Rising costs, elimination of preferential electricity prices for polysilicon, and supply falling short of demand

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Rising costs, end of preferential electricity rates for polysilicon, and supply shortage – Published on July 6, 2010; Source: China Securities Journal; Author: Xing Baiying. Recently, some provinces and cities in China have abolished the preferential electricity rates applicable to polysilicon production projects, resulting in higher production costs for polysilicon. Coupled with global demand for photovoltaic products exceeding expectations, there is now a trend of supply shortage for polysilicon in China, especially high-purity polysilicon. In response to this, many polysilicon cell manufacturers are concerned that rising polysilicon prices will lead to increased cost pressures. 　　Cancellation of preferential electricity prices A few days ago, the Zhejiang Provincial Price Bureau, in conjunction with relevant departments, issued a notice stating that as of June 1, the preferential electricity price rates for energy-intensive enterprises would be abolished. Any entity that was offering such preferential rates to energy-intensive enterprises (including those in the polysilicon industry) must cease doing so immediately. Provinces that have also removed preferential electricity prices for the polysilicon industry include Ningxia, Guangxi, Inner Mongolia, and others. 　　The international price of polysilicon has been declining rapidly since the second half of 2008, remaining in the range of $50–60 per kilogram. The removal of preferential pricing for polysilicon in China will directly lead to an increase in its cost. As the most fundamental raw material in the photovoltaic industry chain, an increase in the price of polysilicon will put significant cost pressures on the entire industry chain. 　　In fact, apart from the elimination of preferential electricity prices for polysilicon, the significant increase in global demand for photovoltaic products has also led to a situation where polysilicon production, which was criticized for \"overcapacity\" last year, is now showing signs of shortage. Data shows that in the first quarter of 2010 in China, the annual growth rate of polysilicon imports was around 65%, indicating that the increase in supply fell far short of the pace of demand growth. 　　A domestic photovoltaic manufacturer said that the photovoltaic end market is now nearly three times larger than it was in 2008, while polycrystalline silicon production capacity has increased by at most 50% compared to 2008; as a result, the supply and demand situation for polycrystalline silicon has once again become tight. 　　It is understood that due to full-scale production across the photovoltaic industry this year, and driven by the demands from both the photovoltaic and semiconductor industries, there is a shortage of polysilicon. As a result, the price of polysilicon has risen from 50–52 dollars per kilogram to 60–65 dollars per kilogram. Many leading manufacturers in various industries expect the price of polysilicon to gradually rise to 70–80 dollars per kilogram. 　　The price increase will continue in the short term. Officials from Jiangxi Sunwoda said that the company’s current production capacity for polysilicon exceeds 6,000 tons, and this figure could rise to over 10,000 tons by the end of the year; however, this still covers less than half of the company’s annual demand. At present, the increase in polysilicon prices remains within the company’s acceptable range. 　　Zhao Yuwen, vice president of the Chinese Society for Renewable Energy and head of the Photovoltaic Branch, said that with strong global market demand and insufficient supply of raw materials, the rise in polysilicon prices is a result of market dynamics. Given the concerns about \"overcapacity\" in polysilicon in our country last year, it is expected that the release of domestic polysilicon production capacity will not be rapid. For domestic silicon wafer manufacturers, imports may still be necessary in the short term. 　　Industry experts say that for polysilicon, it takes at least about 2 years from the start of production to when it can be utilized in actual applications, while module manufacturers only need less than a year to do the same. Compared to last year, the module production capacity of companies such as Suntech and Trina Solar has increased significantly, primarily due to rising demand from the photovoltaic sector. 　　Some optimists argue that the current increase in the price of polysilicon is still within an acceptable range for most domestic photovoltaic manufacturers. After all, in the first quarter of 2008, the price of polysilicon reached as high as $500 per kilogram; this time, the rise in polysilicon prices is more of a recovery from previous levels, given that the prices of polysilicon wafers and solar panels also increased to some extent in the first quarter of this year. 　　The rise in polysilicon prices this time may prompt domestic manufacturers with existing polysilicon production lines to expand their capacity. However, for smaller-scale investors, entering the polysilicon industry under current circumstances is subject to numerous restrictions. In addition to technical barriers, substantial capital investment is required over a construction period of at least two to three years. Financial institutions also impose limits on loans for polysilicon projects, and there are currently no significant incentive policies in place in China to support such projects. 　　Therefore, analysts believe that rising polysilicon prices will continue for some time in the short term, especially for high-purity polysilicon that relies heavily on imports, which is likely to see price increases passively in the short term.