What next after the polysilicon apocalypse of 2012? – An analysis on why module prices are hardening

Polysilicon prices plummeted last year, but signs of recovery are emerging.

Polysilicon prices plummeted last year, but signs of recovery are emerging.

A year ago in the inaugural edition of PV-Tech’s sister digital publication, Solar Business Focus, we provided a detailed update on the PV polysilicon industry and the impact overcapacity was having on the sector and downstream markets. Leveraging supplier and market analyst’s most recent analysis, this article will attempt to provide insight into this crucial but highly dynamic market for 2013.

2012 analysis recap

Projections on both the pricing and business dynamics of the polysilicon industry a year ago proved to be prophetic. Spot prices were hovering around the US$30/kg range in the first quarter of 2012, having fallen 60% in 2011 on the back of major overcapacity. The forecast was for prices to fall much further and reach a low of at least US$20/kg by the end of the year. Spot prices did reach that level in the fourth quarter; however they fell significantly to around the US$15/kg range before stabilising in December.

The expected shakeout of well over 100 small producers, primarily in China as production costs were higher than spot prices, occurred with as much certainty as Germany’s railway timetable.

Regular revisions to polysilicon supply contract pricing and a continued offloading of inventory on to the spot market by mainstream incumbents as they shuttered facilities supported PV module manufacturers’ cost reduction efforts. Without the polysilicon price declines woeful negative margins would have been far worse.

Polysilicon apocalypse 

In December, 2012 reports from China noted that around 90% of the polysilicon producers in China had suspended production or exited the sector, up from 50% the year before. Only a handful of producers including, GCL-Poly, Daqo and Asia Silicon were known to have continued production despite spot market prices at or below production cost levels.

As a direct result, imported polysilicon had increased 26% in 2012, while ASPs were approximately 61% down from the previous year declines.

China’s largest producer, GCL-Poly reported a significant production fall to 7,631MT in Q3, down from 12,998MT in Q2 2012. Shipments of polysilicon followed the production decline as GCL-Poly reported only 657MT of shipments in Q3, down from 5,971MT in Q2. GCL-Poly had a nameplate capacity of 65,000MT, after several years of aggressive capacity building to become a market leader and offer competitive costs against rivals from overseas.

In January 2013 GCL-Poly pre-warned of a “substantial loss” it expected to incur for the full-year 2012, having made losses of HK$330 million in the first half of the year.

LDK Solar, which had a total of 17,000MT of annual capacity closed down all polysilicon production in the second half of the year. The company had said that technology upgrades were being implemented to significantly reduce production costs. However, management were vague on when production would restart and did not rule out a restart not taking place until the second half of 2013.

Daqo New Energy, a relatively small but newer entrant, employing advanced production technology, recently guided Q4 2012 shipments would be down almost 50%, quarter on quarter and was unable to make profits on low prices as its scale limited cost competitive production.

Renewable Energy Corporation ASA (REC) said it would stop production of Siemens-based solar-grade polysilicon at its facility in Moses Lake, Washington State, USA. Production at the facility was said to have been only 2,400MT per annum. However, REC highlighted that its granular solar grade polysilicon production remained in operation at its Butte facility and is expected to produce 20,000MT of polysilicon in 2013.

Major polysilicon producer Hemlock Semiconductor cited unresolved trade disputes, notably with China, as a key factor behind the decision to lay off approximately 400 employees, while reducing polysilicon production and delaying the ramp of its new plant in Tennessee. The company plans to reduce production capacity, though did not provide details regarding metric ton quantities. Hemlock was on target to boost production to around 46,000MT per annum when the new plant came on stream in 2013.

Expansion plans by Korean producer OCI were also recently halted, while German producer Wacker said it would also delay production at its new facility, currently under construction in the US. Indeed, Wacker recently reported that despite increased polysilicon shipments in 2012, process fell 50% resulting in polysilicon-based revenue declining around 22% for the year. The company produced 38,000MT of polysilicon in 2012, up 20%, compared to 2011.

Polysilicon post-apocalypse 

As noted in last year’s look at the polysilicon market, PV installation growth was correctly expected to slow with growth rates of around 20% becoming the norm compared to the high growth rate levels of years before. This impacted polysilicon demand and that trend is expected to continue in 2013 and 2014.

Preliminary estimates from Bernreuter Research suggest that the global polysilicon production volumes fell to approximately 235,000MT in 2012, a drop of almost 8% from the output of 255,000MT in 2011.

Johannes Bernreuter, head of Bernreuter Research and author of the global polysilicon market report, The 2012 Who’s Who of Solar Silicon Production, says: “Along with the large inventories and the supply of thin-film modules, those 235,000MT were nonetheless sufficient for a newly installed PV capacity of 33 to 34GW worldwide in 2012.”

Increased PV installations in 2013 are expected to result in an increase in polysilicon production this year. Bernreuter expects a production growth of approximately 6.5% in 2013.

The market research firm forecasted that PV installations could reach between 35GW and 37GW in 2013, driving renewed polysilicon demand that could push polysilicon spot prices to between US$20/kg and US$25/kg by the end of 2013.

Although historically important markets in Europe, in particular Germany, are expected to decline; emerging markets in the form of China, US and Japan are expected to take up the slack.

The latest forecast could provide significant relief for the struggling polysilicon sector, as at these prices major producers would be profitable, while smaller players would continue to struggle or simply continue to keep plants shuttered.

Looming clouds

According to Bernreuter, rumours have been circulating that China could impose import duties on foreign polysilicon of as much as 50%, after the government started an investigation into claims that polysilicon imported from the US, Europe and Korea was being sold below cost. Such claims have been refuted by major producers such as Hemlock Semiconductor and Wacker. The push for import duties came from China’s struggling polysilicon producers, although Bernreuter believes that an increase in polysilicon demand and possible import duties will do little to help the floundering sector in China.

“The manufacturing costs of most [Chinese] producers are still too high and the quality of their product is too low,” notes Bernreuter. “We assume a lot of foreign polysilicon shipments for Chinese customers will be diverted to wafer manufacturers in Taiwan and then imported as wafers or solar cells to mainland China.”

Ironically, Chinese module producers have already been forced to source solar cells from Taiwan to overcome duties imposed on Chinese solar cells by the US following claims of dumping.

However, the trade spat impact may be overdone. Recently, several tier 1 Chinese PV manufacturers noted in quarterly financial conference calls that any potential duties were expected to be imposed only when imported polysilicon was used in modules for the Chinese domestic market. Polysilicon used in modules that were exported would not therefore have higher costs from duties on polysilicon.

Overcapacity concerns

Despite companies reducing production, closing plants and exiting the sector, new entrants continue to emerge. Companies such as Qatar Solar Technologies (QSTec) have secured financing for the construction of a US$1 billion polysilicon plant with the aim to build a PV sector in the Middle East as well as become an international supplier of the material.

Should polysilicon prices rebound and remain stable in the mid-US$20/kg levels, PV installation growth in 2014 could provide the sector with the confidence to bring online suspended capacity expansions, especially from the major suppliers such as Wacker, Hemlock and OCI.

Smaller players such as Daqo and LDK Solar as well as integrated producers such as ReneSola are investing in upgrading plants to lower production costs to levels where they could be profitable at the US$20/kg range.

The major players are also working hard to bring costs down to the US$12/kg to US$10/kg range, which is a strong indication that they intend to fight to maintain market share. Part of that cost reduction drive is the partial shift to FBR-based granular polysilicon. REC has been the major producer so far, but MEMC, soon to lose that name, is building a JV plant in Korea with Samsung that will challenge REC on both price and, importantly, quality grade. GCL-Poly is also working on producing FBR-based polysilicon as it attempts to compete against REC in the Chinese domestic market.

The fear factor is that should supply and demand return to anything near a balance, companies will be eager to ramp suspended additional capacity, therefore jeopardising a price recovery.

Not surprisingly, polysilicon producers have been cautious over unsettling the market further, although Wacker proved to be much more upbeat about market conditions in 2013. Wacker noted that construction of its new polysilicon plant in the US was ongoing but had slowed down to align capacity growth with market demand. Charleston’s production start-up is now planned for mid-2015, according to the company.

However, the extended start-up timetable will allow Wacker to optimise and de-bottleneck the facility, enabling total capacity to increase by at least 10%, taking nameplate capacity over 20,000MT per annum. Overall, Wacker’s nameplate polysilicon production will reach 72,000MT by the end of 2015.

Soon after, GCL-Poly reported around a US$432 million loss from its solar materials business in 2012, which includes polysilicon and solar wafers. The solar materials segment generated annual sales of approximately US$1.69 billion, down from approximately US$2.6 billion in 2011.

However, polysilicon nameplate capacity remained at 65,000MT, the largest in the industry although the company produced 37,055MT of polysilicon, which was an increase of 26%, compared to 29,414MT in the preceding year. Although the company does not have plans for further capacity expansions it recently signed a major agreement with Yingli Green that could have far reaching implications.

A key aspect has been Yingli Green securing vast quantities of polysilicon and wafers as it continues to add 1GW of module shipments in 2013. In exchange, GCL-Poly will use Yingli modules exclusively in its current 1GW PV project pipeline. The result will be higher utilisation rates for both companies, not least GCL-Poly, which is now expected to be able to get closer to its nameplate capacity in 2013 and beyond.

Future technology shift

Although not expected to be a positive influence until sometime in 2014, there is a new technology cycle expected that will see PV module manufacturers migrate a higher proportion of production to monocrystalline and n-type wafers in search of higher conversion efficiencies. This could possibly encourage in tandem a move to thinner wafers that will be 140 microns or less.

Increased demand for higher-purity polysilicon is therefore a strong possibility and could keep smaller players out of the market as high-purity polysilicon in high volume is difficult to achieve.

After the apocalyptic developments of the last two years the polysilicon sector is expected to hit the reset button and make strides towards a slow recovery in 2013.

However, any increase in polysilicon costs will have a knock-on effect on module costs, not least that module price declines will slow and more than likely track sideways through the first half of 2013. Should high-quality polysilicon supply tighten further, then it is doubtful PV manufacturers will be able to absorb the increased costs on thin margins and therefore module prices could make meaningful climbs.

Looking further out, continued PV installation growth and continued focus on cost reductions should support an improved environment for the polysilicon sector, at least until 2016. However, forecasting developments more than one year ahead are fraught with difficulty and are only for the brave.

Source: PV Tech


About Ritesh Pothan

Ritesh Pothan, is an accomplished speaker and visionary in the Solar Energy space in India. Ritesh is from an Engineering Background with a Master’s Degree in Technology and had spent more than a decade as the Infrastructure Head for a public limited company with the last 9 years dedicated to Solar and Renewable Energy. He also runs the 2 largest India focused renewable energy groups on LinkedIn - Solar - India and Renewables - India
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