Exploding Ships in the Red Sea, Exploding the "Ceiling" of Photovoltaic Demand? China's Photovoltaic Industry May Face a Big Test

The Red Sea attack is becoming a global shipping nightmare. Since

November 14, Yemen's Hussein armed forces have launched frequent attacks against ships passing through the Bab el-Mandeb Strait in the Red Sea. On the 18th, after another attack on two ships, the organization said it would "continue to stop all ships sailing through the Red Sea and the Arabian Sea to Israeli ports.".

was affected, and on December 21, A-share photovoltaic and energy sectors rose sharply across the board. From January to October

2023, according to the data of China Photovoltaic Industry Association, Europe is still the largest component export market in China, accounting for about 52% of the export volume.

At present, there are three main routes for Chinese products to be shipped to Europe by sea, namely the Suez Canal route, the Cape of Good Hope route and the Arctic route . The Suez route is an express route from the Bab el-Mandeb Strait to the Mediterranean Sea via Red Sea-Suez Canal, and then northward to the European continent ; the Cape of Good Hope route needs to bypass the Cape of Good Hope in Africa, which takes 7-11 days longer than Suez route; The Arctic Passage can only be used in summer. Under

normal circumstances, cargo ships departing from China to Europe usually arrive in Europe via Suez route and then return via Cape of Good Hope route. Geographically, the Bab el-Mandeb Strait in the Red Sea is about 20 miles wide and is the entrance to the Red Sea section of the Suez route.

As the "new three" of China's foreign trade exports, photovoltaic products are transported by container freight and rely heavily on the China-Europe Express Line of the Red Sea and the Mande Strait.

After 2 years, will the dilemma of photovoltaic shipping reappear?

In 2020, affected by the global epidemic, the price of international shipping containers rose sharply, and the phenomenon of "one warehouse is hard to find" and "blocking the port" triggered the global photovoltaic supply chain crisis.

According to Zhong Baoshen, the chairman of Longji Green Energy at that time, Longji's marine container logistics budget alone will reach 4 to 5 billion yuan in 2022; the inverter leader Sunshine Power will also increase its budget to 500 million yuan.

According to previous estimates by industry organizations, transportation costs account for about 4% of component costs, but this proportion is flexible and affected by fluctuations in shipping prices, which rose to 15% -18% at the beginning of 2022, exceeding the cost of most auxiliary materials.

A 40-foot high container has gone up by about $ 600, and the current freight rate is around $2400 to $2500. It is more expensive to go to Haifa Port on the eastern route (Eastern Mediterranean), which is about $6000 . It's about double what it used to be. If the situation in the Red Sea does not continue to change, prices will certainly continue to rise in January.

Cost pressure is only one aspect. At present, most shipping companies choose to bypass the Cape of Good Hope. Preliminary estimates show that compared with the previous Suez route, the voyage is expected to increase by 40%, the average single voyage of European routes will increase by about 10 days, and the Mediterranean voyage will increase by about 17 days. According

to Freightos, the number of ships currently passing through the Red Sea has fallen by more than 40% in a week. This will directly affect the delivery of overseas projects of Chinese photovoltaic enterprises.

Red Sea crisis, photovoltaic market "good" and "bad" hard to predict

the impact of the Red Sea crisis on the photovoltaic industry?

One is to stimulate the rapid transformation of European energy. The Suez Channel is not only an important shipping route between China and Europe, but also a major import route for oil, diesel, liquefied natural gas and other important energy sources in Europe. According to Freightos Group, a global freight booking platform, more than 1 million barrels of crude oil pass through the Suez Canal every day. Affected by the blockade of the Red Sea entrance by

Hussein's armed forces, WTI oil prices rose 4% in the overnight market on Monday, breaking through $74 a barrel, a two-week high. The European TTF benchmark natural gas contract also surged 13% on Monday.

Europe's energy crisis has reappeared after two years.

In 2022, affected by the conflict between Russia and Ukraine, the European photovoltaic and household storage market broke out. In March

2022, the European Union urgently launched the REPowerEU plan, announcing measures such as accelerating clean energy substitution, installing more rooftop photovoltaics and energy storage, in order to accelerate clean energy transformation and improve EU energy independence. Then in May, it announced that it would increase the share of renewable energy from 40% to 45% in 2030.

Affected by this, according to customs data in 2022, China's solar cell exports increased by 67.

(Europe) Many top-level designs with the direct purpose of "getting rid of Russian natural gas dependence" are still brewing details or just beginning to be implemented, and the direct role has not yet been fully played, Everbright Securities pointed out. Therefore, it is reasonable to believe that with the implementation of policies and the start of related financial instruments, the performance of the European photovoltaic market is expected to continue to exceed expectations.

At present , the European photovoltaic installed market is in the off-season at the end of the year, and affected by inventory backlog, the probability of large fluctuations in the market in the short term is low . However, in the medium and long term, this incident has once again exposed the fragility of the global supply chain, stimulated the fragile energy nerves in Europe, or will accelerate the independence of European energy and open a new ceiling for the photovoltaic market.

The second is to accelerate the localization of photovoltaic manufacturing. We need to see that the other side of European energy independence also includes efforts to get rid of dependence on foreign products.

At present, there are frequent trade crises against China's photovoltaic products. Since the second half of the year alone, there have been EU "carbon tariffs", Brazil's abolition of tariff exemptions, and Germany and Turkey's launching of triangular trade investigations. At the same time, within the EU, the controversy over whether to protect the local photovoltaic manufacturing industry by increasing import tariffs has been ongoing, which has become a "sword of Dadamocles" hanging over the export of photovoltaic products in China.

With the acceleration of globalization, it is expected that the future shipping market will develop towards the new trend of short-distance and regionalization of supply chain, according to industry analysis. Under the influence of

multiple factors, China's photovoltaic industry is also moving towards the road of "short-distance supply chain, regionalization " and "going to sea".

At present, Trina Solar, Jingke Energy, Xiexin Science and Technology and other enterprises have built factories overseas. Taking Trina Solar as an example, at present, Trina Solar has bases in Indonesia, Thailand, the Netherlands, Vietnam, the United Arab Emirates and other places to put into production or under construction, and the basic planning has formed a closed-loop overseas production of "silicon material-silicon rod-silicon wafer-battery-component-bracket". The chairman

of Trina Solar pointed out that China's photovoltaic industry is experiencing a transformation from "made in China and sold globally" to "made in the world and sold globally".

With the increasing uncertainty of global trade, grasping the "opportunity" in the "crisis" has gradually become an important ability to determine the success of China's photovoltaic enterprises in globalization.