Asia’s largest makers of silicon for solar panels are almost doubling their factory size this year just as surplus production sends prices tumbling for the main raw material for the $35 billion industry.
Korea’s OCI Co. and GCL-Poly Energy Holdings Ltd. of China said they’ll increase capacity to a combined 88,000 metric tons a year from 48,000 tons. Global demand for the material, known as polysilicon, is growing at less than a third of that rate, and spot prices fell 32 percent in the second quarter, Bloomberg New Energy Finance estimated.
Asian companies are deploying equipment to refine silicon crystals more quickly than Western competitors. They anticipate gaining share from the world’s largest suppliers, Hemlock Semiconductor Corp. of the U.S. and Germany’s Wacker Chemie AG, as customers increasingly demand lower prices for the key material used in panels to convert sunlight into electricity.
“They want to grow ahead of the competitors to win in the long term,” said Chris Park, a Hong Kong-based senior analyst of Moody’s Investors Service. If they have enough liquidity, they should perform well in coping with a price slump, he said.
The situation mirrors the Asian investment boom and price slashing of the last few years among their customers, which make solar cells and panels. That resulted in Chinese companies, led by JA Solar Holdings Co., capturing more than half the global photovoltaic panel market for the first time in 2010.
Several European suppliers were pushed aside. In Germany, Solarworld AG shares lost 80 percent through June 30 from their record in November 2007.
China will boost its market share in the polysilicon market to about 42 percent of production capacity this year from 39 percent in 2010, New Energy Finance estimated.
Solar-grade silicon fell to $53.40 a kilogram ($24.27 a pound) in June, the lowest in more than six years, from $78.90 in March, according to the London-based research company. The material, which cost as much as $450 a kilogram in mid-2008, may sell for $40 to $50 for the rest of 2011, said Jenny Chase, New Energy Finance’s chief solar analyst.
Wacker isn’t concerned about a glut or short-term price plunges “because we sell mostly with long-term contracts,” said Christof Backmair, a company spokesman in Munich. He said almost all output to 2015 has been sold. “We don´t have idle capacity and are doing our utmost to avoid it.”
Jim Stutelberg, Hemlock’s vice president of sales and marketing, said “our company view is that there needed to be more material investment for the good of the industry.” The company expects “demand for the highest-quality polysilicon to remain strong even through short-term market uncertainty” and will likely sell all of its production in the future, he said.
A spokesman at Seoul-based OCI, who asked not to be named, said the company is on schedule to expand the capacity, regardless of fluctuating prices. Wang Manjian, a GCL-Poly spokesman in Hong Kong, declined to comment.
“In the long run, larger scale will help us reduce production costs and gain market share,” said Kevin He, investor relations manager of Daqo New Energy Corp., China’s fourth-largest polysilicon producer. “All the companies will be affected when margins are squeezed.”
China’s Daqo, based in Wanzhou, Chongqing, is capable of making 4,300 metric tons of polysilicon a year. In March, it started building a 3,000-metric ton plant in Shihezi, Xinjiang, to boost output as much as 70 percent.
That contrasts with the average 19 percent capacity expansion under way this year at the world’s four biggest non-Asian suppliers, which are Hemlock, Wacker, MEMC Electronic Materials Inc. of the U.S. and Norway’s Renewable Energy Corp., according to a Bloomberg survey.
As a group, polysilicon suppliers have overshot their market, said Chase of New Energy Finance.
“This is oversupply, although with crashing prices we will probably see more sold than most analysts expect,” said Chase, who forecast 176,000 tons produced this year, up 34 percent.
Besides the economies of scale, Daqo’s production costs will decline by as much as a quarter to $24 a kilogram by adding the Shihezi factory as the company can enjoy cheaper electricity in Xinjiang, where the region has abundant coal, He said. A competitive cost structure is important in an industry that consumes more energy than steel, Daqo’s He said.
“This is a period to deplete inventories,” He of Daqo said. “We can still make profit as the spot price falls to about $50 per kilogram.”
Prices Falling Faster
Price declines came faster than expected as European governments cut solar-power incentives, crushing orders for solar panels and its raw materials, said Charles Yonts, a Hong Kong-based analyst in CLSA Ltd.
“We price our product with a declining price curve, to try to do our part to enable grid parity in the industry,” Hemlock’s Stutelberg said. “Looking at installed cost per watt of installing a panel, polysilicon cost is pretty insignificant.”
“The situation is starting to improve, and I expect a strong demand pickup in both Europe and the U.S., followed by Japan and China, in the second half of the year,” Yonts said.
‘Replicating the Success’
Asian polysilicon makers will “replicate the success of Chinese solar-panel makers that supply a majority of the global market,” said Chang Yu, project manager of Chinese Renewable Energy Industries Association. “They have a better financing environment and access to land” than Western incumbents including Hemlock and Wacker, Chang said.
Golden Concord Group Ltd., the parent of GCL-Poly, last month secured five-year loans from state-run China Development Bank Corp. to ensure the unit will innovate technology, improve production capacity and reduce production costs.
Hong Kong-based GCL-Poly in May agreed to borrow 10 billion yuan ($1.5 billion) from the Bank of Jiangsu Co. That’s almost three times the 386 million euros in long-term bank debt on the books of Wacker, Europe’s biggest producer, at Dec. 31.
GCL-Poly is waiting for a suitable time to sell senior notes, spokesman Wang Manjian said on June 14. The company aims to achieve 46,000 metric tons of polysilicon capacity by the end of this year, exceeding Wacker’s 42,000 target.