China has already once completely transformed the photovoltaic (PV) industry and maybe about to do so again.
This is a major event for the conductive paste industry because the PV industry remains the primary volume market for firing-type pastes, generating a demand in excess of 1450 tonnes per annum in 2016, according to a recent IDTechEx study.
General industry trends
The paste market for the PV industry is currently booming as PV sales are up in anticipation of the end of current feed-in-tariffs in China. In fact, sales have surpassed even the expectations material and paste suppliers.
The paste market has witnessed a change of market share in the past few years, but the high sales have once again buoyed, at least temporarily, even those former market leaders who had seen their market share drop in this perennially cost-sensitive market.
This change of market leadership in the PV industry, in turn, had major ripple effects across the conductive paste industry: big paste suppliers actively started to develop nascent markets that would have previously been considered too small in order to compensate for a dwindling market share in core markets.
This, of course, will squeeze the space even more in niche sectors. The industry remains highly competitive and price is the big differentiator.
The innovation is incremental and is towards minimising consumption per wafer whilst increasing efficiency.
The window of opportunity in which to capitalise on new formulations is often short-lived and products are all often comparable.
The long-term trend towards the rise of Chinese suppliers is also taking shape: the know-how already exists, and the IP or capital barriers are also not formidable.
The powder suppliers also face interesting times. On the one hand, overcapacity has ensured slow change in the design of the dominant PV cell architecture, meaning that the role of paste metallisation has remained secure.
On the other hand, cell manufacturers now increasingly demand a diversified supplier base and reduced cost, suggesting increased competitive pressure for leading suppliers.
Chinese suppliers are also on the rise here too: they compensate for their inferior technology by access to silver at subsidised local prices, which keeps them more than competitive.
This diversification process has been well under way for the past year, but the rate has been slow due to the incumbent’s continued superior performance and the lock-in mechanism set in place by the fact that pastes were formulated around the incumbent’s powders.
This process is however inevitable unless a step-change in performance is demonstrated.
China transforms the game, again?
China has already completely transformed the photovoltaic industry once: it became the dominant manufacture with more than 65 per cent of the world output in 2015, up from a measly 3-5 per cent in 2004-2005.
The rise of China in the PV industry is charted below.
Here, China became the largest buyer of paste metallisation products globally, leading to a complete re-organisation of the entire industry from production sites all the way to sales/marketing teams.
China might be about to transform the game once more: it recently announced around $USD140 billion worth of investment in the solar industry over a four-year period. Whilst this is major news for the industry, its details are still unclear.
For example, it is not clear whether the investment will be applied on the supply or the demand side. If applied on the demand side, we can speculate that sales will grow more than previously predicted, dispelling fears of a slowdown in PV sales after the end of the FiTs in China.
It will also accelerate the rise in capacity utilisation, pulling the PV production industry out of its long-term state of over-capacity.
This may, in turn, lead to investment in mass production of new cell technologies, opening the way to alternatives to paste technologies.
If applied on the supply side, it will result in a further increase in production over-capacity, making the PV industry similar to many other industries that face a supply glut thanks to overinvestment in China.
It will probably lead to further price pressures through the entire value chain, whilst the new CapEx investment cycle may also pave the way for new cell technologies.