6 Jan 2010 10:52

Overcapacity, prices challenge recovery of polysilicon sector

By Victor Wang

Shanghai. January 6. INTERFAX-CHINA - A return to profitability for polysilicon consumers in 2009 indicates that the sector is recovering from the global economic downturn, but overcapacity and sunken polysilicon prices may undermine a rosy outlook for the sector in 2010, industry insiders told Interfax.

LDK Solar Co. Ltd., a leading Chinese manufacturer of multicrystalline solar wafers, reported a net profit of $56.80 million in the third quarter of 2009, following a net loss of $205.50 million in the second quarter. The New York Stock Exchange-listed company said that its gross profit margin has returned to 20.1 percent, close to the level before the financial crisis. Trina Solar Ltd., a photovoltaic (PV) product maker has reported that its solar panel sales volume in the third quarter grew to 123 megawatts (MW), up 91.9 percent from the previous quarter and 84.7 percent higher than the same period in 2008.

"The polysilicon market has now stabilized following the plunge in polysilicon prices after the global financial crisis in 2008," an employee surnamed Yang from polysilicon maker Sichuan Yongxiang Co. Ltd. told Interfax.

Yang said that solar power is promising as the world needs a replacement energy source for fossil fuels. "Growth in demand for solar cells and upstream polysilicon is a sure thing," he said.

Nonetheless, Yang acknowledged that a surplus in polysilicon production capacity in China could hinder recovery.

China's State Council warned domestic polysilicon producers in late August that China's polysilicon sector had too much capacity. By the end of 2009, annual polysilicon production capacity had grown to more than 50,000 tons, up from 150 tons in 2003.

Furthermore, polysilicon prices are still lingering between $50 and $70 per kilogram, a far cry from their peak of nearly $500 per kilogram in the first half of 2008.

China International Capital Corp. Ltd. has a pessimistic outlook for China's polysilicon sector in 2010, according to a research report it published in mid-December. The investment bank projected that global polysilicon production capacity will reach nearly 100,000 tons in 2010, though global demand will not exceed 60,000 tons.

Furthermore, the bank estimated that China's total polysilicon sales in 2010 will be about 40,000 tons, and the average global polysilicon price will be about $55 a kilogram.

The collapse of polysilicon prices has taken its toll on some producers. "Maybe, other Chinese polysilicon makers have recovered, but for us the business landscape has changed very little," an anonymous employee from Sichuan Xinguang Silicon Technology Co. Ltd. told Interfax. "We are now selling our polysilicon for about $58 a kilogram, well below the peak price of more than $500 per kilogram before the financial crisis."

Li Lei, a senior renewable energy industry researcher for the China New Energy Chamber of Commerce (CNECC), said that it is next to impossible for polysilicon to climb back to $500 a kilogram in the mid-term because of the rapid expansion in production capacity over the last two years.

Nonetheless, Li believes that the overcapacity problem may have been exaggerated and might not hinder the sector's recovery.

"As far as I know, the overproduction problem in China might not be as serious as some media have reported because some polysilicon producers have overstated their production capacity over the past two years," he said.

Furthermore, many Chinese producers have postponed production line expansions because of the drop in polysilicon prices, which may have left more production capacity on paper than in reality, Li said.

In the end, Li predicts that China's polysilicon sector will experience a mild recovery in 2010, which means that producers will again be able to earn modest profits after taking heavy losses in the second half of 2008 and the first half of 2009.

"Of course, it does not mean that they will enjoy the same enormous profit margins that they had before the financial crisis," Li said

The table below details the annual production capacity and real output of major Chinese polysilicon producers from 2007 to 2009.

Major Chinese polysilicon makers' annual production capacity and output, 2007 to 2009

Producer 2007 annual production capacity (tons) Output in 2007 2008 annual production capacity (tons) Output in 2008 2009 annual production capacity (tons) Output in 2009
Luoyang Zhonggui 1,000 506 3,000 856 3,000 2,200
Dongfang Turbine 200 155 700 189 2,200 1,000
Sichuan Xinguang 1,260 230 1,260 811 1,260 1,100
Jiangsu Zhongneng 1,500 160 6,000 1,850 18,000 7,500
Chongqing Daquan - - 1,500 300 3,000 2,000
Sichuan Yongxiang - - 1,000 160 1,000 700
Jiangsu Shunda - - 1,500 29 1,500 800
Wuxi Zhongcai 300 64 300 220 300 300
LDK - - - - 16,000 500
Asia Silicon - - - - 1,500 700
Inner Mongolia Shenzhou Silicon - - - - 1,500 400

Source: China Securities Journal