Polysilicon: Spot prices plummet sharply; new changes on the horizon April 13, 2009, 19:05

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Polysilicon: Spot prices plummet sharply; new changes on the horizon April 13, 2009, 19:05 Author: Ye Chao Polysilicon, with profits of over 400%, once became a highly sought-after asset in the capital market, with many domestic listed companies getting involved in it. 　　However, since last November, spot prices for polysilicon have plummeted from a high of $400 per kilogram, falling below $100 per kilogram within just five months, with no signs of recovery yet. 　　Industry insiders say that the hardships associated with this industry have already begun to appear; a few companies with outdated technology and high energy consumption are facing negative price trends, and a shift driven by price wars is quietly taking shape. 　　Investment mania driven by huge profits Polysilicon is classified into solar-grade polysilicon and electronic-grade polysilicon based on its purity; as the name implies, semiconductors and photovoltaic cells are the two main industries that utilize polysilicon. 　　Over the past 10 years, demand for polysilicon has grown at a rapid pace of over 40% per year, driven by the global boom in photovoltaic power generation. However, the technology for kiloton-scale polysilicon production lines has long been monopolized by 7 companies in 3 ** countries, namely the United States, Japan, and Germany. 　　Under conditions of supply falling short of demand, the spot price of polysilicon rose from $35 per kilogram in 2005 to a record high of $480 per kilogram in 2008. 　　Jiangsu Zhongneng is one of the largest polysilicon manufacturers in China. Lu Jinbiao, the company’s deputy general manager, explained that starting in the second half of 2006, polysilicon became an industry with enormous profits; large overseas companies had costs of around $30 per pound, while the profit margin on spot markets was well over 100%. 　　Lü Jinbiao said, “It was in the second half of 2006 that investment in polysilicon in China began to increase gradually, and by 2007 it had turned into a frenzy involving huge amounts of capital in the range of 40 to 50 billion yuan.” ” 　　According to journalists, the investment required per thousand tons of polysilicon production capacity in China is around 1 billion yuan. Rough estimates show that since 2006, the total polysilicon production capacity that has been built or is under construction in China amounts to 44,000 tons. 　　Since the end of last year, the boom in polysilicon investment has gradually borne fruit. At the end of November last year, Jiangsu Shunda’s first-phase polysilicon project with a capacity of 1,500 tons was officially put into operation ； At the end of December, the 1,500-ton project of Jiangsu Sunshine Phase I and the 1,500-ton production line of Nanbo A were put into operation respectively ； In January this year, the commissioning ceremony for Asia Silicon Industry’s 1,500-ton production line was held ； In April this year, Jiangsu Zhongneng’s 13,500-ton production capacity will be fully put into operation. 　　In addition, two 3,000-ton projects invested in by Tianwei Baobian, as well as Jiangxi Sunwoda’s 5,000-ton project, are under construction. 　　According to the information available, among the companies currently involved in the polysilicon industry, those listed in China include Nanbo A, ChuanTou Energy, Tianwei Baobian, TBEA, Jiangsu Sunshine, Leshan Power, Minjiang Hydropower, and Tongwei Co., Ltd. Among them, Tianwei Baobian, Leshan Electric Power, Sichuan Investment Energy, and Minjiang Hydropower each hold shares in Xinguang Silicon Industry, a polysilicon production company. 　　The era of huge profits came to an end prematurely amid the crisis. Although investors predicted that the expansion of production capacity would bring an end to the period of high profits for polysilicon when there was a boom in its production in China, what was unexpected was that the industry’s substantial profits ended ahead of schedule due to the international financial crisis. This disrupted many investors. 　　“Fortunately, our company built quickly and achieved high profits before prices dropped. ”Lv Jinbiao, deputy general manager of Jiangsu Zhongneng, told reporters with relief yet lingering fear. 　　It is understood that in 2008, Jiangsu Zhongneng produced nearly 2,000 tons of polysilicon, recouping the investment in its two previous 1,500-ton production lines in that same year. 　　Industry insiders say that most of the companies that participated in the frenzy of investment in polysilicon predicted that the huge profits in this industry would continue until the end of 2009. Before the financial crisis, these companies did everything in their power to speed up project construction in order to catch the \"last train of huge profits\" and recoup their substantial investments in a short period of time. 　　When the boom in polysilicon investment occurred, investors predicted market demand, that is, the production volume of photovoltaic cells, based on the economic conditions prior to the financial crisis. Following the financial crisis, oil prices dropped and the real economy declined, leading to a slowdown in the growth of the global photovoltaic industry. To make matters worse, the global semiconductor industry has experienced rapid contraction, whereas previously semiconductor demand accounted for around 40% of the total polysilicon demand. Some overseas production capacity for high-purity electronic-grade polysilicon has shifted to the solar-grade polysilicon market. 　　On March 26, the Ministry of Finance and the Ministry of Housing and Urban-Rural Development jointly issued the \"Implementation Opinions on Accelerating the Application of Solar Photovoltaic Systems in Buildings,\" marking the first time that subsidies have been provided on a large scale to the solar energy industry in China. 　　An industry analyst from a securities firm who wished to remain anonymous believes that given the fact that it will take time for the domestic solar market to develop, \"delayed actions cannot meet immediate needs.\"” ； Due to factors such as the large gap that exists in the domestic solar photovoltaic building market to compensate for the sluggish international market, it is difficult to see a significant improvement in the weak demand for polysilicon at the downstream level. As long as the economic situation abroad does not improve, the global polysilicon market cannot grow at a rapid pace as it has in previous years. 　　It is the combined pressure of surging production capacity and shrinking demand that has caused a sharp drop in the spot price of polysilicon. 　　Changes are quietly taking shape amid the pain of market pressures. “Although the spot price of polysilicon dropped below $100 per kilogram by the end of March this year, it could fall below $70 per kilogram at any time due to an imbalance between supply and demand.” ”An industry insider in Shanghai expressed this view on his blog. 　　Lü Jinbiao said, “$70 per kilogram is definitely going to be the price, but no one in the industry can predict when it will drop to such a low level; only the market can decide that.” ” 　　Industry experts believe that in the past, the technology for polysilicon production on a thousand-ton scale was monopolized by 7 foreign companies, and the exorbitant profits were largely a result of this monopoly. Now, many domestic companies have essentially mastered this technology, and the polysilicon industry has entered an era of free competition; a price below $100 per kilogram represents a reasonable level for profits. 　　Currently, the polysilicon industry in China generally uses the silicon trichloride reduction method. Whether a closed-loop production system is employed is a decisive factor in determining the energy consumption and raw material utilization efficiency of this process, and it is also key to reducing costs. The silicon trichloride hydrogen reduction method: Production lines of less than 1,000 tons typically do not have mature exhaust gas treatment systems in place, which prevents closed-loop production and the recycling of materials. 　　Wei Qidong, secretary-general of the Jiangsu Photovoltaic Industry Association, said that the cost of polysilicon for domestic companies is generally between $50 and $70 per kilogram, while for those companies that do not use closed-loop production processes, the cost exceeds $100 per kilogram. 　　It is understood that the difficulties facing the polysilicon industry have arrived; the construction of some polysilicon projects that are currently in progress has slowed down, and some projects that were planned but not yet started have been canceled. Among the completed projects, those that came online after the third quarter of 2008 will have an investment return rate that is far below expectations. 　　Some industry analysts believe that \"in the next one or two years, domestic polysilicon companies are likely to engage in fierce price wars. In this process of industry restructuring, those with a cost advantage will be able to emerge as the leaders in competition.\" ” 　　Jiang You, President and CEO of Jiangsu Zhongneng, said, “The prospects for solar photovoltaic power generation are positive in the long term, but under free competition, the exorbitant profits in the silicon industry will vanish just like a mirage.” From now on, companies in this industry should strengthen their internal capabilities by improving technology, optimizing processes, and enhancing management in order to reduce costs. ”