Why the spot price for polysilicon is going through the roof

By Johannes Bernreuter, Head of Bernreuter Research

Within just one quarter, the spot price for solar-grade polysilicon soared by nearly 50% – from US$11 per kg in early January to more than $16/kg at the end of March, the highest level since June 2018. How did this rapid increase come about?

The typical driver of such a price rally arises from market psychology: Fear of shortage leads to panic buying. In the current case, speculative traders also jumped on the bandwagon and have massively hoarded material – just to sell it at a high price at a later point. According to Chinese media, at least 20% of the polysilicon market volume is now in the hands of middlemen.

Apart from the psychological overreaction, however, market fundamentals cannot be ignored: Demand is outstripping supply. At the beginning of the year, it was already clear that polysilicon demand would be higher than the available production capacity at least in the first three quarters of 2021. In such a situation, the market price is not determined by the cash costs of the last producer needed to satisfy demand, but by the buyers’ willingness to pay.

The increase from $11 to over $16 per kg equals a rise from 3.4 to 5 $Cents per watt

To shed more light on the willingness to pay, Bernreuter Research has taken a closer look at the price development along the complete photovoltaic (PV) value chain in the first quarter. For this analysis, we have used data from market researcher PV InfoLink since its price points mostly lie in the middle of those from competitors PVinsights and EnergyTrend.

As PV InfoLink does not provide a global average of the polysilicon spot price, but only figures for multi- and mono-grade polysilicon in and outside China, we have calculated a price average. For this purpose, we have assumed a market share of 93% for mono grade and an 80-20 split between polysilicon produced in China and material supplied by non-Chinese manufacturers.

The calculated average is in good accordance with the global spot price provided by EnergyTrend in January and most of February; since late February, however, we have observed that EnergyTrend’s polysilicon price data have been lagging one week behind those from PV InfoLink as well as those from the Silicon Branch of the China Non-ferrous Metals Industry Association.

While the price increase from $11/kg to over $16/kg in the first quarter may appear enormous, it is somewhat relativized when these numbers are converted into $Cents per watt ($Ct/W) of solar cell or module power. Based on a specific silicon consumption of 3.1 grams per watt, the polysilicon price rose from 3.4 $Ct/W to 5.0 $Ct/W in the first quarter. Its share in the solar module price grew from 16% to 23%.

Cell producers are the key to why the polysilicon price has soared so high

As the chart above shows, wafer manufacturers were able to pass the polysilicon price increase of 1.6 $Ct/W almost completely onto cell producers: The price for wafers with the frequently used M6 format (edge length of 166 mm) rose by 1.4 $Ct/W (assuming a cell efficiency of 22.2%) in the first quarter.

In the same time frame, module manufacturers raised the price for M6-based panels by 0.5 $Ct/W. While this increase still appears decent, it is less than half of the additional costs module producers had to bear from the price hike for solar glass in the fourth quarter of 2020.

But it is the cell manufacturers that have really been hit. They are the key to understanding why the polysilicon price has been able to soar so high. Betting on rising demand, many cell producers were still running at full speed in the first quarter, thus keeping the demand for wafers high and allowing wafer companies to pass the polysilicon price spike along.

Contrary to the expectation of cell manufacturers, however, demand for solar panels did not rise. According to PV InfoLink, the utilization rates in module production have fallen to around 60% now. Thus, cell manufacturers are squeezed from both ends of the value chain: from high wafer prices (+1.4 $Ct/W) on the one hand and weak demand for solar cells on the other, which led to a price decline of 1.2 $Ct/W (-9.4%) in the first quarter.

As a result, cell manufacturers are now suffering from immense inventory and cost pressure; some are already said to produce at a loss. It is only a matter of time when this pressure will materialize in sinking demand for wafers and, in turn, for polysilicon; the index of PVinsights, often an early indicator of market developments, has already been showing declining wafer prices since March 24. Therefore, the polysilicon price rally should soon come to an end – so long as demand for solar panels remains weak.