The crash of the polysilicon price was merely a matter of time

Analysis by Johannes Bernreuter, Head of Bernreuter Research

Now the time has come when the pipe dreams of Chinese polysilicon plant investors burst like a bubble. After weeks of growing oversupply and an accelerating price downtrend, the polysilicon price has collapsed, breaking through the threshold of US$10/kg on a global average and undercutting US$9/kg in China.

The crash was only a matter of time. Prices above $30/kg during the polysilicon shortage in 2021 and 2022 as well as a rosy outlook of strongly rising PV demand spurred massive capacity expansions by the leading Chinese polysilicon manufacturers and lured one new entrant after another.

No one heeded the warning call against overcapacity released by the Silicon Branch of the China Nonferrous Metals Industry Association in March 2022: Beware of the danger of a price collapse and don’t pursue only short-term interests! Nobody cared. The consequence has been a typical pork cycle from shortage to oversupply.

Although the price decay has unfolded since March 2023, ten Chinese companies were still about to start up new polysilicon plants with a total capacity of 945,000 metric tons (MT) between this June and August. According to the Silicon Branch, two of them have now stalled their plans: Dongli PV in Inner Mongolia (48,000 MT) and new entrant Baofeng Silicon in Gansu province (50,000 MT).

Others are also stepping on the brakes: Three Chinese manufacturers with high production costs have already suspended operation due to losses, and even leading suppliers are said to have stopped shipments now. This will presumably help to decelerate the race to the bottom, but it is unlikely that the decline can be stopped before the market price has reached the cash cost level of the last producer needed to satisfy demand. And that level is below US$7/kg.

A comparison with the polysilicon price decline in 2011

When the big polysilicon shortage between 2004 and 2008 was over, the spot price plummeted from its peak of $475/kg in April 2008 by 88% to $55/kg in July 2009. After a recovery in 2010, a second slump followed in 2011. This second decline shows some similarities to the situation in 2023 (see chart above). In both cases, the price initially rose in the first quarter before the downtrend set in.

In 2011 the rapid price decline began to slow down in late May and was even followed by a short-term rebound in July. The current production cuts may curb the price decay as well. Once PV end demand explodes induced by low solar module prices, the polysilicon price might even recover temporarily. But that will largely depend on how much new polysilicon capacity will still come on stream this year.

Should the global polysilicon price average drop by 66% in 2023 as it did in 2011, it would land at approx. $7.75/kg by the end of this year; the price in China would likely continue to be about $1/kg lower and thus hover around the cash cost of the marginal producer.

So far the analogy to 2011. Uncertainties remain. As a popular saying puts it: History doesn’t repeat itself, but it often rhymes.