Polysilicon latest trade war victim


According to China Daily on Monday, November 21, Gao Hongling, deputy secretary-general of the China Photovoltaic Industry Alliance stated that foreign companies have been deliberately cutting polysilicon prices to "force Chinese companies out of business".

The alliance goes on to say that in the third quarter of 2011, a number of factories in China either halted or scaled production back, and that over 2,000 people in just one province lost their jobs. Furthermore, it was reported to have said that "foreign companies, led by the United States, dumped 47,500 tons of polysilicon in China in 2010, 20,000 tons more than the previous year …" Gao added that U.S. companies have been taking advantage of U.S. subsidies to "lower prices in China".

Reuters additionally reported on Tuesday, November 22, that chief secretary of the alliance has said its members are calling on it to file a petition similar to SolarWorld’s. Reuters further writes that GCL-Poly, Suntech and Yingli account for 70 percent of China's polysilicon production and more than half of the country's solar panel production.

Polysilicon landscape

As reported yesterday, the solar market has come under enormous pressure this year. While it has been module prices which have dominated discussions, the whole supply chain has been affected. In particular, the polysilicon industry has undergone a number of transitions as it repositions its customer base from the semiconductor industry to photovoltaics.

Bank Sarasin states in its recent report, ‘Solar industry: Survival of the fittest in a fiercely competitive marketplace', that two major changes have occurred in the polysilicon sphere. Firstly, photovoltaics now represents its main customer, having "comfortably" outstripped the semiconductor industry. Secondly, on the back of cell manufacturers’ attempts to raise efficiencies, silicon purity is becoming increasingly pertinent.

The report found that more than half of the world’s polysilicon production comes from the U.S. and China. Based on the bank’s latest figures, which show an overview of market share in 2010, at 22.4 percent U.S. company Hemlock constitutes the biggest polysilicon player. It is followed closely by Germany’s Wacker Chemie, which holds 19.8 percent of the market, Korean-based OCI, with 8.9 percent, and China’s GCL-Poly with 8.7 percent.

These four producers currently comprise 60 percent of the market. However, according to Sarasin, their share is expected to jump to 70 percent in the coming years. Even in light of the overcapacity in the solar industry, it believes they will not experience sales problems, due to both their cost and quality advantages.

Meanwhile, with 8.6 percent of the market share, Norwegian company REC ranks fifth among the world’s top polysilicon players, while U.S.-based MEMC and Japan’s Tokuyama come in sixth and seventh place with eight and 7.8 percent, respectively. "Others", like China’s Suntech and Yingli, and U.S. company LDK Solar represent the remaining 15 percent of the market.

Price spikes and drops

The thin film industry rejoiced in 2010 when, due to a temporary supply bottleneck, polysilicon prices rose from USD$55 per kilogram (/kg) to a high of $75/kg. Believing the high prices were here to stay, the manufacturers thought they had finally found a way to compete with the silicon module manufacturers.

However, the euphoria was short lived as polysilicon prices dropped as quickly as they jumped, after the big boys ramped up capacities. And now, due to the present situation in the solar industry – i.e. weak demand and high inventories – prices are freefalling, thus affecting the "only part of the PV value chain that has managed to consistently achieve high margins".

At the start of October, Motech CEO, P.H. Chang stated that the fourth quarter of this year will see polysilicon prices nosedive. He said that worldwide polysilicon supply is likely to exceed sluggish demand in the fourth quarter and that prices could be anywhere below $25 to $40/kg. At the time, Jefferies agreed, stating that average silicon spot prices are currently around USD$45/kg, having dropped from a high of $75/kg at the start of this year. The analysts believe this will further decrease to $35 in the first half of next year. They add that a fall in silicon pricing from $50 to $35 would save between eight and nine U.S. cents per watt for the solar companies.

In Bank Sarasin’s latest report, issued this month, the analysts back up the others' assertions that spot prices are likely to fall to "as low as" $35/kg. "With prices so low, many of the 60 or so smaller, second-tier Chinese polysilicon manufacturers with production costs in the region of 40 to 45 USD/kg will feel the pinch," it says. In terms of contract prices, Sarasin predicts that they will drop to between $40 to $50/kg by year end. This will be triggered by large polysilicon customers – i.e. vertically integrated photovoltaic companies – which are under "enormous" margin pressure and can no longer produce at competitive levels.

Back in October, Jefferies remarked that the weak market conditions, which failed to pick up as anticipated in the third quarter of 2011, will particularly affect the polysilicon market. "Weak demand at the module level combined with excess supply implies that it is only a matter of time before companies refuse to take further deliveries of silicon," said a company note issued. They say this is already happening, with Woongjin Energy, for example, canceling its supply contract with OCI.

Purity demands

As aforementioned, cell manufacturers are increasingly looking for higher grade purity in their polysilicon. Wacker Chemie, says Bank Sarasin, is well positioned in this area, due to the fact it has made both quality and purity its "top priorities".

Also commenting on Wacker Chemie, Jefferies analysts stated that it has now "become a solar company", which has "no choice" but to renegotiate its prices. Backing up Sarasin’s assertion that long-term contract prices will be renegotiated, Jefferies says that the company will have to re-look at its pricing with Tier 1 clients, like Bosch, Yingli and SolarWorld. Competition from new silicon entrants like OCI and GCL-Poly, it adds, will also create price pressure.

"We are of the opinion that prices will stay sticky around $35 for Wacker as we believe that below this level many high cost players will just not produce," they explain. "That said, if players like GCL Poly decide to capture market share at the expense of profitability prices could fall further, which will impact Wacker’s margins."

Production estimates

In 2009, a total of 105,000 metric tons (MT) of polysilicon was produced, of which 22,000 was used for the semiconductor industry and 83,000 went to solar. In 2010, of the 160,000 MT produced, 32,000 went to semiconductors, while the remaining 128,000 was used by solar companies. Estimates are that 210,000 MT will be produced in 2011, and 240,000 in 2012. The semiconductor industry is expected to consume 40,000 and 48,000 MT respectively, while the solar industry is predicted to take on the remaining 170,000 and 192,000 MT, respectively.

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