GCL Poly Energy, the world's largest maker of raw materials for solar panels - polysilicon and solar wafers - saw its share price plunge 8.2 per cent after it warned of a net loss in the year's first half, blaming weak demand because of Europe's sovereign debt crisis.
Analysts said the Jiangsu-based producer would struggle to return to the black in the second half.
The company said on Thursday that it expected to post a net loss of about HK$330 million for the first six months of the year.
Given a deteriorating market outlook and GCL's higher-than-expected first-half loss, 'it will be a challenge for the company' to make a profit in the second half, despite efforts to reduce its polysilicon production costs, cut material waste and make its solar wafer more efficient, KGI Securities analyst Jennifer Liang wrote in a research note.
Global producers of solar panel materials had indicated that demand from Europe, the world's largest solar panel market, had been lacklustre, while the ramp-up of demand in China had been slower than expected, Liang said.
The adoption rate of solar power around the world hinges on government subsidies. Despite rapidly falling equipment costs, solar energy is still more expensive than traditional sources of electricity, such as coal-generated and hydro power.
GCL, which has the annual capacity to make 65,000 tonnes of polysilicon and 8 gigawatts of wafers, made net profits of HK$4.02 billion in 2010 and HK$4.28 billion last year.
Daiwa Securities analyst Pranab Sarmah forecast GCL would eke out a profit of HK$117 million for the whole of this year through cuts to production costs, higher sales volume and solar farm disposal gains, including HK$124.8 million from the sale of one in the United States in the second half.
Industry research house Solarbuzz has forecast global average polysilicon prices will plunge 48 per cent this year from last year, while solar wafer prices are set to plummet 59 per cent. A series of plant closures this year have left only 12 polysilicon producers in operation on the mainland, with an average plant utilisation rate of 53 per cent.
Solarbuzz expected declines in the materials' prices to moderate to less than 7 per cent next year, with polysilicon falling to US$23 a kg, and wafer prices sliding to 25 US cents per watt.
Sarmah projected GCL's polysilicon profit margin would narrow to 18.7 per cent this year from 56.6 per cent last year, and that of wafers to 3.8 per cent this year from 18.5 per cent last year. He also warned that the central government's move to bailout ailing producers would delay recovery of the industry.