China’s polysilicon industry, the biggest supplier to solar-panel manufacturers worldwide, has idled almost one-third of production and may keep the plants closed until prices recover from a 60 percent plunge.
The price tumble spurred the smallest producers including units of Baoding Tianwei Baobian Electric Co. (600550) and Dongfang Electric Corp. to halt plants, according to Xie Chen, an analyst from the China Nonferrous Metals Industrial Association, a trade group that advises the government. China has about 45 percent of global production capacity to purify silicon into polysilicon.
The suspensions may be short-lived because the average spot price for the most expensive ingredient in making solar panels rose 9 percent since mid-December from a decade low. A recovery would boost margins for the biggest makers such as GCL-Poly Energy Holdings Ltd. (3800), China’s largest, and Hemlock Semiconductor Corp. of the U.S., which is No. 1 in the world by capacity.
“The freeze in production won’t last too long,” Xie said in an interview. “Many companies have said they will return to manufacturing if prices rise to $47 a kilogram” from the current level of about $28.80.
Xie forecast prices will jump to $40 to $50 a kilogram this year. That’s enough to prompt a return to production in the first half of most of the halted plants, which he estimated were about 30 percent of the total. Xie’s view was shared by Lian Rui, a senior analyst in Beijing for New York-based research company Solarbuzz.
Polysilicon will average about $30 this year, and companies including the units of Baoding Tianwei and Dongfang Electric will probably resume production as early as May, Lian said in an interview. Bloomberg New Energy Finance has forecast polysilicon average spot prices to reach $25 per kilogram this year.
Two phone calls placed to Gong Dan, spokesman for Dongfang Electric, and an e-mail sent to Yin Xiaonan, Baoding Tianwei’s spokesman, weren’t answered.
The rebound from polysilicon’s 10-year low of $26.31 a kilogram in mid-December coincides with increased interest by China to install photovoltaic devices on its own soil.
Chinese producers will double the number of panels that will be installed this year from the 2.2 gigawatts erected in the country in 2011, according to forecasts from manufacturers Suntech Power Holdings Co. (STP) and Trina Solar Ltd. (TSL) That would absorb some of the industry’s excess inventory, which led to the drop in prices and profits.
Demand for solar products is recovering and is expected to shift from Europe to Asian and U.S. markets, Renewable Energy Corp. ASA (REC), a Sandvika, Norway-based maker of polysilicon, said in its earnings presentation Feb. 8.
‘Suck up Supply’
The increase in panel demand in China “sucks up some of the excess supply,” Pavel Molchanov, an analyst for Raymond James & Associates Inc. in Houston, said by e-mail on Feb. 9.
The expectation that China will increase installations this year has led some solar companies to keep plants running. GCL- Poly, LDK Solar Co. (LDK) and Asia Silicon (Qinghai) Co. have continued to operate their plants, according to Xie. His association acts as a conduit between the Chinese government and solar companies, advising both ministers and executives.
Xinyu, China-based LDK Solar said in November that it plans to triple its capacity and make 55,000 tons of polysilicon a year by 2014. GCL-Poly more than doubled capacity last year to 46,000 tons. Korea’s OCI Co. (010060) is building a plant capable of making 24,000 tons of the material annually in Saemangeum.
Jessy Fang, a spokeswoman of GCL-Poly in Hong Kong, declined to comment. Two calls to Li Longji, an acting director for LDK’s public relations department, weren’t answered.
It is the smaller companies that have struggled and may continue to do so, said Lian of Solarbuzz.
Leshan Ledian Tianwei Silicon Science & Technology Co. and Xinguang Silicon, units of Baoding Tianwei, halted production last year to reduce losses and operating costs. Dongfang Electric Emei Semiconductor Material Co., a unit of Dongfang Electric Corp. (1072), also stopped manufacturing.
Zhejiang Xiecheng Silicon Industry Co. filed for bankruptcy in December, the first collapse of a solar company in China.
“Prices may be stuck near $30 a kilogram for a year or two, but this may be enough for the bigger companies like LDK and GCL to continue with production,” Lian said. It’s unlikely that the larger companies will seek to acquire those that are struggling, he said. “Buying a company that can’t operate efficiently is costlier than expanding organically,” he said.
Daqo New Energy Corp., the nation’s fourth-largest polysilicon producer, can produce polysilicon at a cost of $30 a kilogram and is operating at full capacity, said Kevin He, its investor relations manager.
Companies can maintain operation at this price, “but it’s hard to make profits,” he said. The Wanzhou, Chongqing-based company last year started building a 3,000-ton plant to increase capacity by as much as 70 percent.
The top five polysilicon producers including Hemlock and Germany’s Wacker Chemie AG (WCH), more than doubled output in 2010 from 2008, data from New Energy Finance show. The decline in the price of the raw material has been steeper than the 47 percent decrease for panels last year because polysilicon plants have higher operating costs, particularly for electricity.
“Power prices account for a substantial portion of the cost of a polysilicon plant,” said Solarbuzz’s Lian. Prices of electricity are higher in some regions where factories are located, including the eastern coastal provinces such as Zhejiang where Zhejiang Xiecheng Silicon Industry’s plant is based, Lian said.
Editors: Baldave Singh, Todd White
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