New polysilicon entrants in China: Nothing learnt from the past

By Johannes Bernreuter, Head of Bernreuter Research

It only took a few weeks of soaring spot prices until four new entrants emerged in the Chinese polysilicon industry. Two of them were established in April, and all four projects came to light in June:

• Ningxia Baofeng Energy Group, a producer of coal-based chemicals listed on the Shanghai Stock Exchange (SHA: 600989) with a market capitalization of approx. US$16.5 billion, is going to build a polysilicon plant with a huge capacity of 600,000 metric tons (MT) in the outskirts of Yinchuan, the capital of the Ningxia Hui autonomous region. Although the company has not answered respective questions on investor forums, Chinese media reported in mid-June that construction of the first 300,000 MT phase had already started. It is also said that Baofeng Energy has lured several senior executives away from GCL-Poly’s polysilicon subsidiary Jiangsu Zhongneng.
• Xinjiang Jingnuo New Energy Industry Development Company was established in April 2021 as an indirect, wholly-owned subsidiary of Hangzhou Jinjiang Group, a large private, multi-industry conglomerate headquartered in Hangzhou, Zhejiang province. On June 29, Xinjiang Jingnuo held the groundbreaking ceremony for the first 50,000 MT phase of a 100,000 MT polysilicon plant in Huyanghe, a city administered by the 7^th Division of the Xinjiang Production and Construction Corps (XPCC) in the northwest of the Xinjiang Uyghur autonomous region.
• Qinghai Lihao Semiconductor Materials Company was also founded in April 2021, by Hainan Haofan Investment Company and Hainan Zhuoyue Business Management Partnership. The company is planning to start construction of the first 50,000 MT phase of a 200,000 MT polysilicon plant in the Nanchuan Industrial Park of Xining, the capital of Qinghai province, this July and to complete it in December 2022. There are rumors that the real investor behind Qinghai Lihao could be IDG Capital, which has also invested in Gaojing Solar Energy, a new ingot manufacturer in Xining. On July 6, Qinghai Lihao closed a contract with equipment supplier Shuangliang Eco-Energy Systems about the delivery of chemical vapor deposition reactors worth approx. US$24.7 million.
• Jiangsu Runergy, the world’s third largest solar cell supplier, signed an investment agreement with the city government of Shizuishan, Ningxia province on June 9 about a polysilicon project with a capacity of 100,000 MT and a high-efficiency solar cell factory with an annual output of 5 GW. Bernreuter Research assumes that the first phase of the polysilicon plant will comprise 50,000 MT.

The new plans would accumulate a global production capacity of 1.9 million tons

Should the new entrants have thought they could seize the moment to fill the gap left by zero capacity expansion in 2020, they have completely been mistaken. Incumbent manufacturers in China have announced new projects with a total capacity of 670,000 MT for 2022, which easily dwarfs the plans of the four new entrants (see chart above). This volume does not even include more than 200,000 MT that Xinjiang GCL, East Hope, Asia Silicon, Daqo and Tongwei are already adding this year.

If all the new projects were implemented by the end of 2022, the global production capacity for solar-grade polysilicon would rise to a staggering 1.9 million MT – enough to produce roughly 675 GW of solar modules annually. That is still more than the massive capacity of 550 GW expected in the wafer sector, which is also being blown up by new entrants. Even in 2024, when these capacities would fully have been ramped up, they would exceed optimistic PV installation forecasts of close to 400 GW by far.

Voilà, the old pork cycle of shortage and oversupply is here again. The new entrants could have known from previous cycles what will happen when a shortage-induced price hike triggers new investments: Too many players think the same and create overcapacity.

Nevertheless, the polysilicon industry is still far away from the regular pork cycles in the past. The last big shortage between 2004 and 2008 was mainly due to the infancy of the PV market. In the subsequent twelve years, there was a sustained tendency to oversupply, only interrupted by very brief phases with higher prices (see our polysilicon market analysis).

The current major shortage will not last much longer than one year, and then we will very likely have it again: a sustained period of overcapacity.