Regulators strike down solar industry consolidation efforts

Beijing has struck down the solar industry’s most coherent attempt to rein in overcapacity.

On January 8, a leaked memo shed light on a recent closed-door symposium hosted by the market regulator (SAMR) with the China Photovoltaic Industry Association (CPIA) and the world’s six largest polysilicon manufacturers – which discussed the industry’s recent market consolidation efforts.

• The contents of the memo have since been confirmed by multiple reputable sources.

Some context: China’s polysilicon manufacturers recently launched a vehicle to pool capital and retire excess capacity from smaller domestic producers.

• The industry has also intensified coordinated production cuts in recent months, driving polysilicon prices to around RMB 60,000/ton in early January – the highest in 20 months.

Not so fast: According to SAMR, it has received a growing number of complaints accusing polysilicon producers of using “industry self-discipline” as a cover to coordinate price increases.

SAMR regards the industry’s recent efforts as anti-competitive, and has ordered polysilicon producers to refrain from:

• Coordinating capacity utilization, production, or sales volumes with the aim of manipulating prices
• Using each firm’s funding contribution to the consolidation vehicle as a basis to divvy up future market share, allocate production or sales quotas, or distribute profits
• Exchanging sensitive commercial information, including pricing intentions and production costs

SAMR has ordered CPIA and the firms to submit a corrected plan by January 20 and warned that continued violations would trigger formal antitrust enforcement.

Get smart: While coordination among these players will undoubtedly inflate polysilicon prices (and that is precisely the point!), rising prices are needed to trigger much-needed industry-wide rebalancing.

• SAMR’s decision marks an enormous setback for the industry’s best shot at meaningful rebalancing, and calls into question the credibility of Beijing's much-touted anti-involution campaign.