“Polysilicon is a grossly, grossly, grossly oversupplied commodity product,” said Paul Leming, director of research at Ticonderoga Securities in New York. “We’re staring at years of stability where polysilicon pricing sits at something approaching cost of production and doesn’t move.”
The shift is squeezing margins for manufacturers led by Hemlock Semiconductor Corp. and Wacker Chemie AG. (WCH) Solar-cell makers that use the material such as JA Solar Holdings Co. and Suntech Power Holdings Co. drove down the cost of photovoltaics, tipping three U.S. manufacturers into bankruptcy this year.
“The solar PV market has certainly reached a point where some illusions are meeting reality,” Wacker Chief Executive Officer Rudolf Staudigl told investors in an Oct. 28 conference call. “About the length of the downturn in polysilicon, I simply cannot answer.”
Cells and Chips
Polysilicon accounts for a quarter of the cost of a finished solar panel. The photovoltaic industry consumes almost 90 percent of the supply, which is also is the foundation of most computer chips made by manufacturers such as Intel Corp. (INTC), the world’s largest.
Lower polysilicon prices will have less of an effect on computer chips because, while the amount used varies between different designs, the material accounts for about 5 percent of the production cost on average, according to Janardan Menon, an analyst at Liberum Capital in London.
“There has been some impact for semiconductor companies, but its not anywhere like what you’ve seen on the solar side,” he said in a telephone interview today.
Price declines for products at every step in the solar supply chain triggered a 60 percent drop in the Bloomberg Global Leaders Solar Index since February tracking 37 shares. It’s led to speculation that more poly producers and panel makers may either combine or go bust in the coming months. Q-Cells SE (QCE), once the world’s biggest cell maker, has said it’s open to takeovers.
Prices Plunge
Spot prices will fall into the $20s from about $33 today and are likely to stabilize at around $30 once a shake-out reduces oversupply after 2012, according to Sean McLoughlin, an industry analyst in London at HSBC Bank Plc, echoing a similar forecast by Macquarie. Leming of Ticonderoga says prices will reach $25 within three weeks and likely remain near that level for at least two years.
About 90 percent of supplies are sold under long-term contracts, many of which are under pressure to be renegotiated. Charges for contract cancellations can be more than 20 percent of their value, HSBC said.
Chemical companies such as Hemlock and Wacker make poly by baking raw silicon that’s derived from refined sand. It´s done in bell-shaped ovens containing silane gas, which then condenses over a period of days into rod-shaped chunks of 99.9999 percent pure polysilicon.
The rods are sliced into wafers using diamond-edged saws to make solar cells that are fastened onto panels to transform the sun’s rays into electricity.
Expanding Capacity
Hemlock announced plans for its new factory in December 2008 when polysilicon was selling for $178 on the spot market. Wacker, the No. 2 producer, will double its capacity to about 60,000 tons by 2013, and LDK Solar Co. Ltd., the second-largest maker of wafers, will triple its poly capacity to 55,000 tons by the end of that year with a giant factory in Inner Mongolia.
The global supply of polysilicon is set to reach about 500,000 tons by 2014, Ewald Schindlbeck, head of Wacker’s polysilicon unit, said in an interview. That compares with 266,000 tons this year, according to Macquarie.
Even in an industry used to profit margins higher than 40 percent, the drop is hurting smaller producers. PV Crystalox Solar Plc last month cut production and fired workers at its poly ingot plant in Britain. It has costs of about $37 a kilo, according to McLoughlin.
Staudigl said that Wacker is negotiating individual agreements with clients and assessing issues such as their credit-worthiness. The company has contracts to sell almost all its planned production through 2015, spokesman Christof Bachmair said in a telephone interview.
While Wacker and the leading polysilicon producers may have fixed prices with clients for the next few years, that may offer them little protection should those prices push their clients into bankruptcy before they can make good on their commitments, said Gordon Johnson, an analyst at Axiom Capital Management Inc.
“Prices are going to go significantly lower,” he said in a Nov. 4 phone interview from his office in New York. “There will be certain people that go out of business.”
SOURCE: http://www.bloomberg.com/news/2011-11-10/solar-glut-to-worsen-after-prices-plunge-93-on-rising-supply-commodities.html
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