When four explosions ripped through a GCL-Poly Energy plant in mid-July, it wasn’t just the polysilicon firm’s distillation system that erupted. The share prices of its two main competitors in China exploded too. New York-listed Daqo New Energy and Shanghai-listed Tongwei are both trading at double the levels they were back in May.
The blast, in the western region of Xinjiang, has taken 48,000 metric tonnes, or about 8.8%, out of the global supply chain of polysilicon (the main material in making solar cells). The plant is likely to stay shut for the rest of the year.
The same month saw reports of a gas leak at a nearby Daqo plant, potentially affecting about 6,000 metric tonnes of production per year, as well as another explosion at an East Hope plant that took 40% of its capacity offline.
Industry expert Bernreuter Research says it is no coincidence that the disruptions are happening in the troubled Uighur Autonomous Region. “It appears to be difficult to attract enough highly qualified staff to the remote area of Xinjiang,” it explained, before adding that plant maintenance is a “delicate task”.
Equity investors have been more interested in the impact on polysilicon prices. They guessed they would rise and they were right: the weekly spot price for solar grade polysilicon is currently $10.86 per kilogram, up from $6.83 in mid-July. That’s a dramatic 59% jump.
However, it is not quite so impressive in the context of the material’s all-time high of around the $500 level back in 2008.
WiC has written extensively about the overcapacity issues that have plagued China’s solar sector over the years, after too many players piled into the industry in hope of windfall profits. Back in 2004, China had virtually zero polysilicon production capacity. The so-called “seven sisters” suppliers dominated the industry in international markets (four were from the US, two from Japan and one from Germany). Between them they produced 29,150 metric tonnes of polysilicon per year.
Today, China accounts for five of the world’s six largest producers. Only Germany’s Wacker Corp has been able to keep its place in the top five global rankings over the past two decades.
China’s biggest producer, Tongwei, has capacity to produce 96,000 metric tonnes, according to Bernreuter. The country as a whole accounted for 85% of the world’s 543,000-tonne capacity in the second quarter.
Over the years the Chinese government has taken a multi-pronged strategy to keeping supply and demand in balance, not always very successfully. In 2012, Chinese firms were importing 80,653 metric tonnes of polysilicon (favoured by domestic wafer cell manufacturers because it converted energy more efficiently than product from domestic suppliers). In 2013 tariffs were imposed on US and accordingly American imports plummeted. US producers, in fact, lobbied hard to get polysilicon included in January’s ‘phase one’ trade agreement with China.
They thought they had succeeded, but in the same month that the deal was signed, China’s Ministry of Commerce announced that it was extending polysilicon duties by a further five years.
The central government has also tried to speed up consolidation within the domestic ranks by ramping up minimum quality standards and forcing out the weaker players.
Back in 2018, Daqo CEO Zhang Longgen estimated that only a third of China’s 300,000 metric tonne capacity the previous year was capable of covering its costs. “The other two-thirds will be wiped out when new capacity comes in,” he predicted.
One such player succumbed this month when GD Power’s offshoot, Ningxia Solar, was formally declared bankrupt.
The government, meanwhile, plans to impose another round of efficiency standards on wafer cell manufacturers.
This June it released a draft document that outlined a new policy requiring that all new monocrystalline solar cells and modules meet minimum conversion efficiency ratios of 23% and 20% respectively. The current threshold is 21% and 17.8%.
PV Magazine believes this will help to rein in an estimated Rmb100 billion of planned investment in 100GW of wafer capacity expansion announced during the first half of the year – with Beijing worried about another wave of excess supply.
However, the long-term decline in polysilicon prices has still not been enough to make solar energy more cost-effective than coal-fired power. Wood Mackenzie, the energy specialist, says that solar energy was priced at a 26% premium to coal power costs during 2019.
But solar energy generation does now cost less than wind power in 19 Chinese provinces, particularly from solar projects in the country’s west.
At least the government has achieved its aim of making China more self-sufficient in polysilicon – the solar industry’s main feedstock.
Poorer regions of the country like Ningxia have also benefitted from an influx of new polysilicon producers, attracted by lower power prices (electricity accounts for 30% of production costs).
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.