【Haichuan Industry News】Policy adjustments boost demand slightly; polysilicon prices rebound from lows
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Global New Energy Network: I. Polysilicon prices showed a “V-shaped” trend. In September and October 2016, polysilicon prices followed a V-shaped pattern, dropping from 110,600 yuan per ton at the beginning of September to 86,500 yuan per ton by the third week of September, an increase of 21.8%. In the fourth week of September, polysilicon prices started to recover and rose gradually to 117,300 yuan per ton by the end of October, representing a gain of 35.6%. The average price in October was 110,500 yuan per ton, up 13.0% on a month-on-month basis. The factors that led to a downward trend in domestic polysilicon prices in September include the following: First, after the rush to install installations that took place on June 30, demand from downstream industries dropped to unprecedented levels starting in July. Inventory levels built up to varying degrees in the sectors of solar modules, solar cells, and silicon wafers, which caused prices in these downstream sectors to fall continuously. As a result, companies’ profits were significantly reduced, and shutdowns or reduced production became common phenomena; this directly contributed to the ongoing decline in polysilicon prices, which continued throughout September. Secondly, some large manufacturers postponed their maintenance plans slightly due to existing orders that still needed to be fulfilled, which kept supply sufficient. In the context of a sharp decline in demand, this also contributed directly to the rapid drop in polysilicon prices. The factors contributing to the bottoming out and rebound in polysilicon prices are as follows: First, due to excessive inventory levels on the downstream side, demand has weakened sharply, and some of the leading polysilicon manufacturers have voluntarily reduced production for maintenance purposes, resulting in a significant decrease in supply. Second, the price of polysilicon has dropped to record lows, prompting some downstream manufacturers to stock up, which has had a certain stimulating effect on market demand. Third, terminal demand is gradually recovering, downstream cell and module manufacturers are slowly resuming production, leading to an increase in actual demand. Fourth, the issuance of the notice on the adjustment of the benchmark feed-in tariff for new energy has provided some stimulus for the earlier installation of photovoltaic systems. The above factors have contributed to a rebound in polysilicon prices after hitting a bottom.
The last edit to this post was made by Desert Fish on 2016-11-1 at 20:18. II. The domestic \"maintenance surge\" continues, with supply declining year-on-year. According to statistics from the Silicon Industry Association, domestic polysilicon production in September and October 2016 was 25,300 tons, a 18.1% decrease compared to the previous year. Production in September was 12,700 tons, while production in October was 12,600 tons, representing decreases of 27.0% and 0.8% on a month-on-month basis respectively. Ranked by production volume in September and October, Jiangsu Zhongneng, Sichuan Yongxiang, and Xinte Energy occupied the top three positions, with these three companies accounting for 49.2% of the total production volume. The seven enterprises with a production capacity of 10,000 tons each – Zhongneng, TBEA, Zhongsilicon, Daquan, Yongxiang, Yasi, and Sunwoda – produced 18,700 tons in total, accounting for 73.7% of the country’s overall production. From September to October, there were 17 domestic manufacturers in operation; 8 of them underwent maintenance work (including Jiangsu Zhongneng, Xinte Energy, Luoyang Zhongsili, Xinjiang Daquan, Inner Mongolia Dunan, Asia Silicon Industry, Guodian Jingyang, and Kunming Yeyan). By the end of October, 3 of these companies had completed their maintenance and were gradually returning to normal production levels, while the remaining companies planned to finish their maintenance and upgrades in November and reach full production capacity thereafter. Looking at the production situations of various companies, Jiangsu Zhongneng reduced its production capacity by one-third at the beginning of September, when polysilicon prices hit record lows; its monthly output dropped by around 2,000 tons. It has not yet resumed production and plans to do so in November ； Xinte Energy’s new line technical upgrade project is set to be completed in November, with monthly production expected to increase by around 14% ； Luoyang Zhongsi was under maintenance for about a month from mid-September to mid-October, and resumed production in late October ； Neimenggu Dunan and Guodian Jingyang resumed normal production at the end of October after completing their maintenance work; Neimenggu Dunan saw a slight increase in its production capacity following the maintenance ； Xinjiang Daquan, Asia Silicon Industry, and Kunming Yeyan are still in the stage of technical upgrades, with some of them expected to resume operations in November.
III. Imports from South Korea have declined significantly, while imports from Germany show an upward trend. According to the latest customs data, in September 2016, China’s imports of polysilicon dropped to 8,871 tons, representing a 23.8% decline on a month-to-month basis and a 16.3% decrease on an annual basis. As of September 2016, the cumulative import volume reached 103,536 tons, representing a significant increase of 16.4% on a year-on-year basis. In the first 9 months, imports exceeded 10,000 tons in 8 of those months, with imports in 5 of those months exceeding 12,000 tons each. The average monthly import volume for the first three quarters was 11,504 tons. The customs import situation of polysilicon in September had the following four main characteristics: First, imports from South Korea decreased significantly. After remaining South Korea’s largest source of polysilicon imports for two and a half years, the volume of imports from this country dropped to 3,456 tons in September 2016, accounting for 39.0% of total imports that month and ranking it second in terms of import volume. This represented a significant decrease of 38.8% on a month-to-month basis, as well as a 30.0% decline compared to the previous year. Primarily due to the unprecedentedly weak demand from downstream industries in September, polysilicon prices dropped to historic lows. Domestic trading volume was extremely low, and the same problem existed overseas as well. Korean polysilicon producers faced low sales volumes because of low market prices, which led to an accumulation of inventory; as a result, imports from Korea decreased. Second, imports from Germany are on the rise. In September, the volume of polysilicon imported from Germany increased to 3,694 tons, accounting for 41.6% of the total imports. This represented a further 9.7% increase on a month-on-month basis, and it was 22.9% higher than the average monthly import volume over the first three quarters, pushing Germany to the top in terms of import volume. This may be related to the gradual release of 20,000 tons per year of polysilicon produced by Wacker in the United States. Polysilicon manufactured in the U.S. finds it difficult to enter the Chinese market; as a result, almost all of the polysilicon produced by Wacker in Germany is exported to China, while demand from other regions is met through shipments from the U.S. Therefore, import volumes from Germany in customs data have increased significantly, showing a gradual upward trend.
Third, imports of polysilicon from Taiwan have dropped sharply. Imports of polysilicon from Taiwan in September dropped sharply to 141 tons, which was related to the extremely low demand in various downstream photovoltaic sectors during that month; this led to a significant reduction in the demand for polysilicon material as well as for polysilicon ingots. Since most of the polysilicon imported from Taiwan to the Chinese mainland comes in the form of ingots, this resulted in a notable decline in imports from Taiwan in September. Fourth, imports under the “free zone warehousing” system dominate in the United States. In September, the United States imported 253 tons of polysilicon, a 8.7% decrease on a month-on-month basis. Imports under the processing trade arrangement accounted for 87.4% of this total, and 100% of those imports made through processing trade were brought in via \"bonded zone storage\". The main reason for the significant decrease in polysilicon imports in September was the sharp reduction in imports from South Korea and Taiwan, driven by market factors.
IV. A reduction in photovoltaic subsidies is inevitable; technological innovation is the way forward. The National Development and Reform Commission issued the \"Notice on Adjusting the Benchmark Grid Prices for New Energy Sources (Draft for Comment)\\", proposing adjustments to these benchmark grid prices, with implementation scheduled for January 1, 2017. Taking the adjustment of the feed-in tariff for photovoltaic power plants as an example: the tariff is 0.55 yuan per kilowatt-hour in Class I resource areas, 0.65 yuan per kilowatt-hour in Class II areas, and 0.75 yuan per kilowatt-hour in Class III areas. These figures represent a reduction of 0.25 yuan, 0.23 yuan, and 0.23 yuan respectively compared to the current tariff standards, which corresponds to a decrease of 31%, 26%, and 23% respectively compared to the existing subsidies – far exceeding market expectations. The reduction in the tariff subsidies for photovoltaic power generation was a trend that was established from the outset of the relevant subsidy policies, as the ultimate goal of these subsidies is to reduce the cost of photovoltaic power generation enough so that it can be competitive with traditional energy sources such as thermal power generation on an equal footing, without the need for further subsidies. In fact, the gradual reduction of subsidies does indeed force enterprises to improve their technologies, enhance power generation efficiency, and reduce the cost per unit of electricity generated from photovoltaic systems, while focusing on improving the efficiency and quality of their products. The gradual reduction in production costs is a key factor in the development of enterprises. According to statistics, the cost of photovoltaic modules dropped from 1.32 yuan per kilowatt-hour to 0.41 yuan per kilowatt-hour by the first quarter of 2016 – in just 5 years. By the fourth quarter of 2017, this cost might have fallen further to 0.29 yuan per kilowatt-hour. The decline in the cost per kilowatt-hour of photovoltaic modules is, in the long run, good news for **companies alike. Firstly, falling costs mean that **subsidies for photovoltaic companies will decrease, which also alleviates the financial pressure to some extent**. Secondly, for companies, a decrease in component costs means an increase in their bargaining power. To reduce production costs, technological innovation is the fundamental approach. Only through continuous innovation can the costs of photovoltaic power generation be lowered, allowing the photovoltaic industry to truly become market-driven rather than relying on subsidies to survive. The reduction in subsidies is intended to force companies to innovate. Therefore, in the long run, subsidies and lower electricity prices are inevitable; seeking innovation in areas such as technology, applications, and business models is the only way forward. V. Forecast for the future market of polysilicon: From September to October, 8 domestic companies will undergo maintenance work (including Jiangsu Zhongneng, Xinte Energy, Luoyang Zhongsili, Xinjiang Daquan, Inner Mongolia Dunan, Asia Silicon Industry, Guodian Jingyang, and Kunming Yeyan). By the end of October, only 3 of these companies will have completed their maintenance work and are gradually returning to normal production levels; the remaining companies plan to finish their maintenance and upgrades in November, with normal production levels expected to be reached around mid-to-late November. It is estimated that domestic polysilicon supply in November will be slightly lower than the peak level seen before August, but higher than the lowest level recorded in October. Given that the policy regarding adjustments to the feed-in tariff is set to take effect on January 1, 2017, this will provide some incentive for accelerating the installation of photovoltaic systems. As a result, it is expected that there will be sufficient demand up until the end of 2016, and polysilicon prices will remain **between 100,000 and 120,000 yuan per ton.