On December 24, 2023, a significant shift within the solar industry emerged as major companies Tongwei Co., Ltdand Daqo New Energy Corpsimultaneously announced plans to reduce their production capacities of polysilicon by over 1.2 million tons combinedThis decision has been described as a strategic move to mitigate losses that have been largely attributed to fierce competition in the market, also referred to as "involution." The companies aim to promote a healthier, long-term growth trajectory for the photovoltaic (PV) sector.

Industry insiders consider these announcements as a response to a growing call for de-involution within the solar supply chain, particularly at the upstream levelsThis reduction is expected not only to address the current mismatch between supply and demand for polysilicon, which is a critical material in solar panel production, but also to set a precedent for subsequent adjustments across the entire industry.

Leading the Way in Production Cuts

In an official statement published on their WeChat account, Tongwei disclosed plans to start a gradual reduction in production at four subsidiaries of Sichuan Yongxiang Co., Ltd

These companies include Yunnan Tongwei High Purity Polysilicon Co., Sichuan Yongxiang Polysilicon Co., Sichuan Yongxiang New Energy Co., and Sichuan Yongxiang Energy Technology CoThis reduction will be part of the overall operational strategy of the company, allowing for technical modifications and maintenance as necessary.

The backdrop for this decision involves challenges faced in the southwestern region of China, where the winter season has brought about reduced water flow, consequently increasing electricity costsTongwei's management emphasized that their initiative aligns with responses to central government economic guidance, highlighting that the current situation of prolonged low prices in the PV industry informed their halt in production to combat intense competition.

Before this announcement, its intention to decrease production had already been articulated during an investor relations meeting in November

At that time, Tongwei officials noted that they were evaluating market conditions and considering adjustments to their production schedules, adjusting for optimal economic efficiency.

Following closely behind, Daqo New Energy also released a statement indicating a sequential schedule for maintenance at their polysilicon production facilities located in Xinjiang and Inner MongoliaLike Tongwei, Daqo emphasized that these reductions are designed to lower operational lossesThey noted that the operational adjustments would enhance both the stability of production facilities and the quality of products, further strengthening their business model.

Recent figures released by the China Photovoltaic Industry Association illustrate a stark decline in prices across the solar supply chain this year, with polysilicon prices dropping by more than 35%. This has had a pronounced impact on revenues, with Tongwei recording a significant year-on-year revenue decrease of 38.73%, totaling 68.27 billion yuan, as well as a net loss of 3.973 billion yuan, marking a drop of 124.37%. Daqo similarly reported a 53.37% decrease in revenue leading to a loss of nearly 1.1 billion yuan, a situation they too are hoping to amend through their production cut strategy.

Current data shows that Tongwei's Yongxiang subsidiary has a capacity exceeding 900,000 tons, while Daqo's facilities have a combined capacity of 305,000 tons

Together, these reductions can potentially free up a substantial amount of polysilicon supply in a market desperate for balance.

Meanwhile, another prominent player in the industry, GCL-Poly Energy Holdings Limited, has also hinted at reducing its polysilicon productionIndustry analysts suggest that when leading companies cut back on production, it further enhances the potential for correcting supply and demand skewed situations in the polysilicon market.

Escalating De-Involution Measures

It's important to underscore that this current phase of production suspension differs significantly from previous routine maintenance practicesNotably, both Tongwei and Daqo have entrusted the future restart of operations to market conditions rather than a predefined internal schedule.

Tongwei has articulated that decisions regarding future production restarts will be strategically guided by fluctuations in local electricity prices and prevailing market trends

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In a similar vein, Daqo asserts that they will resume operations at an opportune moment, contingent on market developments, promising to keep stakeholders informed of any pertinent updates.

The proactive approach taken by these market leaders is underscored by a collective industry consensus on the need to regulate production, manage output levels, and stabilize pricesSome analysts project that by 2025, the polysilicon sector is destined for a more rational market equilibrium, fostering a balanced industrial stability.

Moreover, the recent push towards self-regulation—sparked by discussions involving 33 industry representatives from various companies, including Tongwei, Daqo, and GCL—has led to agreements aimed at sustaining healthy market practicesThese discussions have culminated in the formation of a self-regulatory framework that encourages companies to cap production and avoid excessive expansion, with new implementations expected early in 2025.

Daqo further explained that their strategic decision to phase out some production lines is a direct result of thorough market research, characterized by a defensive "cash preservation" strategy reflective of board-level directives, signifying a clear endorsement of the government's call to action against unhealthy competitive practices.

There have been multiple forums throughout the year driven by stakeholders within the photovoltaic sector, including the Photography Industry Association, dedicated to addressing the issue of involution and working towards a consensus