PV suppliers urged to cut production to ease oversupply

The latest data from IHS has revealed that the drop in photovoltaic (PV) polysilicon prices that began in July worsened with the arrival of August. As such, Tier 1 suppliers must reduce production to alleviate the supply crisis, noted the market research firm.

The contract price in August of 9N polysilicon and above grades amounted to $27.80/kg, while pricing of the same-grade polysilicon traded in the spot market was much lower at $21.90/kg. The gap between the two categories widened due to the fast decline of spot prices. Contract pricing for 6N to 8N polysilicon was at $22.70/kg, while that traded on the spot market was at $20.10/kg.

"Oversupply remains the dominant trend impacting the PV polysilicon market," said Henning Wicht, director for PV advanced products at IHS. "The glut has caused pricing to drop precipitously, impacting profitability for polysilicon suppliers. Pricing also has been impacted by a number of related factors, including a sharp decrease in demand for solar module shipments in August, high module-channel inventory in Europe and the U.S., and the possible implications of the Chinese anti-dumping tariff against international players. In order to stabilize the price of polysilicon, Tier 1 suppliers need to consider reducing production."

Looking ahead to polysilicon demand in September and October, IHS sees a potential revival. However, an impending trade war with China in this market creates an air of uncertainty that may frighten away some buyers. If these pressures continue, September and October potentially could see weak demand, putting additional pressure on polysilicon suppliers worldwide.

Price is also a matter of uncertainty because of the anti-dumping situation in China. If a punitive tariff is imposed on Korean and E.U./U.S. polysilicon makers in the next three months by the Chinese Department of Commerce, these companies will be forced to accelerate price declines, since China is the dominant buyer of polysilicon.

While Tier 1 polysilicon manufacturers reduced utilization slightly in August, their production rates remain very high. Furthermore, resold polysilicon continues to be in plentiful supply. If Tier 1 suppliers maintain high utilization levels, the polysilicon oversupply situation will continue for the next 12 months.

"Now is the time for Tier 1 polysilicon suppliers to seriously think about a cut in production, given that profit margins for these companies are already very weak," Wicht said. "Based on the market developments in July and August—as well as the forecast for September—a worse profit/loss situation in Q3 is forecast for major polysilicon makers than in Q2."

With August turning out to be a very slow month for polysilicon demand, at least 10 to 15 percent less polysilicon was traded during the month compared to July. The lower demand is having a significant impact on the market for spot polysilicon because buyers still need to fulfill their long-term agreements (LTA) with major suppliers, even though some buyers tried hard to keep the volume to a minimum. This is another reason Tier 1 suppliers should consider cutting production in the coming quarters.

August was also sluggish for crystalline silicon module demand in Europe, due to high channel stockpiles and the holiday season.

On the other side of the Eurasian landmass, demand from China is ready to take off soon—even though it has yet to materialize.