Lantian Shi of GCL Technology: Industry Leaders Are Jointly Promoting the Exit of Surplus Polysilicon Capacity from the Market, and Participants Need to Invest "Real Money"

The path for joint mergers and acquisitions (M&A) and restructuring in the highly anticipated polysilicon segment is beginning to take shape. During this year's SNEC PV Power Expo, Lan Tianshi, Co-CEO of GCL Technology (03800.HK), revealed in discussions with media outlets including Cailian Press that leading enterprises in the industry are taking the lead in establishing a company operated by professional managers through a model of "direct capital contribution + debt". The goal is to achieve capacity exit and controllable output through acquisitions, repay liabilities with profits, and thereby promote the orderly withdrawal of industry capacity.

"In the future, participants may invest and repay debts with real money through equity or LP (limited partnership) structures," Lan said.

Cailian Press reporters noted that as early as early May this year, top producers had already proposed this plan, but due to significant implementation challenges, there were many doubts.

Polysilicon, as the most upstream segment in the PV main material industry chain, holds a pivotal position within the entire chain. During the upswing of the industry cycle in 2022, due to shortages in this segment, not only did leading polysilicon enterprises increase their capacity construction, but many small and medium-sized enterprises also laid out polysilicon capacity. Most of the capacity invested in over the past two years has been "advanced capacity," and some industry insiders have explicitly stated in discussions with Cailian Press reporters that they have no plans to sell this portion of their capacity.

In response, Lan Tianshi said it is normal for some polysilicon enterprises to be reluctant to be acquired, and the key to resolving this lies in reasonable acquisition prices. He further stated that currently, there is no relatively soft approach to clearing out surplus polysilicon capacity. Even with a "quota system," there would be risks such as ineffective penalties and the risk of "bad money driving out good."

He believes that after a year of continuous deliberation within the industry, the willingness and possibility of reaching a consensus on this plan this year will definitely be significantly better than last year.

"From last year's SNEC PV Power Expo to now, a year has passed, and no one has found a particularly good way to eliminate competitors through competition or relatively brutal price cuts. It is foreseeable that continuing this approach for another year would likely be meaningless," Lan said. He added that both the government and enterprises would consider healthy development, the industry's overseas image, and other aspects, and need to change the situation where low-price cut-throat competition sacrifices R&D and intellectual property.

The production of polysilicon mainly includes granular polysilicon (produced via the fluidized bed reactor (FBR) method using silane) and traditional rod-shaped polysilicon (produced via the modified Siemens process). GCL Technology belongs to the former category and has relative advantages in terms of unit energy consumption, cost, production efficiency, and low-carbon attributes.

Lan Tianshi believes that reducing capacity through this method is a first in the PV polysilicon industry, but there are already mature cases in other industries. For example, industries such as steel and cement promoted capacity reduction and industrial consolidation more than a decade ago, ultimately driving product prices back to reasonable levels within a short period of time.

Regarding the next steps, he stated that the capacity after the acquisition would be determined based on market conditions, whether to commence operations, cut production, or halt production, with the goal of stabilizing polysilicon prices at reasonable levels and ensuring that capacity can generate returns.

The periodic supply-demand imbalance in the PV industry has received increased attention. The industry hopes to integrate the upstream end of the PV industry using relatively advanced capacity or relatively larger brands. According to Lan Tianshi, GCL Technology is maintaining close communication and discussions with leading enterprises in other industries, including reporting to relevant government departments, to explore how to promote industry consolidation under government guidance in the future.

"This cannot be accomplished by GCL Technology alone. If the polysilicon industry ultimately achieves this, it will be highly instructive for breaking the cut-throat competition in other industries," Lan Tianshi said.