Solar Polysilicon Market in Crisis – Oversupply seen till 2014, Prices crash Below Cost, Daqo and GCL want anti dumping duties

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.

Major Polysilicon companies like Wacker expanded capacity by leaps and bounds funding them through customer prepayments. Some huge Asian capacities created by newcomers like GCL and OCI also came into being but the demand kept ahead of the supply. However the camel’s back got broken in 2011 end as the massively expanding capacity finally overshot the solar panel demand. Prices crashed below cost to around $20-25/kg which bankrupted most of the smaller polysilicon companies. Only the biggest companies are still running though capacity expansion has been halted. The market is in turmoil with Hanwha Chemicals expecting oversupply till 2014 though I think it will reach equilibrium before then as the higher cost players go out of business soon (companies like LDK, Daqo , MEMC materials).

China’s Solar Industry is the biggest in the world with 5 of the biggest Solar Panel Manufacturers being Chinese. The remarkable growth in the Chinese Solar Panel Industry has been due to the supportive government, low labor and capital costs and aggressive competition. However, most poly companies in China have closed down in recent times, others are fighting to get the Chinese government to impose duties on imports of polysilicon. 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 China is by far the biggest importer of polysilicon mostly from the USA which has imposed anti-dumping duties on China made solar panels and cells. These companies are having a difficult time with the Ministry of Commerce which is facing opposition from the solar panel companies which benefit from these cheap imports. Especially as China does not have a big enough domestic capacity to fulfill the raw material demand of its industry. The polysilicon industry is certainly seeing interesting times.

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 . However for smaller companies the situation is dire as massive capacity expansion by the top polysilicon producers will continue in 2012 keeping prices at around the same level.

1) Hemlock Semiconductor (HSG) – This a a privately held company which is a JV between Shin-Etsu Handotai, Dow  Corning and Mitsubishi.Hemlock has the largest poly production capacity in the world and has been trying to rapidly raise capacity to meet growing solar demands. However it has not grown fast enough.

2)Wacker Chemie– This German chemicals conglomerate as increased plant capacities rapidly in Germany and is expanding in the USA as well. Wacker has the majority of its profits coming from it nearly 25000 ton polysilicon capacity.It is one of the world’s major producers of semiconductor wafers as well so uses some of the poly in-house while selling the rest to Asian customers mostly.

3) OCI Chemical – This Korean chemicals company has seen the most spectacular rise in the poly business and has ambitions of becoming the No.1 player in 2012 overtaking both Wacker and Hemlock. Primarily targeting the solar market, the Korean company has plans of reaching 62,000 tons of polysilicon capacity at its plant in South Korea. Formerly known as DC Chemicals it started production only 3-4 years ago in partnership with Sunpower.

4) Renewable Energy Corporation – This Norwegian Producer was the largest solar wafer producer till a few years ago when it lost its leadership to the Chinese. It is now expanding in Singapore to reduce its high cost and integrating vertically. REC is also one of the biggest producers of Silane Gas which is used in making polysilicon. Like MEMC, it uses both the FBR and Siemens process in producing polysilicon. It has plants in USA

6) GCL Poly – This Chinese company has become one the biggest producers of polysilicon and wafers in 2010 from zero in 2008, is expanding rapidly but not getting into production of solar cells and panels. The company is also on its way to becoming a Top 3 producer of polysilicon and is expanding by co-locating wafer plants near its customer factories. It has singed massive long term deals with most of the biggest solar panel producers in the world.

7) LDK Solar -This is the biggest producer of solar wafers that are used by crystalline solar panels but is losing its No.1 position to GCL Poly. It is expanding rapidly into other parts of the solar supply chain and could break into top 10 solar panel producer in the next couple of years. The company ran into a lot of debt troubles in expanding its poly plant to 15000 tons but has seemed to return on track in late 2010.

Balance in solar market to return in 2014-2015, says SAS chairman

 MK Lu, chairman of Taiwan-based Sino-American Silicon (SAS), believes continuous upgrades to R&D skills are a must for solar firms as market balance is likely to occur in 2014-2015. Firms need to control cash flow carefully and not try to boost sales and capacity utilization rates knowing losses will be incurred, said Lu.Lu noted that the solar market has been eliminating unhealthy firms for five consecutive quarters since second-quarter 2011. This is likely to continue until the market finds balance in 2014-2015. During this time, the unhealthy firms will exit the market while the healthy firms gain more strength to expand capacity when the market reaches balance.