GCL Technology plunges into the red, eyes Middle East production

The polysilicon maker said it lost nearly 3 billion yuan in the first three quarters of the year, but hopes to rebound as it starts to put more of its idle capacity back to use

Key Takeaways:

• GCL Technology said it lost nearly 1.5 billion yuan in the third quarter, suffering as its material costs remained below prices for its finished polysilicon products
• The company is partnering with the UAE’s sovereign fund as it eyes the Middle East as a potential contributor to rebounding from its current slump

By Bai Xinrui

The sun may be shining on solar energy, whose growing use could provide most of the world’s power in the not-too-distant future. But the industry behind that rise looks far less sunny, subject lately to wild swings created by both market and political factors.

GCL Technology Holdings Ltd. (3800.HK) is a case in point. The polysilicon maker’s shares spiked by 50% the week of Oct. 21, after word emerged that the U.S. was reportedly withdrawing part of its anti-dumping duties on Chinese photovoltaic cells. But they’ve resumed a longer-term slump since then, the result of plunging profits created by a massive supply glut. The company shined its own spotlight on the issue late last month when it warned it would post a massive loss of 1.49 billion yuan ($190 million) in the third quarter.

The third-quarter loss would roughly equal a similar loss in the first half of the year, bringing the company’s losses to nearly 3 billion yuan in the first three quarters of 2024. The industry is being dogged right now by huge overcapacity, which has caused the price of finished polysilicon to drop below its actual production cost. That’s forced producers to turn large swaths of their newly added production capacity offline, GCL explained.

Selling below costs

Polysilicon makers are suffering from a hangover after most rushed to build new capacity on expectation of a boom in demand for solar panels to build new solar farms. Producers were able to remain profitable as recently as this year’s first quarter as average prices remained above production costs. GCL said it could sell an average kilogram of granular silicon, a key ingredient used to make polysilicon, for 55.05 yuan per kilogram in the first quarter, above the production cost of 37.84 yuan.

But the market deteriorated so fast in the third quarter that its price for granular silicon actually plummeted by 40.5% to just 32.75 yuan, even as its cost to produce the product dropped by a far smaller 12.3% to 33.18 yuan. In a nutshell, the cost of producing granular silicon is now lower than the cost for GCL.

GCL listed in Hong Kong back in 2007 and is now one of China’s leading polysilicon makers with 65,000 MT of polysilicon production capacity in 2011. The company launched trial granular silicon production a year later, and has gradually switched to that material and withdrawn from older rod silicon technology. The company’s granular silicon production capacity reached 420,000 MT last year, accounting for over 15% of the market.

While the substantially lower costs for granular silicon and polysilicon are benefiting the entire photovoltaic (PV) industry, oversupply has become a major headache in the last year. Rapid growth in demand for solar power in 2021 led to a polysilicon shortage, pushing prices to record highs. Producers used their big profits to build new capacity, pushing output last year in China to about 1.5 million MT, up by a massive 85% year-on-year.

But growth in demand for panels for new solar farms in China has been slower than the growth in polysilicon production capacity. At the same time, weak demand for Chinese panels overseas has further pressured the industry chain. China exported 22.78 GW worth of solar products in September, up 3.2% year-on-year in capacity terms. But the export value of those products was just over $2 billion, down by 40.2%, as manufacturers slashed their prices to clear out inventory.

Demand for solar modules in Europe has been especially sluggish due to unclear local policies regarding subsidies. Compounding the issue, many potential solar farm builders are taking a wait-and-see attitude towards potential interest rate cuts by the European Central Bank that could lower their costs. As a result, China only exported 7.36 GW worth of photovoltaic products to Europe in September, down 2% year-on-year and 11.6% lower than in August.

Eyes on U.S. election

Meanwhile, all eyes are closely watching the U.S. election, which could be a game changer for the solar industry. If Kamala Harris wins, many believe she will continue the Biden administration’s policy of supporting the renewable energy transformation.

But a victory by Donald Trump could result in a policy U-turn. In an interview with Bloomberg Businessweek in June, Trump said he is very wary of photovoltaic power because it takes up too much space, produces unstable electricity, and can only be used in areas with plenty of sunshine. Trump is also a major supporter of traditional fossil fuels and has repeatedly praised natural gas for its low cost and environmental friendliness.

While solar companies face many uncertainties in Europe and the U.S., the Middle East could provide new opportunities. An “Updated Energy Strategy 2050” issued by the United Arab Emirates (UAE) in July says clean energy would supply up to 30% of the country’s total energy needs by 2030. It added that government investment in the new energy sector would increase by $40 billion to $54 billion over the next seven years, more than tripling the installed capacity of renewable energy to 14.2 GW.

GCL is jumping on that opportunity, announcing in June that its GCL Suzhou subsidiary would work with MDC POWER, a wholly owned subsidiary of the UAE sovereign wealth fund, to develop the UAE’s first polysilicon production facility. That means GCL Technology’s granular silicon technology could soon go global, helping to propel its business if the UAE ultimately builds the envisioned facility.

GCL indicated in its profit warning that its capacity utilization rate has bottomed out and is starting to rebound, and that it expects to be one of the first from its field to emerge from the downturn. But the huge overcapacity issue and uncertain demand for photovoltaic products remain. The bottom line is that analysts expect the company to lose around 2.6 billion yuan this year. The Middle East may provide some help over the longer term, but GCL’s shares may remain in the doldrums until it finds a road back to profitability.

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