Polysilicon Price Crash
Polysilicon which is the most used raw material for manufacture of solar panels has crashed to unheard of levels as the capacity glut drives prices below even variable costs. Note costs are made up of fixed costs and variable costs. Fixed costs are those which cannot be reduced by reducing production while variable costs depend on the amount of the substance produced. When prices go below variable costs, then firms reduce production as the sale price is even lower than the cost of the inputs. Polysilicon price which had been hovering around the $20/kg levels for the last 6 months has gone down to as low as $12/kg for Tier 2 producers. It remains $15/kg for the larger Tier 1 polysilicon companies like Wacker, Hemlock and others. The price seems surreal when compared to the $400/kg spot price of polysilicon on 2008 and 2009.
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Why did Polysilicon Overcapacity Happen
The Polysilicon Companies have seen an amazing amount of profits in the period between 2008-2011 end as prices of polysilicon shot up to $400/kg which resulted in profit margins of greater than 90% which is superlative for what is an essentially a commodity.This led to an increase in Polysilicon capacity which grew by 10x in the last 5-6 years as massive demand growth from solar panels made suppliers add capacity without thinking about future sustainability. OCI and GCL Poly which had no polysilicon capacity till 4-5 years ago added almost a hundred thousands tons of polysilicon capacity to become the top 2 producers in the world. Other established Polysilicon Companies like Wacker, Hemlock too added capacity though in lower sizes. There were also numerous small companies which entered the polysilicon space but they were weeded out a year ago as they found the process too hard to master.
Smaller Polysilicon Producers already went bankrupt at $25/kg price
China which is the world’s largest provider of solar panels made from crystalline silicon is seeing a large number of smaller polysilicon companies go bankrupt or stop production. The reason is that for many of the smaller companies the price of polysilicon is $25-30/kg while the costs are $40-50/kg .This means that the smaller companies are making massive losses with the production of each kg of polysilicon. Note Polysilicon is a commodity industry like the memory industry and goes through periodic ups and downs when prices can go much below costs. In recent years a large number of companies set up polysilicon plants to benefit from the massive growth in the solar panel demand in Europe. However a massive glut in 2011 led the prices to fall across the supply chain of silicon solar panels. Poly prices fell from a high of $100/kg to $25/kg a drop of almost 75% in one year. This has made many of the smaller poly plants in China stop production as the price is below variable costs. The bigger producers like GCL, Renesola and Daqo have lower costs at around $25-30/kg which means they are breaking even.
The spot price of polysilicon in China has fallen to US$15/kg, close to the variable cost of many polysilicon providers. The contract price remains around US$20/kg. Downstream firms have been reluctant to issue orders according to contracts, causing material providers to file lawsuits.
The spot price of polysilicon from international tier-one firms has been around US$15-16/kg, and US$13-15/kg for tier-two firms. Market observers believe this price is below the variable cost for most tier-two polysilicon firms.