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Poly-silicon Glut or gamble? Reporting SURVIVAL of the fittest within the solar industry.

Poly-silicon OVERSUPPLY: Forcasts for a temporarily weakend solar industry.

Silicon oversupply continues to leave the solar industry in a quicksand glut, driving down the prices of cells and modules, thereby limiting margins and revenue across the globe. This, along with a combination of increasing module inventory and decreasing demand is threatening the financial stability and viability of some companies within the industry.

The problem is such, that the “Polysilicon and Wafer Supply Chain Quarterly Report” for the third quarter, produced by NDP Solarbuzz, reported that the majority of poly silicon producers are losing money. Furthermore, poly silicon capacity will likely increase in the future, 2012 is expected to yield 22% growth with 18% percent more in 2013.

A Few Factoids:

The average price of poly silicon for photovoltaic (PV) applications is expected to go down 52 percent in 2012, along with the expected decline of plant utilization to 63% from 77% in 2011.

“Higher capacity is the last thing needed in poly silicon these days, but despite that many of the new plants simply can’t be abandoned.” Vice president of NDP Solarbuzz Charles Annis said. “There are even producers increasing capacity, trying to keep their costs down. Developing new technology, such as the adoption of hydrochlorniation, is one thing producers are doing, along with increasing capacity productivity.”

Poly silicon capacity in 2012 will rise above 385,000 tons, 70 percent of which is in the hands of tier 1 production companies. These tier 1 producers can single handedly satisfy complete poly silicon demand expected in the end of market forecast.

Industry Exits:

Analysts believe that, barring a surge in the demand of the market, many producers in tiers 2 and 3 will be forced to leave the industry in the upcoming year and a half.   Some tier 1 producers may not even be able to stay alive over time.
The price of poly-silicon is expected to stabilize when we reach 2013 at about $21/kilogram, given that the surviving producers in the market get their rates of utilization in conjunction with the end market demand, while making sure that the selling price will remain above up-front costs.

“Any anti dumping or countervailing measures on imported poly-silicon applied by the Ministry of Commerce in Chine will likely lead to an increase in prices,” said Annis. “This will only benefit a few poly-silicon producers, though, and only local Chinese. These measures will harm foreign and Chinese producers as well, and it will do nothing to help fix the oversupply of poly-silicon and could slow down market growth because of the price increase.”

The report adds that any increase in the price of poly-silicon will be minimized by multiple factors, including the supply offered by first tier producers and the demand of the end market in the near future.  Overall, involvement in PV solar is still a goal of big poly silicon producers. In the future, economies of scale, cheap structures, and ever growing productivity will benefit greatly as the volume of shipments grows.

Commentary on Purchasing:

Given no indication that the solar poly-silicon oversupply will come to an end, purchasing activity is being transferred to the cheaper spot market, which partially triggered a drastic 11 percent tumble in the price in April, says the Perspective Market Brief for iSuppli PV and Price Index for iSuppli Poly-silicon published by data and analytics service IHS.

Poly-silicon for photovoltaic solar cells sold for a drastically low April price of $27.20 a kilogram, in contrast to the March price of $30.70. This marked the first drop below $30 for the average price of weighted poly silicon.

This decline in pricing is due primarily to increasing volumes of sales in spot markets in contrast to contractors. In fact, the volume of the spot market went up by 22 percent between March and April in terms of kilograms.  44 percent of the shipment volume for poly-silicon was accounted for in the spot market, in contrast to 36 percent from March. The rest was accounted for with long term agreement contracts, while pricing fell mainly due to larger volumes of sales on the spot market compared to contract deals.

Glenn Gu, resident analyst of photovoltaics with IHS said, “The newly growing spot market is the new destination for poly-silicon buyers who are looking for better prices, which has caused the price of contracting to drop and a marked April decrease in the ASP. Continued spot market growth is expected in relation to the market for contracting, which only increases pressure on the pricing.”

The stock market prices varied between $19.50 and $30.00 a kilogram, and the average weighted price was $24.20, as indicated by IPPI data. The contract price of LTAs ranged between $37.00 and $18.50 and the average weighted price was $29.40.

In April the contract prices decreased by 7.8 in contrast to the 9 percent decline in spot prices. A continuing growth in the volume and proportion of the spot market signifies that the problem of oversupply and decreasing prices is likely to remain a constant in the near term.

The cash market has third party sellers delivering poly silicon right away for cash. On the other hand, the market for contracts has poly silicon sold directly from the supplier on credit and then delivered and priced with LTAs.

Low prices in spot markets are indicative of a continuing decline in prices. The current trend of oversupply and decreasing prices will end when spot market prices eclipse contracts.

Glut’s Happening:

The oversupply of poly silicon is causing the industry to struggle with production exceeding demand.  This drop in the price of poly silicon will have a subsequent effect on the pricing of systems and solar modules, heaping more misfortune on an industry that is expected to struggle this year.   The world market revenue of solar poly silicon is predicted by IHS to fall from 7.4 billion to $3.7 billion between 2011 and 2012.
 
Staying a Few Steps Ahead:

The Price Index for IHS iSuppli Polysilicon is a way to connect the price of market activity with personal needs.  The Price Index for IHS iSuppli Polysilicon examines LTA and the price of the spot market, the merit and quality of the material that is being made, and other factors including the geographic area of production, the size of the transaction, and the terms of the trade. IHS collects data using surveys among producers and buyers in the industry.  The published information expresses weighted averages which covers 45% of global volume transactions by the month.

Article written by Jennifer Coleman of Sun Source Solar Energy Brokers, providing solar brokering, brokerage, and solar energy consulting services in Santa Rosa, Marin, Sonoma, Napa, Solano and San Francisco Counties.  For more information, please visit www.SunSourceSolarBroker.com.

4 Comments

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  4. [...] installations took place in 2012, despite the fact that prices continued to decline and current supplies remained at over capacity.  It is forecast that growth in Q2 for 2013 will make up for losses in Q4 2012.  Although the [...]

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