In the wake of the Chinese New Year Festival, the price of polysilicon has fallen by a few percentage points to the still very high value of $34.5 per kilogram, according to Silicon Industry Branch figures. Compared to a total production cost of at most $7.5, and the January low price point of just $22.5 per kilogram.
We had expected in January for the polysilicon price to collapse slowly through 2023 and then continue to decline at a slower pace, and this just hasn’t happened. There are two straightforward explanations for this. The first is that Chinese output didn’t increase much in January, reaching only 101,400 tons, and declined by 3.7% in February, to 97,600 tons. That’s enough to make 40 GW with the addition of the typical 8,000 or so tons imported from the West. The other explanation is that demand is now exceptionally high – 40 GW per month – which led us to conclude in an article last week that around 450 GW of solar power will be newly installed next year.
On the first point, the Silicon Industry Branch expects that China’s (which is more or less the world’s) production capacity of polysilicon will reach an almost unbelievable 2.4 million tons, which is double the current scale. Tongwei, GCL Technology, TBEA (Xinte Energy), and Daqo Energy, the four largest, are expected to reach a combined 1.655 million tons. The Silicon Industry Branch also states that the number of manufacturers will grow from 15 to 20. The new 1.2 million tons will have begun construction before mid-2022, requiring an investment of around $20 billion.
Our analysis of polysilicon expansions from back in August predicted “only” 2.1 million tons by the end of this year, and perhaps it is the more relevant figure, if much of the new capacity comes from entrants to the industry who may take some time ramping up their output. Another source refers to 2.7 million tons of production capacity by end 2023, but calls this “nominal” production capacity. Or perhaps the surprising 2.4 million tons figure is because the industry, incentivized by profit margins of several hundred per cent, has learned to further shorten the development time of these factories, which had previously shrunk from 24 months to 18 months. One new project, a 100,000-ton granular-type facility under construction in Hohhot in Inner Mongolia, is expected to ramp up from August 2023 to March 2024.
Overcapacity will occur in 2024, as beyond that a further 2.4 million tons is coming, some of which has already begun construction and investment. So far in the first two months of 2023 several hundred thousand tons have been progressed for commissioning in 2024.
As for the 2023 price, if production capacity goes from 1.2 million tons to 2.4 million tons – even if it’s skewed into H2 and Q4, that means output of around 1.5 million tons, enough to make 600 GW. The global industry would truly struggle to install 600 GW in 2024, though it is quite possible for 2025. Last year global supply was around 900,000 tons, with around 820,000 produced in China and the rest imported. That was up 50% year on year.
With production finally outpacing even the skyrocketing demand of the “post-pandemic sanctions era,” we still expect the price to fall below $20 per kilogram this year, perhaps to as low as $15 per kilogram. With 2.5 kilograms of polysilicon used per kW of solar modules, that means polysilicon will be contributing at most $50 per kW to solar project pricetags. When overcapacity occurs in subsequent years, the price will fall to production cost of $7.5 per kilogram, with a cost to projects of $18.75 per kW – even for utility-scale, that’s only 2% of the total, down from almost 15%.
Having said that, it should be noted that yesterday Daqo Energy stated in its Q4 results that the price of polysilicon may remain above $30 per kilogram this year, but its representative didn’t put forward an argument to defend that, and the company has a clear motive not to stoke expectations of an imminent price fall. Another statement by the company in the same meeting casually talked about how the price differential between N-type and P-type polysilicon (the former is more pure) would become more significant “when the price drops to $14.4 per kilogram,” without specifying a time frame.