On December 24th, two leading companies in the solar industry, Tongwei Co., Ltdand Daqo Energy, simultaneously announced their decisions to reduce production, impacting more than 1.2 million tons of polysilicon capacityThis significant move reflects an industry-wide response to persistent overcapacity and dwindling profit margins that have plagued the solar sector.

Both companies stated that this strategy aims to alleviate losses and break free from intense competition characterized by what is often described as “involution.” In other words, they are taking steps to foster a sustainable growth pattern for the photovoltaic (PV) industry, which has experienced rapid expansion but is now grappling with excessive supply.

Industry experts view this announcement as a first step from the upstream section of the photovoltaic supply chain, indicating a response to calls for reducing cutthroat competition

By winding back production, these companies are not only anticipating an improvement in the balance between polysilicon supply and demand but are also setting a precedent for adjustments down the entire supply chain.

In a statement shared on its WeChat account, Tongwei Co., Ltdoutlined its plans to systematically reduce production at its high-purity polysilicon manufacturing facilities in Yunnan and Sichuan provincesThe adjustments align with the overall production strategy of the company, which includes equipment upgrades and maintenance phases.

The company indicated that the ongoing dry season in Southwest China, along with rising electricity prices, has contributed to the downward pressure on the photovoltaics marketFaced with the current situation of consistently low prices within the polysilicon sector, they deemed it essential to adopt measures in line with directives from the central economic work conference

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This demonstrates a commitment to fostering long-term healthy growth within the industry.

Interestingly, Tongwei had previously signaled its intent to cut production during an investors’ meeting in November, where they discussed potential production adjustments in light of continued market weaknessThey emphasized their approach would be dynamic, guided by market conditions and prudent production strategies.

Daqo Energy follows suit, announcing gradual maintenance and controlled reductions in polysilicon production at their plants located in Xinjiang and Inner MongoliaSimilar to Tongwei, Daqo underlined that the objective of these reductions is not only to respond to market cues but also to stabilize its operation and enhance product quality while reducing operating losses.

According to the China Photovoltaic Industry Association, polysilicon prices have dipped more than 35% this year, resulting in significant revenue declines for major players in the sector

Tongwei Co., Ltdreported a nearly 39% decrease in revenue during the first three quarters of the year, along with a staggering net profit loss of almost 124%. Daqo also faced similar challenges, experiencing over a 53% drop in revenue and a substantial net profit loss.

Tongwei's polysilicon production capacity exceeds 900,000 tons, while Daqo's Xinjiang and Inner Mongolia facilities account for a combined annual capacity of 305,000 tonsThis totals an impressive reduction that may affect around 1.2 million tons of polysilicon capacity across the two industry giants.

Furthermore, a third prominent producer, GCL-Poly Energy, has also been hinted to consider production cuts, suggesting a more widespread industry trend towards reducing production capacity as the companies collectively work to rectify current supply-demand imbalances.

This initiative to reduce production signifies a broader commitment to combat what has been termed as “involution” in the industry, which refers to excessive and often destructive competition that could weaken sustainability efforts.

It is noteworthy that this current production halt is distinct from regular maintenance shutdowns

Both Tongwei and Daqo have placed the decision for resuming production squarely in the hands of market forcesFuture production plans will be shaped by fluctuations in electricity prices as well as overall market sentiment.

Daqo emphasized that taking the lead with a reduction in production volumes has enhanced market expectations regarding the regulation of silicon material output, price stabilization, and the re-establishment of a reasoned market equilibrium by 2025.

Another angle to consider is the recent movements towards developing a self-regulation agreement among industry stakeholders aimed at curbing aggressive competitionEarlier this month, a seminar initiated by the China Photovoltaic Industry Association brought together representatives from 33 companies to deliberate ways to mitigate “involution” and ensure sustainable development within the solar industry.

Reportedly, these 33 companies have collectively decided to sign a voluntary self-regulation pact to control their production and shipments, mindful of avoiding unwarranted expansion

This agreement is expected to become official around New Year’s Day 2025. Notably, Tongwei, Daqo, and GCL-Poly participated in the discussions leading to this initiative.

In a response to queries, Daqo confirmed that their production cuts were based on comprehensive research and analysis of market conditions, adhering to a strategy aimed at maintaining cash flow while ensuring compliance with the central government's initiatives to foster a sustainable industry free from adverse competition.

Since the beginning of the year, other stakeholders, including the China Photovoltaic Industry Association, have organized multiple meetings addressing the issues surrounding involutionThis aligns with a broader consensus that the “race to the bottom” pricing strategies prevalent in the industry must be alleviated for a healthier market environment.

Significantly, futures and options trading for polysilicon contracts are set to launch soon, with expectations of bringing promising shifts to the local market