US-Sino trade dispute forces 50% REC polysilicon capacity reduction


REC Silicon has shut its Silane III production unit down for the rest of 2015, due to the "significant effect" the U.S.-Sino trade dispute is having on its polysilicon sales in china. Consequently, fluidised bed reactor (FBR) production will cut by 2,030 MT.

"In spite of being the world’s lowest cost producer of solar grade polysilicon, we are no longer able to access the Chinese market without a 57% duty," stated CEO, Tore Torvund. "We have experienced very real consequences from this ongoing trade war, and it is hard to see that it will be resolved without mutual agreement from both the US and China."

He added that if the dispute is resolved in the coming months, REC will be ready to ramp production back up.

While REC said its joint venture with Yulin in China remains on track for commencement in 2017 (construction began in May), it has halted the expansion plans for Reactors 25 and 26 at its Moses Lake polysilicon production facility. This is expected to help the company maintain financial flexibility: it calculates the need for an around $10 million spending reduction, quarterly.

Q2 sees huge loss

In reporting its Q2 2015 financials, REC Silicon saw a massive loss of $30.9 million after tax, compared to a $46.7 million profit in Q1 and a $24.6 million profit in Q2 2014.

Revenues for the quarter totalled $93 million, with total polysilicon sales increasing 59.7% to 3,817 MT compared to Q1. However, REC says sales volumes are still being negatively impacted by weak end-use demand, high inventories and the trade war.

This has led to a Q/Q 20% decline in its solar grade polysilicon prices. Deutsche Bank reported today that prices are currently around $15/kg, down from the around $18/kg at the beginning of the year.

Inventory for the company is also high, with growth this quarter reaching 1,248 MT ($11.3 million). EBITDA also dramatically decreased from $24.8 million in Q1 to just $5.8 million.

Total polysilicon production for the quarter reached 5,071 MT. Looking ahead, REC expects to produce 3,600 in Q3. In terms of FBR cash production costs, Q2 saw them increase to $11/kg, compared to $10.7/kg in Q1 and $0.5/kg, which comes in below its announced target $11.5/kg. FBR cash production costs are expected to be near $15.2/kg in Q3, $16.9/kg in Q4, and $12.5/kg for the year 2015.

Despite the dismal news, REC remains optimistic for the second half of the year. "Inventories are expected to decline as demand increases during the second half of 2015 creating some upward movement in polysilicon prices," it reports.