China’s troubled solar sector may be nearing a turning point

China’s solar manufacturers have just been through a bloodbath of an earnings season, but there are tentative signs the massive glut that is plaguing the industry could be starting to ease.

Longi Green Energy Technology and five other leading solar firms racked up a combined US$2 billion of losses in the first half after a frenzy of factory building over the last few years created excess capacity that has driven prices to record lows. Some smaller companies have already been forced into restructuring, while rising trade tensions with the US and Europe may put exports at risk.

The financial pain looks to be planting the seeds for a turnaround, although a meaningful rebound is unlikely until next year. Goldman Sachs sees an imminent wave of factory closures that would help rebalance the market, while Morgan Stanley reckons equipment prices have already bottomed out.

Longi said it hoped to “push the industry out of a quagmire of low price competition” as it raised solar wafer prices last week. TCL Zhonghuan Renewable Energy Technology also said it will increase prices of three types of wafers, according to a report in Chinese media.

“I don’t know if prices can fall beyond this point, it’s just too much for even the biggest players,” said Cosimo Ries, an analyst at Trivium China in Shanghai. “It’s still going to be a pretty painful year, and maybe longer before that capacity gets cleared.”

The Chinese solar industry’s predicament can be traced back three years ago, when a surge in demand for panels boosted prices and unlocked ambitious expansion plans that resulted in far too much supply.