(Yicai Global) Jan. 18 -- The decision by Longi Green Energy Technology, a leading Chinese maker of solar panels, to hike the prices of monocrystalline silicon wafers was likely due to higher raw materials costs, according to an analyst.

“The prices of polysilicon raw materials have rebounded recently after a continuous decline, which is probably the direct reason for Longi’s move to raise prices of silicon wafers,” the new energy sector analyst told Yicai Global.

Longi has raised the price of all monocrystalline wafer products by between 2.4 percent and 5.2 percent, the Xi’an-based company said on Jan. 16. But the increase is less than the two price cuts it announced on Nov. 30 and on Dec. 16 last year, ranging from 7.2 percent to 9.8 percent and 5.5 percent to 5.7 percent, respectively.

The increase has drawn much attention coming as it does in the first quarter of the year, a low-season for solar power plant installations. Orders in this period jumped significantly from the fourth quarter of last year, buoyed by higher demand due to the silicon wafer price cuts, the analyst noted.

The low inventory of silicon raw materials and the demand for stocking silicon wafers ahead of the Lunar New Year holidays have led to a big rebound in demand for polysilicon and a consequent pickup in prices, he added.

“Upstream and downstream demand in the photovoltaic industry chain affect each other,” the analyst said. “Upstream price cuts help stimulate the release of downstream demand, and in turn, stronger downstream demand may cause upstream prices to rise.”

A number of new silicon raw material projects will be completed and put into production this year. “Despite the increase in silicon raw material prices, which exceeded market expectations, the recovery will not be too large,” the analyst noted.

China’s maximum annual capacity of the raw material will jump to about 790,000 tons this year, with most of the new capacity going into operation in the second half, he said, adding that there may still be a short-term scarcity in the first six months of the year.

Demand for polysilicon raw material in China’s solar energy market will soar by 180,000 tons to about 740,000 tons in 2022 from last year, based on the expected 220 gigawatts increase of solar energy installed capacity in the period, according to a research report by Huajin Securities.

With the hike in production capacity and continued strong demand for the products, profits of mid- and downstream cell and module makers will recover this year, while the upstream silicon raw materials and cell end will inevitably face a shrinkage in gross profit margin, the analyst said.

Editors: Tang Shihua, Futura Costaglione