Goldman Sachs: New PV Anti-Involution Policies Struggle Against High Inventory Pressure

Overview

Goldman Sachs released a commentary on the Chinese photovoltaic industry, focusing on the actual effectiveness of recent new "anti-involution" measures. The report argues that although regulators are pushing backward capacity out through mandatory energy efficiency standards and industry self-discipline agreements with greater force than last year, significant price hikes for polysilicon struggle to materialize due to high downstream inventory and weak demand. The research maintains a cautious view on the industry, expecting long-term low polysilicon utilization rates and a downward shift in price levels.

Core views

Positive changes have emerged at the policy level, but substantive supply-side clearance remains limited. In early August, the top eight polysilicon companies reached a discipline agreement, committing to comply with the mandatory energy efficiency standards issued by three departments and adjust selling prices above total production costs; SMM data shows some companies have raised quotes by 25% to RMB 40/kg, but there are no actual transaction confirmations yet. Unlike last year's purchase fund which was paused due to antitrust concerns, this time the energy efficiency standards jointly launched by MIIT, NDRC, and SAM will be enforced starting January 1, 2027, more effectively preventing the restart of marginal capacity that had already ceased production. However, the report calculates that the current operational capacity of approximately 2.6 million tons largely meets or can be upgraded to meet the new standards, so the policy's impact on reducing "effective supply" is relatively mild and insufficient to reverse the supply-demand imbalance. High downstream inventory has become the core obstacle to price realization. Unlike the healthy inventory status after last year's rush to install, current downstream inventory from wafers to modules is estimated to be as high as 235 GW. Even under the extreme assumption that polysilicon procurement pauses until year-end, existing inventory is sufficient to cover China's module production demand of approximately 225 GW from August to December 2026. This high inventory buffer makes downstream players less receptive to upstream price hikes. Conversely, if the polysilicon segment is forced to cut production to support prices (assuming monthly production of 105,000 tons and cash operating costs of RMB 38/kg), it may face monthly cash burns of about RMB 4 billion until year-end, posing a severe test to the cash flow of upstream enterprises. Based on the aforementioned supply-demand contradictions, the report reiterates its structurally bearish view on the Chinese photovoltaic industry. Due to weak demand and slow capacity exit, the average polysilicon utilization rate from 2026 to 2030 is expected to remain in the low range of 29%-68%, averaging only about 30%. In this context, polysilicon prices are expected to drift to the cash cost level of the most efficient top-tier manufacturers, forcing further compression of pricing space across downstream segments. Although the willingness for policy support has increased, industry profit repair still faces significant resistance before inventory destocking and demand improvement occur.

Analysis framework

The report adopts an analytical framework of "policy comparison + quantitative supply-demand calculation." First, by comparing the differences between this round of mandatory energy efficiency standards and last year's purchase fund policy tools, it evaluates the execution power and effectiveness of capacity clearance; second, by matching industry chain inventory data with future monthly demand, it quantitatively assesses the downstream's capacity to absorb upstream price hikes; finally, by combining cash cost models to deduce the博弈 (game) results between upstream enterprises supporting prices versus cutting production, it draws conclusions on the medium-to-long-term trends of prices and utilization rates.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Effective Supply vs. Nominal Supply

  The report distinguishes between 'operational capacity' and 'compliant effective capacity,' pointing out that even if policy eliminates some nominal capacity, if the remaining compliant capacity still far exceeds demand, prices cannot reverse. This is a key perspective in analyzing strongly regulated industries to avoid overestimating policy effects.

• Cycle and Prosperity FrameworkInventory cycle (Kitchin)

  Downstream Inventory as a Buffer for Price Transmission

  The report judges whether upstream price hikes can be transmitted by calculating how many days of production downstream inventory can cover. When inventory is high, downstream players can resist price hikes by consuming inventory, leading to a situation where upstream has prices but no market; this is a core indicator for determining whether the turning point for cyclical goods' prices has been established.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Cash Operating Costs and the Cost of Shutdown

  The report calculated the monthly cash consumption of polysilicon enterprises under the scenario of cutting production to support prices, used to evaluate the sustainability of supply-side 'price support.' When the cash bleed caused by shutdown exceeds the loss from selling at lower prices, enterprises often choose to resume work, thereby limiting the height of price rebounds.

Key data

• Latest Polysilicon QuoteRMB 40/kgSome companies raised by 25%, but no transactions confirmed yet
• Downstream Full Industry Chain Inventory235 GWCovers silicon wafers to modules, sufficient to cover 225 GW of production demand from Aug-Dec 2026
• Polysilicon Operational Capacity2.6 Million TonsMost can meet or upgrade to meet new energy efficiency standards
• 2026-2030E Average Utilization RateApprox. 30%Expected to remain in the 29%-68% range, reflecting structural oversupply
• Potential Monthly Cash BurnRMB 4 BillionCost of shutdown assuming monthly production of 105,000 tons and cash costs of RMB 38/kg

Impact & implications

For the photovoltaic industry chain, this means the probability of achieving significant price rebounds in the short term relying on administrative means or industry self-discipline is low. Upstream polysilicon enterprises will face longer periods of cash flow stress tests; only top-tier manufacturers with extreme cost advantages can survive in a low-price environment. While mid-to-downstream segments benefit from low raw material prices, they also need to compress pricing simultaneously to adapt to weak terminal demand. The true signal for an industry turning point lies not in the issuance of policies, but in the substantive destocking of downstream inventory and the recovery of terminal demand.

Risks

• Persistently high downstream inventory prevents upstream price hikes from materializing completely
• Demand recovery falling short of expectations prolongs the industry trough
• Cash flow breakage among polysilicon enterprises triggers irrational sell-offs or debt risks
• Faster-than-expected upgrading and transformation of existing capacity weakens the policy clearance effect

What to watch

• Specific guidance on anti-involution measures provided by companies during Q2 earnings calls in late August
• Actual transaction volumes and price trends following polysilicon price hikes
• Module manufacturers' ability to pass on price hikes to terminal customers and order feedback