China fuels highest solar silicon demand since 2011

The polysilicon industry is headed for its biggest boom since a price war started three years ago. It can thank a burst of solar-panel orders in China and Japan.

Demand for the commodity used to make photovoltaic cells will jump 15 per cent this year, the most since 2011, Bloomberg New Energy Finance forecasts. The price of the material, made from super-heated silicon particles and sliced into wafers, has reached its highest since the middle of 2012. Global sales may top $6 billion at that price.

Manufacturers led by GCL-Poly Energy Holdings Ltd of China and Wacker Chemie AG in Germany are expanding production, anticipating higher revenue will restore their margins. They’re benefiting from a renaissance in the renewable energy industry, which last year rivaled fossil fuels for new power generation capacity added worldwide.

“We are seeing a massive recovery in the entire solar industry, also in polysilicon,” said Stefan De Haan, a solar analyst at IHS Inc. “2013 was the year of the turnaround, and the situation will further improve in 2014.”

Factories producing the material will be at their busiest in at least two years, according to IHS. All that is an about-face for manufacturers who for the last two years had to idle capacity or post losses as poly prices plunged.

Asian demand

China and Japan are driving the rebound with subsidies for solar panel installations. About 44.5 gigawatts of solar capacity will be added around the world this year, a 21 per cent increase over 2013, according to the average estimate of nine analysts and companies. The two Asian countries may account for half of all new projects. A gigawatt of electricity is about as much as a new nuclear reactor produces.

Renewable energy accounted for 44 per cent of the new generation capacity added worldwide last year, according to data from New Energy Finance, which is owned by Bloomberg LP.

“Japan has a fantastic subsidy that’s fueling a domestic boom, and there’s significant demand and government support for new projects in China,” said Jenny Chase, lead solar analyst at New Energy Finance in Zurich. “The entire polysilicon industry will benefit from this.”

Polysilicon prices, which tumbled 42 per cent during 2012, and were little changed for most of 2013, have been rising since November. They may jump to as high as $25 a kilogram this year, from $21.75 on April 21, Chase said.

Prices rising

IHS expects the average polysilicon price to rise as much as 10 per cent this year. Revenues for suppliers will jump 33 per cent to $5 billion, De Haan said on April 24.

China became the biggest solar market last year. Surging demand will benefit European and local makers the most, since the government in Beijing introduced import tariffs for U.S. and South Korean-made polysilicon in January. Chinese companies, which make most PV panels, import more than half the polysilicon they need from abroad.

China imposed anti-dumping charges up to 57 per cent for US makers including Hemlock Semiconductor Corp, REC Silicon and SunEdison Inc. It exempted European producers, namely Wacker Chemie. OCI Co, South Korea’s largest polysilicon producer, got a tariff of just 2.4 per cent.

The levies contributed to a 30 per cent drop in US polysilicon imports into China last year. South Korea and Germany raised shipments.

Shares surge

Shares of solar companies already have responded. GCL-Poly is up about 59 per cent in Hong Kong in the past year and Wacker by 58 per cent. OCI has risen almost 29 per cent. Hemlock is a owned by Dow Corning Corp and Shin-Etsu Handotai Co Ltd.

“Hemlock Semiconductor has also seen increased business activity in the polysilicon industry,” Jarrod Erpelding, a spokesman at Dow Corning, said by e-mail. “While spot prices are an indicator of increased demand, the large majority of our sales are through long-term contracts.”

Wacker and SunEdison declined to comment, citing quiet periods ahead of their earnings reports. GCL didn’t answer phone calls and an e-mail seeking comment.

The demand surge is trickling down the value chain. The number of Chinese companies producing polysilicon more than doubled to 15 last year. Just four years ago, before prices collapsed, at least 100 companies were manufacturing it.

Tokuyama Corp, a materials maker based in Shunan, Japan, plans to start production this year at a new polysilicon factory in Sarawak, Malaysia.

Industry rebounds

Polysilicon producers reduced output as prices crashed in 2012, with many small companies halting altogether. LDK Solar Co dropped out of the top 10 makers as it defaulted on bond payments. OCI also scaled back, according to BNEF data.

Rising production in China may cause poly prices to sag again, said Shiro Okada, a spokesman for the Tokuyama. Factory utilization, which De Haan says is good health indicator for the polysilicon industry, will increase by 14 percentage points to 78 per cent this year.

“The industry remains oversupplied,” Okada said by phone from Tokyo. “The market is expected to grow globally, but companies already have enough production capacity.”

The market is dominated by five companies — GCL-Poly, OCI, Wacker, Hemlock and REC. They alone can almost cover all the demand for high-grade polysilicon. Their capacities are on the edge of becoming short of what the market needs this year.

“Supply and demand has reached a really tight point,” said Jade Jones, an industry analyst at GTM Research in Boston. “Polysilicon makers have been able to raise prices because they know that there’s growing demand. If you listen to their recent earnings calls, there’s hope in their voices.”

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