Analyst: Solar Inventory Piling Up

Inventories are spiking in the solar supply chain due to oversupply coupled with lackluster demand, and the glut will cause price erosion from raw materials to cells, according to a report from iSuppli.

“The worldwide solar industry for the first quarter added the equivalent of one-and-a-half months of excess inventory in just one year,” noted Henning Wicht, iSuppli’s principal analyst for PV research.

Average days of inventory for solar module/cell makers and polysilicon/wafer suppliers spiked 64.3% in 1Q09 to 121.9 days. Heading the other direction, spot prices for polysilicon, which were $180/kg at the beginning of 2009, are seen plunging -72% to $50 by year’s end.

Average days of inventory in the PV industry. (Source: iSuppli)

On the demand side, long-term contracts mean solar-cell makers still have to take deliveries from their polysilicon suppliers, who themselves have to keep churning out product to cover enormous fixed costs (e.g. facilities). Also being hit hard are integrated companies (e.g., REC, Yingli, and SolarWorld) whose participation in all three supply chain points (poly-Si, wafers, and cells) ties them to their own capacity and exposes them to demand dropoffs at every step—inventory levels for this segment nearly doubled to 161 days in 1Q09, vs. 86 days in 1Q08, iSuppli notes. Cell and module manufacturers are seeing inventories build up even faster (105 days in 1Q09 vs. 47 days in 3Q08).

Poly-Si and wafer suppliers have done better than others in maintaining inventories (up to 98 days in 1Q09 vs. 74 days in 1Q08), but additional capacity about to come online will cause everyone to push excess to the spot market to cover even variable costs — and cause “further price erosion at all nodes of the value chain,” Wicht warns.

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