Author InfoLink
Updated September 14, 2020

The widespread price surge in polysilicon, wafers, cells, and modules exacerbated by blasts at Xinjiang-based polysilicon plants in July added uncertainty to demand in the last quarter. In wake of explosions, InfoLink examines the supply and demand relationship and prices in the supply chain, offering views on the market outlook for the end of 2020 to the beginning of 2021.

Prices and profits trends

Source: InfoLink

*Costs here are calculated on the basis of spot prices in the beginning of every month and the average manufacturing costs of Tier-1 makers in every segment, as well as recent rising costs from materials. The costs did not include long-term or special contracts. 

States of supply chain 

Since new mono-Si lines were expected to come online and vertically integrated companies and mono-Si wafer manufacturers to operate at full capacity in the second quarter, prices were initially predicted to trend downwardly due to excessive capacity. Before the accidents took place, GCL Xinjiang and East Hope were expected to bring 20,000 MT and Phase 2 50,000 MT capacity online, while new production lines of mono-Si wafer manufacturers Longi, Zhonghuan Solar, Wuxi Shangi Automation, and JYT will commission in the second half of the year. Against this backdrop, polysilicon supply slightly exceeded demand. 

However, a series of explosions at polysilicon labs in Xinjiang disrupted manufacturing activities. GCL Silicon, in particular, suffered bigger damage. To conduct safety inspection, the company halted activities on older production lines and lowered utilization rates on new lines from late July to the end of August. At the meantime, transport in Xinjiang was restricted due to outbreak of coronavirus. 

The industrial accidents were followed by a flood threat in Sichuan, which forced Tongwei to halt 20,000 MT polysilicon production at a facility run by its Yongxiang unit in Leshan since late August. The month also saw unsteady output of polysilicon by Ordos, worsening polysilicon shortage. Consequently, polysilicon prices soared on fears of shortages, jumped more than 60% and 100% respectively for mono-grade and multi-grade polysilicon, compared with the level in early July. In fact, polysilicon prices had stayed at a low level since the first half of the year. Except Yongxiang and Daqo New Energy that still generate healthy profits, other producers were basically running without profits or at a deficit; some were even operating below cash costs. So, most producers raised prices amid shortages. 

Wafer manufacturers were left with no choice but to pass rising costs onto the downstream segments. Started with industry leader Longi, mono-Si wafer prices rose three times between late July and the end of August. Prices for G1 wafers even rose beyond the level that has stayed for about a year. In the face of rising polysilicon costs, only some mono-Si wafer players that boast more capacity have stronger bargaining power over prices, whereas most wafer makers could only accept the prices as it is. Profitability of wafer business, regardless of mono-Si or multi-Si, depends on manufacturers’ capability of controlling non-silicon costs. So, polysilicon segment was the most profitable in the supply chain even though wafer prices have experienced significant increases. On the above table showing profitability from June to September, profit margins of mono-Si wafer makers have stayed flat.

Supply and demand of polysilicon in 2H20

InfoLink estimated that China’s polysilicon production totaled 36,600 MT in June, while demand level stood at 36,800 MT, meaning that supply and demand was relatively balanced in that month. Mono-grade polysilicon prices rose marginally by RMB 1/kg and averaged RMB 60/kg.  

From a demand perspective, mono-Si wafer manufacturers will be mostly operating at full capacity in the second half and new production lines will be brought online as scheduled, indicating healthy demand for mono-grade polysilicon. From a supply perspective, three polysilicon producers in Xinjiang shut down older production lines for safety inspection and lowered capacity utilization on new production lines by varying degrees in July and August, leading to the most severe shortage of the year in the three months ending September.

Nonetheless, shortage began to ease as manufacturers in Xinjiang resumed production from late August. Meanwhile, OCI Malaysia and Germany-based Wacker are operating at full capacity. So, polysilicon prices are expected to stabilize and then decline slowly. Overall, polysilicon supplied is less than quantity demanded, although shortage will improve in the last quarter.

On the cell side, costs of silver pastes skyrocketed due to silver price hike, having increased by RMB 0.03/W over the May-July period. However, supply of M6 cells ran short between June and July, allowing cell makers to reflect rising costs from wafers and silver pastes on their pricings. Following marginal increases, however, cell prices returned to downward trend between August and September, as several module makers cancelled outsourcing orders and lowered utilization rates to minimize losses. September saw profits shrink again among cell manufacturers. Having said that, Tier-1 cell manufacturers that can supply large format cells to vertically integrated companies amid rapid shift in sizes will be able to maintain profits. In contrast, prices and profits of conventional cell sizes will diminish further due to supply surplus. 

The price increases certainly gave module manufacturers a hard time. While prices for cell, glass, ribbon, and EVA have increased between June and August and supply of modules based on M6 format ran a bit short, module makers usually signed contracts two to three quarters ahead and it’s not likely to change the agreed prices.

In the face of rising costs, developers that haven’t booked orders would not accept such a price level if they are not urgent to connect projects to the grid by the end of the year. Indeed, quite a few grid parity projects and some projects overseas will be postponed to next year, adding uncertainty to demand in the last quarter, which was initially predicted to be strong. In light of price rises, InfoLink cut full-year demand forecast from 121 GW to 117 GW. Module prices have recently jumped from RMB 1.45-1.5/W to RMB 1.55-1.65/W in China and above US$ 0.2/W in foreign markets. As many orders have been signed, module makers’ profits slump amid significant price increases. 

Factors including a slump in module prices in the first half, price surge in the supply chain, and fear of further price increases led to the dramatic price movement recently. However, this round of price increases will be short-lived.

The prices will return to normal and change in accordance to negotiations between buyers and sellers and the law of supply and demand. Looking ahead, price trends will become clearer as supply of polysilicon stabilizes. With the high season approaches, prices are forecast to stay stable until the end of the year and because demand from deferred projects will manifest at the beginning of 2021, prices will sustain less decrease compared with previous years.

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