According to a research report from Sinolink Securities Co., Ltd., mid-year results from photovoltaic companies have further confirmed that industry pricing and profitability have found a solid bottom. With sustained losses across the sector, tail-end production capacity and weaker players are gradually exiting the market. This, combined with the implementation of mandatory national standards and cost accounting guidelines, has strengthened the foundation of the solar sector's recovery phase. Currently, second and third-tier enterprises are still experiencing cash losses, indicating further room for supply reduction, with approximately 33,000 tonnes of capacity potentially considered as genuine exits.

The report highlights that the industry is accelerating furnace repairs amidst deep losses, leading to a rapid decline in supply and a recovery in prices from their lows. In 2026, solar demand is expected to weaken, intensifying supply-demand pressure in the solar glass segment. By late May, industry inventory had risen to a record high of 53.4 days, with the price of 2.0mm glass dipping to a low of RMB 8-8.5 per square meter. It is estimated that the entire industry has entered a state of cash losses. Under operational strain, furnace repair has accelerated. Data from Zhuochuang Information shows cumulative industry furnace repairs of 19,600 tonnes year-to-date, corresponding to an annualised module demand of approximately 127GW. As of September 10, the nominal production capacity of operating lines globally and domestically stands at 85,000 and 72,000 tonnes respectively, supporting annualised module demand of roughly 553GW and 466GW. Given the profitability pressures leading some companies to reduce output through methods like furnace preservation and sealing, actual supply is likely lower. Following supply contraction, industry inventory has fallen from its peak. Solar glass prices have risen three consecutive times from mid-July through early September to RMB 10.25 per square meter, a 24% increase from the previous low.

The cost curve for solar glass is relatively steep, suggesting further supply reductions are possible. At current prices of RMB 10-10.5 per square meter, second and third-tier enterprises remain in a state of cash losses. There is anticipated room for continued supply reduction: currently, domestic operating kilns below 1,000t/d total 5,900 tonnes (about 38GW of annualised module demand), primarily concentrated among second and third-tier players. Among these, kilns below 700t/d total 2,550 tonnes, which are likely to be shut down given persistently low prices. Additionally, some tail-end enterprises, under prolonged deep losses, are maintaining only a single furnace to preserve market share or even controlling output and inventory through kiln plugging. If prices remain low, these capacities have a high probability of being shut down permanently due to cash flow and debt pressures.

The report notes that a significant portion of capacity exits will be substantial. The willingness and capability for second and third-tier enterprises to ignite or restart furnaces are weak, limiting potential supply increases. The core task of cold repair involves replacing refractory materials in kilns and undertaking restoration and upgrades, requiring substantial capital investment. Since the second half of 2024, second and third-tier companies have experienced nearly two years of deep losses. It is expected that most of these companies lack the financial capacity to actually execute cold repairs after shutting down production. Moreover, restarting a cold-repaired line requires a ramp-up period of 3-6 months, and once ignited, output becomes rigid, making supply adjustments difficult. Unless solar glass prices and profitability improve significantly and are expected to remain sustainable, most second and third-tier enterprises will show weak willingness to restart. Among currently cold-repaired production lines, the report estimates approximately 33,000 tonnes of capacity—either with furnace sizes below 700t/d or belonging to companies with no active production lines—can be treated as genuine capacity exits. Looking ahead, leading enterprises currently hold over 8,000 tonnes of ready-to-ignite capacity. Given the significant cost disparities within the industry, over the next two to three years, the capacity that can and will be released is mainly concentrated among top-tier and leading second-tier companies, making potential supply increases limited and controllable.

Sinolink Securities concludes that leading players' profitability advantages are stable, and overseas differentiated capacity strengthens their barriers, ensuring high certainty of earnings recovery and market share gains. Industry leaders like XINYI SOLAR (00968) and 福莱特 (601865.SH) have long maintained a gross margin gap of over 10 percentage points compared to second and third-tier enterprises, leveraging advantages in self-supplied raw materials, large-scale procurement, energy consumption, and yield rates. In recent years, this gap has widened due to the ramp-up of premium overseas capacity. Looking ahead, overseas supply growth for solar glass is limited, and leading companies' overseas capacity holds significant cost advantages, likely sustaining premium pricing. As domestic capacity of second and third-tier enterprises accelerates its exit under profitability pressure, leading players are set for a high-certainty profit recovery. Simultaneously, leveraging their profitability and capital strength, they are expected to maintain capacity growth faster than the industry average, thereby regaining market share.

Risks to watch include lower-than-expected downstream installation demand, excessively rapid industry supply release, a deteriorating international trade environment, and fluctuations in raw material prices.