Price rally drives polysilicon EBITDA margins beyond 40%

The polysilicon price rally has lifted the earnings before interest, taxes, depreciation and amortization (EBITDA) of non-Chinese manufacturers into regions last seen in 2014/2015. Both Korea-headquartered OCI and Germany-based Wacker reached EBITDA margins of more than 40% in the second quarter of 2021 after they still were in red territory in the prior-year quarter. With even stronger numbers, China-based Daqo New Energy has already announced the next major expansion:

• OCI has been running its solar-grade polysilicon plant in Malaysia at full speed since the fourth quarter of 2020 and is continuing full operation in the third quarter. The company exported more than 15,000 metric tons (MT) from Malaysia into China in the first half of this year. Chinese customs statistics data also shows that OCI’s remaining P1 plant in South Korea with a nameplate capacity of 6,5000 MT does not only produce electronic-grade polysilicon for semiconductors as announced, but also solar-grade material of high purity for export into China. Altogether, OCI’s basic chemicals division achieved an EBITDA margin of 42.4% in the second quarter.
• Wacker follows close behind with a margin of 42.1% for its polysilicon division. After lagging behind OCI’s margin by up to ten percentage points through the third quarter of 2020, the company has thus caught up substantially. Apart from the price rally in the solar sector, Wacker is obviously benefitting from its strongly rising market share in the higher-priced electronic-grade polysilicon business. The company also cites further progress in its cost reduction efforts.
• Daqo even posted an EBITDA margin of 70.6% in the second quarter. This is no surprise, given the company’s low electricity rate from coal-fired power plants in Xinjiang in northwestern China, and largely confirms its 30-percentage-point lead over OCI and Wacker. After the successful initial public offering of its Xinjiang subsidiary on the Shanghai Stock Exchange on July 22, Daqo has now announced it would further expand its production capacity to 270,000 MT by the end of 2024, up from an effective capacity of 85,000 MT currently and roughly 130,000 MT after the ramp-up of Phase 4B in the first quarter of 2022. The company is planning to build a new production base in Yunnan, Qinghai, Inner Mongolia or Shanxi with a first phase of 100,000 MT.
• REC Silicon, in contrast, reached a positive EBITDA margin of 22.2% only because it received a major government grant of US$8.4 million in the second quarter. Without that payment, the operating EBITDA was negative at -1.4%. Since mothballing its solar-grade polysilicon plant in Moses Lake, Washington in July 2019, the US-based manufacturer has only been generating revenues from its small electronic-grade polysilicon and silane plant in Butte, Montana. The EBITDA is dragged down by the running costs of keeping the Moses Lake plant intact for the planned restart in 2023. In the second quarter, the Butte plant was hit by a lightning strike, leading to preponed maintenance and lower capacity utilization. Higher electricity prices additionally weighed on Butte’s result.

For OCI’s and Wacker’s polysilicon divisions, 2021 will become a fat year after dire straits in 2020. But once the spot price falls to significantly below $10/kg again, it will pose new challenges to these manufacturers in the competition with their rapidly growing Chinese rivals.