Polysilicon, the main raw material in solar panels, has plunged more than 33 percent in the spot market during the second quarter, lowering production costs in the $35 billion global market for the photovoltaic devices.
Prices for immediate delivery fell to an average $50 to $53 a kilogram as demand dropped after European nations slashed clean-power subsidies, said Rupesh Madlani, a renewable energy analyst at Barclays Capital in London. The bottom of that range is the lowest in more than six years, and a drop from $78.90 in March, according to Bloomberg New Energy Finance data.
“People are getting rid of stock that’s been on the floor, in some cases actually below cost,” Andrew Lee, head of international sales at Sharp Corp.’s European solar division, said in an interview from Wrexham, Wales.
Cheaper prices for silicon crystals that turn sunlight into electricity may benefit Chinese panel-makers JinkoSolar Holding Co. and Trina Solar Ltd. because they buy mostly on the spot market and the material makes up more of their costs than at European and U.S. rivals, Jefferies Group Inc. analysts said.
Unlike its competitors, First Solar Inc. of Tempe, Arizona, the world’s largest maker of thin-film solar panels, shouldn’t benefit from the drop because it uses cadmium telluride as raw material instead. First Solar may feel margin pressure, according to Min Xu, a Jefferies analyst.
Cuts to subsidized power rates in Italy and Germany doomed many solar projects in those nations, provoking developers to cancel panel orders. That crimped demand for polysilicon, which is manufactured by putting silica from sand or quartz through a series of chemical processes.
Italian Subsidy Cuts
Italy on May 5 approved rate cuts for the second half by 1 percent to 31 percent, depending on the size of the installation. “There were massive projects in Italy that were put on hold or canceled because of investor lack of confidence,” Lee said.
New Energy Finance today said that its June survey of silicon prices showed a drop in average prices to $53.4 per kilogram from $74.40 last month. That’s still slightly above the $52.50 registered in February last year. The energytrend.com website, an arm of market researcher Trendforce Corp., yesterday put this week’s average price at $52.28 per kilogram, down 39 percent since the end of March.
"Overall the industry anticipates further prices declines," said Martin Simonek, a New Energy Finance analyst. "Producers are preparing for a painful consolidation that could see several players exit the solar industry."
Profit margins will be squeezed at all polysilicon makers, though it may benefit the newest competitors, such as Hong Kong-based GCL-Poly Energy Holdings Inc. and Korea’s OCI Co., Jefferies’ Xu said in a phone interview from New York.
“The price declines are tough for everyone, but better for new entrants such as OCI and GCL, which are expanding capacity aggressively and will take the opportunity to lower prices to take market share,” Xu said. Overall margins may decline to a 40 percent to 45 percent range from more than 60 percent, he said.
Providers regarded as the “highest-quality,” such as Germany’s Wacker Chemie AG and Hemlock Semiconductor, majority-owned by Dow Corning Corp. of the U.S., are more reluctant to renegotiate contracts, he said. Hemlock, based in Hemlock, Michigan, and Wacker of Munich are the world’s largest producers by factory capacity, New Energy Finance said.
The price for polysilicon, also used in semiconductors, peaked at about $400 a kilogram during a boom in the Spanish market in 2008 before collapsing and then edging up again last year to about $100 as the Italian and German markets heated up
Most companies are ramping up production capacity. GCL, China’s biggest polysilicon-maker, said in March it will more than double manufacturing capacity to 46,000 tons this year. OCI in April announced plans to build by 2013 a new plant with a capacity of 24,000 metric tons. Wacker is expanding plants in Germany as well as constructing a new facility in Tennessee, where Hemlock is also building a $1.2 billion plant.
Wacker spokesman Christof Bachmair said the Munich-based company “never comments on prices.” He said “well under” 10 percent of its sales are on the spot market.
Jim Stutelberg, Hemlock’s vice president of sales and marketing, said the company’s business model “is to allocate a high percentage of our production to long-term agreements with fixed pricing.” He said in an e-mailed response to questions that Hemlock “continues to sell all of its polysilicon.”
The four manufacturers of the material, which is derived from tiny silicon crystals, largely share the global market with No. 5-ranked Renewable Energy Corp. of Norway and St. Peters, Missouri-based MEMC Electronic Materials Inc.
Smaller “newcomers in Taiwan and China have a lot of sales on the spot market and may suffer more,” said Arthur Hsu, solar research manager in Taipei at energytrend.com. He declined to name companies.
Hsu and Madlani at Barclays Capital both said the main reason for declining polysilicon prices is a drop in Italian demand for solar panels amid uncertainty about incentives known as feed-in tariffs. Italy last year became the second-largest photovoltaic market behind Germany, prompting government subsidy cuts and a new law to further reduce the burden on consumers for the above-market rates.
“In the first half of the year, the Italian market has disappeared, and polysilicon makers are running down their inventories,” Hsu said in a telephone interview.
Italy in 2010 installed about 5.9 gigawatts of solar panels and 2.3 gigawatts of those were connected to the grid, according to the grid operator GSE. New construction may total 4 to 6 gigawatts this year, said Pietro Radoia, an analyst at New Energy Finance, assuming GSE’s figures are correct. He said about half the parks GSE said were built last year may not have been, and may instead be completed this year.
Germany has also announced subsidy cuts this year, as have France and the U.K. The global market for new installations in 2011 may shrink to 13.3 gigawatts after more than doubling last year to 16.6 gigawatts, according to the European Photovoltaic Industry Association.