Spot Prices Revive in China but Price Increase is not Expected to be Sustainable

Glenn Gu – Senior Analyst, IHS Solar

Driven again by the continuing decline of long term agreement (LTA) prices, the overall blended average polysilicon price reached $20.4/kg in January from $20.7/kg in December. January’s polysilicon market was better than that of December as spot markets in China revived. Encouraged by upcoming China’s announcement of preliminary decision on polysilicon anti-dumping investigation, Chinese suppliers’ polysilicon prices bounced back a lot. We believe this momentum will continue in February however, it may be short lived as overcapacity still looms while end market will only pick up step by step on a global basis.

Demand

January’s polysilicon spot market was more robust in China than that in previous months and some Chinese suppliers managed to greatly reduce stock level in the month. When it comes to trading volume, IHS noticed that January’s trading volume increased by at least 10% to that of December, which confirmed IHS Solar’s previous anticipation that polysilicon demand had reached its bottom in last December.

Demand on polysilicon from Chinese suppliers turn out to be quite good in China. IHS saw some traders managed to make polysilicon turnover quickly while some Chinese sellers received more orders than expected in the month. A strong uptick on spot polysilicon prices in China was in line with the dynamics in month.

Supply

Supply volumes again showed little expansion as top tier 1 suppliers still cut production to control the amount of supply to the market. In the meantime, many Chinese manufacturers are still hesitating to restart production since current price is still too low to be profitable.

For smaller suppliers from EU/US whose sales relies heavily on spot market, upcoming China’s announcement of preliminary decision on polysilicon Anti-dumping investigation is likely to set up an chasm difficult to be crossed for them to the market.

Current Prices
Looking more granularly at January’s prices we noted that contracted 9N and above grade polysilicon was still comparatively high at $23.5/kg. The average 6N-8N spot price increased a lot up to $17.1/kg. The average 6N-8N contracted price also increased to $ 18.7/kg. Still very few suppliers can expect to be profitable at this point.

Price Outlook

Average polysilicon prices are expected to decline only slightly by 0.5% in February down to $ 20.3/kg, thanks to the anticipated continuous uptick on spot prices in China which is encouraged by polysilicon trade disputes initiated by Department of Commence of the country. Looking ahead, upcoming anti-dumping tariff from China will put a shadow on price stabilization of international top tier polysilicon suppliers since their business heavily rely on China market. Additional tariff will help Chinese suppliers to increase prices. Suppose the tariff will be 40%, it then creates around US $ 4/kg ~ US $ 8/kg price improvement space for Chinese suppliers. Chinese suppliers have taken advantage of this in January and will continue to do so in February and March.

A sustainable price increase requires strong uptick of PV installation in the end-market. At the moment, IHS only see that Chinese market will pick up soon from late February on with mid-year installation deadline for approved 2012 Golden-sun projects (1st batch) and installation rush for ground-mounted projects in Western China stimulated by potential mid-year FiT rate adjustment. Japan is probably another market with increasing installation in the coming few months. Apart from these two key markets, other major markets can only expected to perform moderately during the period. In case of this, IHS Solar believes that Q1-13’s polysilicon spot prices increase will overdraw all positive momentum and make prices difficult to increase further afterwards. On the other hand, cost pressure will be bounced back from end-markets and be transferred to the upstream since EPC margins are not high already with fierce incentives cut in many markets such as China, Israel and Italy etc.

Conclusion

January polysilicon demand revived with big increase of spot prices encouraged by polysilicon trade disputes from China. IHS anticipates spot prices will continue increase in February. Uptick of spot prices will help overall polysilicon to be fall only slightly as LTA prices will continue to decline during the period. IHS doesn’t believe spot prices in China will revive continuously after March/April as oversupply still looms the market and demand was only expected to increase gradually.

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