Average gross profits of crystalline solar module manufacturers fell to just US$0.09/watt in the first quarter of 2012,putting huge pressure on suppliers according to IMS Research.As a result of continued price pressure and highly competitive market conditions throughout the solar industry,gross profits are forecast to continue to fall further to just US$0.07/watt by the end of 2012.
IMS Research revealed that following a year of rapid price declines,when average solar module prices fell by nearly 50%,industry gross profits fell below US$500 million in first-quarter 2012,the lowest level since 2008 and more than 75%lower on year.The cause of this rapid deterioration is simply due to costs not falling as quickly as prices.Whilst average solar module prices fell by US$0.67/watt in 2011,average costs per watt reduced by just US$0.42.
"Profit margins have been the victim as suppliers have been forced to engage in a fierce price war and have reduced prices faster than they have been able to reduce their costs,"commented IMS Research senior market analyst Sam Wilkinson."High inventory levels,weak demand and reduced government support for solar have all contributed to a rapid downward spiral for solar module prices."
The narrowing gap between prices and costs has resulted in the average gross profit per watt of solar modules falling from US$0.39 to just US$0.09 in one year.One key reason that suppliers have been unable to reduce their costs quickly enough is that average polysilicon prices have not declined as quickly as module prices.
"Although spot prices for polysilicon have quickly fallen over the last year,a large proportion of polysilicon is purchased under long-term agreements,and it has taken some time for suppliers to cancel or renegotiate supply contracts in order to reflect these reductions in spot prices.If we consider this mix of spot and contract prices,on average polysilicon prices fell far less than modules in 2011,"added Wilkinson.
Gross margins are forecast to stabilize at nine percent on average in the second half of 2012,with further price declines offset by significant improvements in non-silicon processing costs and continued declines in blended silicon purchase prices,which are projected to reach$25/kg in third-quarter 2012.