Author Albert Hsieh
Updated September 03, 2021

Since 2020, the PV industry has seen massive wafer, cell, and module capacity expansions. However, in the upstream, the expansion of polysilicon capacity evidently fell behind, as subject to capital investment and longer time to build and commission new capacity. Against this backdrop, prices for polysilicon started to rise, exceeding the RMB 200/kg (USD 27.5/kg) mark in June.

The price hikes contributed to outstanding performances of polysilicon manufacturers, as shown in financial reports for the first half of the year published by listing businesses. The following paragraphs analyze recent and future developments of polysilicon industry based on the financial report of Daqo New Energy, whose subsidiary completed IPO process in China this year.

According to open data of Daqo, sale prices of polysilicon averaged at USD 20.81/kg in the second quarter of this year, a 196% YoY growth on USD 7.04 of last year, and rose further to a new record high of USD 26-28/kg during July and August. Polysilicon prices went up ceaselessly, while production costs saw relatively small changes, with cash cost per unit increasing by 11%, from USD 4.87/kg in the second quarter of last year to USD 5.41/kg.

This could be ascribed to the rising electricity charge in recent terms and the consequential, but temporary, shortage of industrial silicon. As prices rose far faster than production costs did, gross margin surged to 68.7% (Tongwei saw polysilicon gross margin reach 69.4%), compared to 17% the same period last year. 

Presently, demand for polysilicon remained strong. Daqo expected the high prices to persist until the end of this year and production costs to increase slightly by 1%, owing to raw material price hikes. Therefore, gross margin of the third quarter will see another significant increase. High gross margins allow Chinese Tier-1 manufacturers to operate at full capacity and even beyond. Meanwhile, Tier-2 manufacturers and those overseas raise utilization rates amid the robust market, in hope to increase revenues.

In the second quarter of this year, vigorous demand from the downstream and high utilization rates sent Daqo’s production and sales volumes to a record high of 21,000 MT. As prices and sales volume rose together, operating profit rate and net profit rate grew to 66.3% and 55%, marked increases on last year’s 8.1% and 1.8%, respectively. Being underpinned by high utilization rates, production output was raised to 83,000-85,000 MT.

Daqo supplied 600 to 800 MT of n-type polysilicon to their major clients per month, at prices only RMB 2/kg higher than p-type polysilicon, and with production costs RMB 1-2/kg higher than that of p-type, for n-type demand from is still rather low for the time being. According to Daqo, current technology is capable of raising n-type polysilicon’s share of production volume to 30-40%. The figure can go up to 70-80%, if downstream demand increases in the future. Therefore, the development of n-type polysilicon still hinges on demand from downstream sectors.
DAQO Q2 Production
Source: DAQO NEW ENERGY Q2 Financial Results Presentation
DAQO Q2 Financial Index
Source: DAQO NEW ENERGY Q2 Financial Results Presentation

Prices for polysilicon peaked in June and started dropping slightly, as downstream sectors lowered utilization rates, resulting in stocked inventory. Still, as end user demand picked up in the second half of the year, module makers raised utilization rates in August, pushing up purchase volumes of wafers and cells, allowing prices for the two to rise successfully, and granting polysilicon manufacturers larger rooms for price increases.

Rising utilization rates in downstream sectors during September and October led to polysilicon short supply and price increases. However, since modules have been approaching to the price ceiling of RMB 1.8/W, polysilicon prices did not skyrocket as in the first half of the year, so as not to deter downstream demand.

InfoLink estimates the market to see inventories piling up and prices starting to drop in every sector after October, when end user demand falls short of actual production outputs of the supply chain. Doubled with expectations for excess supply as demand dropped after the Lunar New Year, polysilicon prices will step on a downward trend from the end of the year onward.

Whether polysilicon manufacturers can maintain such financial performance depends on the pace of capacity expansions. Since last year, great profits in polysilicon has attracted many manufacturers to schedule expansions, with all new capacity being located at non-Xinjiang areas, hedging from possible trade barriers. Daqo estimated the world to add 180,000-220,000 MT of polysilicon production in 2022, with total production volume being able to supply 240-250 GW of modules, exceeding the 200-210 GW of expected demand. The excess supply will drag down prices for polysilicon, which Daqo estimated to drop, to RMB 150/kg and RMB 130/kg in the first and second half of 2022, respectively.

Daqo’s 35,000 MT-Phase 4B project will start pilot running at the end of this year and is expected to operate at full capacity by 2022, adding 40,000-50,000 MT to total production of that year and achieving 123,000-130,000 MT of overall production capacity. The expansion brought economics of scale, which is likely to contribute 2% to 5% of cost reductions next year. In the future, Daqo will continue its search for new production expansion sites in places outside of Xinjiang, such as Qinghai, Inner Mongolia, and Shanxi. Doing so allows the manufacturer to minimize risks and to reduce freight costs by getting closer to downstream clients of the wafer sector.

Production expansions of Daqo will take place in two phases, with an estimated capacity of 200,000 MT in total, including 1,500 MT of electronic grade polysilicon. The manufacturer is expected to see 270,000 MT of production capacity by 2024, maintaining its share at around 20% in the polysilicon market. To ensure raw material supply from the upstream, Daqo is considering engaging or investing in an estimated production of 300,000 MT industrial silicon.

Besides Daqo, other Tier-1 manufacturers, such as Tongwei’s unit of Yongxiang, TBEA, and other new entrants including Lihao Semiconductor Materials and Baofeng Energy Group, have all scheduled large-scale production expansions. If all these capacities come online in time, production volume of polysilicon will exceed 2,000,000 MT by 2025, supplying for at least 700 GW of modules, which is way higher than end user demand and may provoke price wars again. Daqo believes that the key to competitions within the polysilicon segment lies in polysilicon quality and cost structure, such as influence of electricity charge in places of origin.

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