There are no signs of a slowdown in production at Chinese polysilicon plants!

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No signs of production slowdown in Chinese polysilicon plants, says author: Shihua Finance News. Date: 2009-3-9 11:17:00. CLSA recently released a report on the solar industry, stating that despite weak demand, its China Reality Research team believes there are no signs of production slowdowns in Chinese polysilicon plants. Furthermore, the capacity expansion plans of more factories seem to remain largely intact. As output increases and the growth of new orders slows down, supply in the spot market will rise, further pressuring prices downward. In the long run, falling prices will benefit most solar companies in mainland China and Taiwan. But in the medium term, excess supply will lead to falling prices in the supply chain and an increased risk of further inventory write-downs. CLSA maintains a reduce rating on the sector. Output has increased. CLSA believes that the weak external demand environment has not led to a slowdown in production at Chinese polysilicon plants. With the commissioning of the first phase of the polysilicon production line at Jiangxi Suntech LDK Solar’s facility in January, China’s annual polysilicon production capacity reached 20,000 tons, with a monthly output of 663 tons – a 34% increase on a monthly basis – and the average capacity utilization rate rose to 56%. Furthermore, although weak demand is expected to be the main challenge for this industry in 2009, CLSA’s research on the Chinese market indicates no signs that polysilicon manufacturers are adjusting their plans for capacity expansion. **Supports unlocking financing. Although financing is indeed a major concern for the managers of some polysilicon plants, many of these plants told CLSA’s China Research team that they can rely on local **support to help them obtain bank loans. An employee at the Jiangsu branch of Bank of Communications said that the bank is actually not eager to provide loans to polysilicon factories, as such loans are usually large in scale and have relatively long repayment periods; however, loans are being granted at present because the local authorities encourage it. Supply in the spot market increases. Leion Securities’ portfolio of 22 polysilicon plants expects production to rise from 3,754 tons in 2008 to over 19,000 tons in 2009. CLSA’s research on China’s reality is skeptical about this, but even according to CLSA’s conservative projections, output will still increase by 2.5 times in 2009. With expected increased output and a slowdown in new orders, most factory managers told Societe Generale that they anticipate more products will be sold through the spot market in 2009. CLSA believes that China is a marginal producer of polysilicon, and if prices fall faster than expected, China will be the first to suffer, and suffer the most severely. Similarly, there are strong indications that polysilicon supply, which remains a bottleneck in this industry until the fourth quarter of 2008, will far exceed demand in 2009. And although most downstream solar companies have frozen their capital expenditure plans, the capacity they already possess exceeds what Société Générale estimates that polysilicon producers will have by the end of the year. According to CLSA’s forecasts, capacity in 09 will exceed demand by 55%. Positive in the long term, negative in the short term. Although falling prices will help the bank’s long-term prospects, supply conditions will hinder market stability in the near term. CLSA is still reducing its holdings in this sector. In China, LDK faces the greatest risks at present, as spot prices are set to fall below the domestic polysilicon production costs. Wuxi Suntech, a Chinese polysilicon producer, is experiencing losses in its investment activities, and these losses will increase further if prices continue to fall. Yu Jing Energy and Yitong Optoelectronics are the most risky companies in Taiwan, as they will be forced to renegotiate their long-term supply contracts