with release increment in the first half of the year include GCL Technology, Baotou Daquan, Xinte Energy, Dongfang Hope, Inner Mongolia Dongli, etc. The enterprises newly released in the second half of the year include Yongxiang Shares, Xinjiang Jingnuo, Baofeng Energy, Shangji CNC, Hesheng Silicon, etc.

By the end of 2023, the number of domestic enterprises in production will increase to more than 20.

According to the production and operation plan of each enterprise, and taking into account the factors such as the maintenance and market price of each enterprise affecting the production release schedule, the silicon material and silicon wafer are in a state of oversupply as a whole, but the phased market price will still fluctuate and change according to the actual installation rhythm of the terminal, the production progress of each link of the industrial chain, the adjustment of the operating rate, the inventory digestion degree and other factors.

From a quarterly perspective, the adjustment of supply at the front end of the industrial chain in the first quarter helps to stabilize the price, the increase of demand in the fourth quarter is greater than the increase of supply, which helps to digest the inventory in all links, and the situation of oversupply in all links of the industrial chain in the second and third quarters will be relatively more prominent.

| The supply of silicon materials exceeds the demand all year round, and the short-term rebound may be difficult to maintain

The silicon industry association predicts that the output in Q1 may exceed 315000 tons and reach 200000 tons/month at the end of the year. There is little pressure to hedge the downstream demand increment, and there is no support for the continuous rise of silicon material prices. By the end of 2022, the silicon material capacity has reached 1.2 million tons/year, and by the end of 2023, the capacity may exceed 2.4 million tons/year, which has significantly exceeded the global demand. We expect that the overall trend of silicon material prices will continue to slow down, with a price range of about 150-200 yuan/kg.

On January 6, the National Energy Administration issued the Blue Book for the Development of New Electric Power Systems (Draft for Comments), which defined that the proportion of new energy installed capacity/power generation will exceed 40%/20% in 2030, taking 2030, 2045 and 2060 as important time nodes for the strategic objectives of the construction of new electric power systems, and formulated the "three-step" development path of new electric power systems.

On January 19, China Electricity Union released the "Analysis and Forecast Report on the National Power Supply and Demand Situation in 2023", which predicted that the overall balance of power supply and demand in 2023 would be tight, and the new installed capacity of wind power and solar energy in 2023 would be 65GW and 97GW respectively, with a year-on-year increase of 72% and 11% respectively. With the acceleration of energy transformation in overseas markets such as Europe, the United States and the Asia-Pacific, we expect that the global installed capacity will reach 340GW in 2023, maintaining a high growth rate of+33.3%.

| Investment suggestions

As the silicon material enters the downward cycle, the profits of the photovoltaic industry chain enter the redistribution stage. In 2023, the profitability of most companies will improve to varying degrees, and the gross profit rate of the main industrial chain (excluding silicon) will return to the central range of 15%. Integrated enterprises can maximize the profits and dividends released by silicon materials.

It is suggested to grasp two main lines:

First, integrated enterprises or auxiliary material leaders with large margin for improvement of profitability, the ability to resist cyclical fluctuations, strong competitive barriers, and the ability to enjoy overseas market dividends, such as Longji Green Energy, Jingao Technology, Foster, etc.

Second, new technology leads the market, the curtain of N-type battery is opened, and the potential of granular silicon+CCZ is great. It is suggested to pay attention to Trina Solar (688599), China Lai, GCL Technology, Tiantong, etc.

At present, it has entered the second half of the first quarter, the new capacity continues to release, the supply of silicon materials continues to loose, and the price strategy of silicon material oligarchs reluctant to sell base stocks is difficult to be sustainable. It is expected that the following will accelerate down to a new equilibrium position to stimulate the release of demand.