Has the polysilicon spot price rally reached its peak now?

Price changes in the solar value chain (polysilicon, wafer, cell, module) from January through May 2021
The polysilicon price rally seems to have hit the threshold of pain at end customers – Raw data: PV InfoLink; Chart: Bernreuter Research

After the polysilicon spot price has skyrocketed by almost 160% from US$11/kg in early 2021 to $28.50/kg now, there are first signs that the price rally will slow down.

In contrast to previous weeks, most price data providers reported only a small increase by not more than 1% on June 9, following the SNEC trade show in Shanghai last week. Taiwanese market researcher PVinsights wrote in its weekly snapshot: “Almost all players thought polysilicon prices had reached a peak as major vertically integrated players were not able to drive up solar module price further amid the worsening outlook.”

A price rally basically works like a self-fulfilling prophecy: In view of the increasing price, buyers try to procure as much volume as possible to hedge against further price increases. In effect, this hoarding impulse drives up the price further, which induces the next round of panic buying.

In the case of polysilicon, the manufacturers on the three steps down the solar value chain – wafer, cell and module production – can either absorb the price increase at the expense of shrinking or even vanishing margins, or they pass on the increase onto their customers.

Sinking demand for solar modules seems to break the price spiral

As we showed in our first analysis of the polysilicon price rally, wafer manufacturers were able to pass the increase almost completely onto cell producers in the first quarter. In April and May, however, the rally accelerated so rapidly that even wafer manufacturers had to give up some of their margin.

Compared in $Cents per watt ($Ct/W) of solar cell or module power, the polysilicon price spiked by 4.9 $Ct/W to 8.3 $Ct/W in the first five months of this year, whereas the price for wafers with the frequently used M6 format (edge length of 166 mm) rose by 3.8 $Ct/W in the same time frame (see chart above).

At first sight, cell producers look like the big losers in the game as they were only able to raise their prices by a relatively meager 1.7 $Ct/W. But that comes after a decrease of 1.2 $Ct/W in the first quarter; so they caught up by 2.9 $Ct/W in April and May.

Solar module manufacturers were able to enforce a price rise of 2.3 $Ct/W for M6-based panels between January and late May; that’s an increase of 11%. During this period, the share of the polysilicon spot price in the solar module price grew from 16% to 35%. On top of that, modules are burdened with an inflation of oversea freight costs.

It looks like the threshold of pain has been reached for many end customers now. Large utility-scale projects are already being pushed out into 2022. According to PV InfoLink, major module manufacturers have ceased cell procurements since early June; some cell producers may reduce their utilization rates to a range of 40% to 50%.

When end demand significantly drops, the price spiral gets broken. If, however, lingering fears of lower polysilicon supply due to maintenance overhauls in the third quarter should flare up again, a new round of price increases could set in.

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