REC Silicon moves nearer shutdown of US polysilicon facility

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Norwegian polysilicon maker REC Silicon plans to reduce production at its U.S. Moses Lake facility, having previously warned such action may be necessary.

In its first quarter financial update, the company said curtailment of production at its fluidized bed reactors (FBR) in Washington state, which have an annual capacity of 18,000 MT, will begin next Wednesday in order to reduce spending and maintain liquidity.

Blaming the continued application of tariffs on U.S. polysilicon by the Chinese authorities, REC Silicon said: “Unless access to polysilicon markets in China is restored, the facility will be placed in a long term shutdown by June 30, 2019.”

The company added, the length of any shutdown would depend on whether the tariffs, imposed since 2014, were removed as a result of the trade negotiations between China and the United States.

Trade talks critical

In September, members of the U.S. Congress wrote to President Trump warning of the plant’s impending closure and urging the White House to “find an immediate resolution to the trade dispute over Chinese solar panels and American polysilicon”. However, this week started with financial markets digesting characteristically confrontational tweets from the U.S. president that suggested he was losing patience with the pace of the talks with Beijing.

REC Silicon’s curtailment plan is also intended to guarantee enough liquidity to keep the company’s semiconductor materials facility in Butte, Montana in operation. “Additional impairments and provisions would be required if the FBR facility is not restarted,” said the company.

In terms of overall liquidity, REC Silicon recently raised NOK170 million ($19.9 million) through a private placement of shares which will provide net income of $18 million this month. Some $3.7 million of that windfall will be devoted to reducing – and possibly shuttering – Moses Lake poly production.

“The company’s current liquidity position, estimated results of operations, and the proceeds from the private placement of equity are considered sufficient to meet the operating cashflow requirements for remaining operations and to meet debt service obligations for the next 12 months, assuming no payments on the indemnity loan or unfavorable outcome of the notices of reassessment from the Norwegian Central Tax Office [CTO],” added REC Silicon.

The tax office reference concerns a CTO ruling that losses on historic loans made by the company to its subsidiaries would not be tax deductable. REC Silicon has estimated a worst case liability of $30 million in relation to that concern. The indemnity loan reference is unclear, as it points to a note in its consolidated financial statements for 2018 which appears to make no mention of such a facility.

Decreasing turnover, increasing losses

In its update, the Oslo-listed company reported revenue declined from $69.6 million in the first three months of last year to $45 million in the latest reporting period. January-to-March revenue was also down 7.9% from the fourth quarter of 2018, when total sales reached $48.9 million.

Losses before interest and tax soared year-on-year, from $5.7 million to $18.5 million, and net profit swung from $60.5 million in the first three months of last year to a loss of some $23.4 million in the same period this year.

The quarter-on-quarter revenue drop, the company said, was attributable to lower semiconductor materials sales and was partially offset by bigger sales volumes of granular polysilicon.

Poly production for the quarter came in at 1,508 MT with sales volume reaching 2,004 MT. That compares with 3,523 MT of production and 2,904 MT of sales in the first quarter of last year. The Moses Lake FBR facility had only a 25% utilization rate in the latest quarter, the same level the factory had during fiscal year 2018. REC added, polysilicon inventories fell by 496 MT in the first quarter.

Poly production to fall by two-thirds

The manufacturer said it expects shipments of semiconductor-grade polysilicon to increase in the current quarter, although volumes will be affected by delays in the start-up of new wafer capacity. REC predicted shipments of semiconductor-grade polysilicon would grow in certain key segments this year, but volume would drop overall, compared to last year’s level.

For the current quarter, REC forecast polysilicon production of only 980 MT, as part of 3,301 MT of output for the full year. By comparison, total production for 2018 was 9,280 MT and the 2017 figure was 11,636 MT.

In July, REC Silicon laid off around 100 employees from its Washington state workforce as a “direct result” of the trade dispute between the U.S. and China.