Polysilicon price slump accelerates, but will not last very long

By Johannes Bernreuter, Head of Bernreuter Research

Since the last week of December 2022, the slump of the polysilicon price has accelerated drastically; however, there are good arguments that the price collapse will soon come to a halt.

A nice mess after Christmas

Until Christmas 2022, the decline of the polysilicon price was anything but extraordinary. The chart above shows the curves of the global polysilicon price average from January 2022 through the first week of January 2023 (dark blue) and from January 2021 through the first week of January 2022 (pink); the last dot of the pink curve is equivalent to the first dot of the dark blue curve.

The seasonal decline until Christmas is almost identical in both years: On December 21, 2022, the average polysilicon price was US$32.50/kg, 12.6% down from the flat level in October/November. One year earlier, on December 22, 2021, the spot price had fallen from the annual peak in early December by 12.7% to $32/kg.

In the first week of January 2022, the spot price already hit the bottom and began to climb again. In the last week of December 2022, however, the price slump started to accelerate. It was so heavy that price data providers had difficulties to determine the exact extent in thin trading.

On January 4, 2023, the data of the average price for mono-grade dense polysilicon in China still varied between 157.5 Chinese yuan per kilogram (Shanghai Metals Market) and CNY190/kg (InfoLink). EnergyTrend (CNY173/kg) and the Silicon Branch of the China Nonferrous Metals Industry Association (CNY176.2/kg) lay in between (all values including 13% VAT).

Oversupply of wafers triggered the price slump

Market observers agree that the price collapse was triggered by the oversupply of solar wafers. According to PV Tech Research, around 300 GW of solar modules were produced in 2022. With a thin-film share of roughly 10 GW, the volume of crystalline-silicon solar cells amounts to 290 GW. If one takes the wafer-cell production ratio of 2021, 317 GW of wafers would have been sufficient for 290 GW of solar cells in 2022.

In fact, 329 GW of wafers were produced in China alone in 2022, according to the Chinese Silicon Branch; Bernreuter Research estimates an additional output of 10 GW outside China (mainly in Vietnam, Norway and Turkey). Although Chinese wafer production in December dropped by 24% compared to November, this was too late: The global wafer output of approx. 339 GW in 2022 has created inventories that are 22 GW above the level of 2021.

As a result, the spot price for monocrystalline wafers in the mainstream M10 format (edge length of 182 mm) fell by 27% between mid-November and December 21, 2022. That put the polysilicon price under pressure, which had only declined half as quickly in the same period. After the price crash in the last week of December and the first week of January, the global polysilicon price average has slumped by 39% since November to $22.70/kg, whereas the price of M10 wafers has plummeted by 48%.

The price collapse will likely come to a halt by the end of January

How long will the price collapse go? Market researchers and Chinese media speculate that it will last until the Chinese New Year, which is pretty early this year on January 22. Several factors will play a role:

• As the diminished output in December shows, wafer manufacturers have already reduced their utilization rates in order to deplete surplus inventories. On the one hand, this will take pressure off wafer prices; on the other, it will also weaken the short-term demand for polysilicon.
• From the viewpoint of market psychology, a price collapse shows the reverse mechanism of a price rally: Polysilicon buyers will wait with new procurements as long as possible. If they buy too early in the price downturn, they risk having to depreciate their inventory.
• Once inventories are running low and the Chinese Spring Festival holidays (January 21-27) are coming closer, the pressure will rise on manufacturers to replenish their stocks. This will likely bring the price collapse to a halt by the end of January.

A short-term price rebound cannot be ruled out

If we schematically assume a slowdown of the price decline with weekly reduction rates of 7.5%, 5% and 2.5% for the rest of January, the average polysilicon price would land at $19.45/kg at the end of the month. Afterwards, the price development will simply depend on one single question: What will grow more rapidly – supply or demand?

On the supply side, three new polysilicon projects will be important in the first half of the year: GCL Technology’s third fluidized bed reactor plant with a capacity of 100,000 metric tons (MT) in Inner Mongolia, Daqo’s new 100,000 MT factory in Inner Mongolia and the 50,000 MT plant of new entrant Runyang Silicon in Ningxia. Together, these new capacities are able to provide polysilicon for about 100 GW of solar modules; during the initial ramp-up phase, however, it will be much less. It will take at least until the third quarter before these plants reach full capacity.

On the demand side, lower solar module prices will fuel vibrant PV installation activities in 2023. Therefore, it is not completely unreasonable that we could see a short-term price rebound in the first half of the year before another series of new polysilicon plants will put more pressure on the price.