China often gets criticized by the West these days for adding too much capacity in emerging industries, and a perfect example is the solar energy sector. Not only has the country rapidly added huge amounts of new capacity for solar panel production, but also for the polysilicon that’s the main component used to make solar panels.
Now, it seems that Beijing is finally taking action to try and rectify the situation – by strongly “suggesting” that polysilicon producers cap their utilization rates at half, based on the latest comments from Daqo New Energy Corp. (DQ.US; 688303.SH), one of the nation’s leading producers. Here, we need to do a little reading between the lines since Daqo didn’t say outright it has been ordered to cut production.
But somewhat conveniently, the company said it managed to cut its utilization rate to 50% during the third quarter, citing “weak demand.”
The big background here is that Daqo and its peers have been aggressively adding capacity for their polysilicon production over the last two years, all initially spurred by soaring prices for their product as countries raced to build new solar farms to reduce their carbon footprints. Daqo was quite typical of the group, laying out plans to more than triple its capacity to 300,000 MT per year from around 100,000 MT at the end of 2022 by building a massive new production center in the Inner Mongolia region.