[SMM Analysis] "Rational Thinking" Series - Review of EVA and Photovoltaic Film in February 2024 and Outlook

The "Rational Thinking" series of monthly reviews will also express analysts' expectations and outlook for healthy competition in the future (Note: Analysts' outlook is for reference only and does not have any market forecast value.).

Vacation and resumption of production are the two most talked about topics in February 2024.

Two weeks before the resumption of work and production, the market suddenly started to rain heavily. Not only that, but there was also a cloud of fog in the market. The price of photovoltaic-grade EVA granules fluctuated sharply, the price of film increased, and granule procurement was in full swing... This series of changes has caught everyone off guard. Purchasing? Sell off? Raise price?

In the last article, we mentioned that "rationality vs. emotion is a phenomenon that the market needs to be vigilant about last month." Emotional tendencies often lead to decision-making deviating from the actual steady-state development tone of the market. This often results in purchasing at too high or too low a price and selling at too high or too low a price. But it is obvious that the market after the resumption of work in February is still an emotional market, although this is also the market that is most in line with the laws of human nature.

Do you feel that the market competition has suddenly become very fierce? In the last article, we mentioned that "cooperation vs. competition, non-zero-sum game is the ultimate choice for the peaceful development of the market.” Multilateral cooperation cannot be realized in the short term in a fiercely competitive market, but it is often the final direction of long-term strategies. Competition means that market gaming is not yet complete, and there is still territory for gaming in the market.

Therefore, the market in March may need more rationality to support the next decision-making, and it also needs to give more long-term thinking about cooperation to slowly lay the foundation for long-term development in the future. After all, no one can always bear the cost of the "granule-film-module" industry chain.

In the first week, the price of PV-grade EVA granules fluctuated slightly around 11,000 yuan/ton. In the second week, with the advent of the Chinese New Year, upstream granule companies scheduled production as needed and planned. As the Chinese New Year ended, upstream granule companies were back to the production of photovoltaic-grade EVA granules in the third week, or continued to maintain the production of photovoltaic-grade EVA granules, or continued to maintain the production of EVA granules used for other sectors; at the same time, the price quickly pushed up in the following days after February 17. The price jumped in just three days, from 11,500 yuan/ton to 11,900 yuan/ton. Then it rose to 12,000 yuan/ton. Amid the panic and tension, entering the fourth week, the increase continued, with the price reaching around 12,150 yuan/ton, and seemed to have a continued upward trend. In February, the difference between the weighted average values of EVA growth reached 1,150 yuan/ton, which was a very obvious increase from January (the weighted average difference last month was about 600 yuan/ton).

What is the reason that drives up this change in the price of EVA granules? There are three reasons:

The demand for modules is about to be released, the inventory of the film end is tightening, and the willingness to stock up and purchase is obvious.

After the year, photovoltaic demand will gradually recover due to the impact of the economic cycle. Normally, after the Chinese New Year every year, upstream modules will show a certain degree of demand release. After experiencing a weak operating rate before the Chinese New Year, the inventory of domestic modules continued to be depleted, and module inventory was gradually adjusted back to the normal inventory baseline. As March-April approaches, the bidding process for downstream terminals is about to start intensively, which will release sufficient production demand for its upstream modules, thereby causing an increase in the supply of films, an increase in the demand for purchasing EVA granules, and a corresponding increase in the price of EVA granules.

Before CNY, film manufacturers mainly purchased EVA granules as needed, and some companies carried out a certain degree of inventory preparation. Affected by the sharp price drop of photovoltaic EVA granules in the past, which resulted in purchasing losses, from early January to the end of the year, film manufacturers appeared to be more cautious in purchasing EVA granules. This kind of caution tends to be empirical. The price of EVA and the demand for modules are still unclear, there is a possibility of price decline of EVA, and the cost of blindly hoarding inventory needs to be borne by the film manufacturers themselves; besides, because the film factories generally believed that the price increase of granules may be temporary, but they ignored the fact that granules have approached the cost line at a certain point in time, as well as the economic laws behind it. Although some companies have prepared inventory to a certain extent, as the price of photovoltaic-grade EVA granules increased, the average price of inventory examples also gradually increased.

The upstream granule supply is tightening, and the imported granule supply strategy closely follows that of domestically produced granules.

After the CNY, some granule factories did not went back to the production of photovoltaic-grade EVA granules. Due to the impact of profits, the production mainly focused on soft foaming and cable materials. Imported photovoltaic-grade EVA granules closely followed the pace of domestic granule companies, controlling the volume and reducing supply, pushing up the price of photovoltaic-grade EVA granules.

Affected by the tightening supply of upstream granules, granule procurement has experienced a large-scale supply shortage. Upstream inventories are tight, some pellet factories have tightened their capacity, and some companies have even closed their sales for a period of time. As a result, supply has tightened and granule prices have risen.

Market sentiment caused by information asymmetry is serious

Before CNY, the time of closures at the film companies' factories differed. Although the granule factory continued production during the Chinese New Year, the business side was less sensitive to the market. There is an obvious time difference in the resumption of work after the Chinese New Year. Enterprises are not sensitive to the laws of economic operation and are not sensitive enough to actual market changes. As a result, enterprises have experienced instability in pricing and procurement, with obvious price differences and temporary deviations from the actual market conditions. Prices rose rapidly.

In the next month, as module demand gradually recovers, orders for films will gradually increase. By then, the demand for photovoltaic-grade EVA granules from film factories may further increase, and the price of granules may also rise again. However, companies should also be fully prepared. If there is a price increase, they need to carefully consider the extent of the price increase, the length of time that granule prices can be maintained after the price increase, and the subsequent trend of changes. They should maintain a relatively rational attitude and observe the market to avoid excessive Purchasing or over-optimism occurs.