Contradictory trends are currently pushing the polysilicon industry to simultaneously restrict production volumes while continuing to add new capacity.
The rationale for reducing plant utilization is obvious. Between 2008 and 2012, with production levels substantially higher than demand, polysilicon prices have fallen at an average annual rate of 38 percent per year. In 2012 alone, prices fell 53 percent. As average polysilicon prices fell well below $20/Kg, well below cash costs for most makers, reducing utilization has been is the only way to stem loses.
Despite there being available capacity well above that required by the PV and semiconductor industries, new (large) polysilicon plants are expected to come on line over the next several years. Based on new research featured in the NPD Solarbuzz Marketbuzz 2013 Report, polysilicon capacity is forecast to exceed the most likely PV demand by more than 100 percent for the next few years.
Forecast Polysilicon Capacity versus PV Market Demand
Source: NPD Solarbuzz Marketbuzz 2013 Report
This gap seems to defy logic. So what is motivating leading polysilicon manufacturers such as Wacker, Hemlock, Tokuyama, OCI, LDK, Daqo, Samsung Fine Chemical, Hanwha, Renesola and others to add yet more polysilicon capacity?
The reasons vary by manufacturer and investment phase:
It is unclear if (and when) all of this new polysilicon capacity will be ramped up. Wacker and Tokuyama, for example, have already stated they will complete current projects but will delay ramp up until market conditions warrant. And it is very likely that much of the Tier 3 (and even Tier 2 capacity) will be permanently shuttered over the next couple years.
At some point in the future, demand will finally catch up to supply. But unless demand grows faster than currently forecast, either more companies will exit polysilicon production or average plant utilization rates will remain depressed; and the gap between capacity and demand may continue to hinder many polysilicon makers’ ability to return to profitability for several more years.
This article was originally published on the Solarbuzz blog and was republished with permission.