23 February 2019
Prices of polysilicon, the material used in making solar panels, have fallen precipitously amid industry overcapacity. Photo: Bloomberg
Prices of polysilicon, the material used in making solar panels, have fallen precipitously amid industry overcapacity. Photo: Bloomberg

How a power equipment titan got barbecued by solar ambition

China COSCO (01919.HK, 601919.CN) was the biggest money loser among mainland-listed companies in 2012. Its worst mistake was expanding at full speed just before the global shipping market sailed into an economic storm. For 2013, the dubious distinction is expected to go to Baoding Tianwei Baobian Electric (600550.CN).

Tianwei reported a loss of 5.2 billion yuan (US$839 million) last year, mostly from the company’s new energy business — polysilicon.

The electrical equipment maker was among those lured by polysilicon’s rich margin back in 2007, which at one point was even pricier than gold.

Tianwei splashed tens of billions of yuan on two mega projects within one year, according to a China Securities Journal report. Most of the money came from bank loans.

But after a short honeymoon period, the global financial crisis and industry overcapacity conspired to push prices of the solar cell material down to rock bottom.

Polysilicon sold for as high as US$500 a kilogram in 2007, but prices quickly fell to US$20 per kilo, according to the Journal.

Tianwei could only stand there watching its investments go down the drain. Having opted for a low-end manufacturing technology, the company found it extremely difficult to upgrade its products or drastically cut costs to stay competitive.

One of its major polysilicon units has already gone bankrupt, and the outlook remains dire for the other units.

Tianwei’s fault is to invest too aggressively in a new business that it knows very little about. Like a gambler too eager to win the jackpot, Tianwei poured huge sums into the business. It also failed to factor in any potential demand shortfall and surge in competition on the supply side. Such mentality is not uncommon among Chinese corporates. 

If Nomura’s report about industry leader GCL Poly Energy (03800.HK) is right, more trouble lies ahead for Tianwei.

A further decline in product price and threats from the competing thin-film technology are some of the dangers facing GCL, the investment bank says. If GCL, which has far better scale, cost advantage and technology than Tianwei, is facing bleak prospects, Tianwei’s situation can only be worse.

The company is already shifting its focus back to its original core business, the making of transformers and other electrical equipment.

China is planning more ultra high voltage power transmission lines and grid companies have drawn up bold spending plans, providing Tianwei with fresh business opportunities.

But while Tianwei was sidetracked by its ill-fated solar venture, major rivals wasted no time in expanding their presence in the power equipment business. Top player China XD Electric (601179.CN) has seen its market share double to 30 percent in just a few years, the Journal notes. Tianwei has a lot of catching up to do.

Some are hoping China’s rumored plan to create a mini-capital may hand Tianwei a special break. Located in Baoding, the city is tipped to serve some of the capital’s functions to help ease Beijing’s overpopulation and resources shortage. Tianwei owns land assets in the northern city, which may become very valuable if Beijing finally decides to move some of the capital’s government offices and industries to Baoding.

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EJ Insight writer

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