First rays of light at the end of the polysilicon high-price tunnel

When the massive polysilicon spot price rally came to an end in June, many in the solar industry may have thought: The worst is over. They had to digest the fact that the price of this important raw material had almost tripled from US$11/kg to US$29/kg within just five months.

However, Bernreuter Research already warned at the time that a new round of price increases could set in during the third quarter.

As it has turned out, the warning was justified. In mid-August the spot price began to rise again from less than $27/kg to $29/kg by the end of September – the same level where the rally ended in June. Then, the price suddenly spiked to $36/kg within four weeks, driven by a shortage of metallurgical-grade silicon (silicon metal), the main feedstock for polysilicon. That again was caused by production curbs in China following government restrictions on energy consumption.

The spike of the silicon metal price gave polysilicon manufacturers an easy excuse to lift the polysilicon price even higher. They wouldn’t necessarily have needed to do so as they have plenty of margin to absorb the increased silicon metal costs. The fact that polysilicon producers were nevertheless able to raise the price further shows that there was still enormous demand in the market, despite a module price level that was thought to be unsustainable a few weeks earlier.

The scales are tilting in favor of a price downtrend

Now, however, there are many aspects that speak in favor of a downtrend:

• The polysilicon price index of PVinsights, which is often an early indicator, has already been sliding down since November 10, leading to a sharp drop by almost 9% on December 1. While the polysilicon indices of EnergyTrend, PV InfoLink and the Singapore Solar Exchange (SSX) are still flat, they will probably reflect the downtrend starting in mid-December.
• The Chinese silicon metal spot price only saw a short spike and has significantly fallen since mid-October. Restrictions on energy consumption in China are easing.
• According to the Silicon Branch of the China Non-ferrous Metals Industry Association, polysilicon output in China in October was better than expected – a decrease of only 1.9% compared to September.
• In November, or December at the latest, the polysilicon spot price usually begins to weaken after the procurement for the year-end PV installation rally has been done.
• PV installations in China, the world’s largest solar market, remained below 4 GW in October for the second month in a row; that was even less than the volume deployed in October 2020. A strong finish in December may remain at bay this year, due to the high price level.
• JinkoSolar, the world’s second largest module supplier, has significantly reduced its full-year shipment guidance from a corridor of 25 to 30 GW to a range of 22.8 to 24.3 GW.
• More and more reports are currently surfacing about large inventories across the value chain. These inventories have to be cleared before the end of the year and will exert downward pressure on the price as can already be seen in the strong decline of wafer prices this week.
• In early November Tongwei started up the next phase of its polysilicon plant in Sichuan province with a capacity of 50,000 metric tons (MT); a few days later GCL-Poly commissioned an additional capacity of 20,000 MT at its fluidized bed reactor plant for granular polysilicon in Jiangsu province. At year-end, Daqo will follow with another 45,000 MT in Xinjiang and Tongwei with its new 50,000 MT plant in Yunnan province.

The polysilicon price may follow a V-shaped curve in 2022

Once these new facilities have been ramped up by the second quarter of 2022, an additional capacity of 165,000 MT will be available – enough for an annualized solar module production of roughly 55 GW on top of the existing capacity.

The small polysilicon volumes produced during the initial phase of the ramp-up may be absorbed by wafer manufacturers that begin restocking ahead of the Chinese New Year in January. However, it is also possible that a sinking polysilicon price will lead to speculation on further falling prices and thus initiate a downward spiral.

In any case, Bernreuter Research expects that the polysilicon price has to drop below the threshold of $30/kg in order to stimulate new demand. Once the significant supply increase has resulted in lower prices, rising demand could drive up the price again. Thus, we may see a V-shaped price curve in the first three quarters of 2022 before the next wave of new production capacities brings additional polysilicon volumes on the market.