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.

El Segundo, Calif. (September 14, 2012)—With pricing for photovoltaic (PV) polysilicon declining at an accelerated rate in August, there are no signs that the glut plaguing the industry has abated, behooving Tier 1 suppliers to consider reducing production in order to stabilize market conditions.

PV polysilicon prices last month fell at a faster rate than they did in July, continuing a losing streak that started in the fourth quarter of 2011, according to a PV Polysilicon Price Tracker Report from information and analytics provider IHS (NYSE: IHS).

The contract price in August of 9N polysilicon and above grades amounted to $27.80 per kilogram (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, as shown in the figure attached. 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, Ph.D., 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 United States, 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."

Will demand return?

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.

Oversupply continues

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 the third quarter is forecast for major polysilicon makers than in the second quarter."

Sluggish demand in August

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.

About IHS (www.ihs.com)

IHS (NYSE: IHS) is the leading source of information and insight in critical areas that shape today's business landscape, including energy and power; design and supply chain; defense, risk and security; environmental, health and safety (EHS) and sustainability; country and industry forecasting; and commodities, pricing and cost. Businesses and governments around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs more than 6,000 people in more than 30 countries around the world.