Polysilicon Makers Signal Tough Times, Count On N-Type Dominance

With Chinese polysilicon major Daqo New Energy announcing its Q1 results, the picture from a clutch of leading polysilicon makers has cleared a bit. For starters, prices are unlikely to go up significantly, pointing to a period of relative stability at best, or slight increases in eventual solar module costs.

Among Daqo New Energy, OCI Malaysia, Wacker from Europe, and REC Silicon from the US, only Daqo was able to improve its earnings before interest, taxes, depreciation and amortization (EBITDA). Revenues were $415.3 million, compared to $476.3 million in the fourth quarter of 2023 and $709.8 million in the first quarter of 2023. The decrease in revenues compared to the fourth quarter of 2023 was primarily due to a decrease in the ASP. Operating margin came in at 7.3%, compared to 17.5% in the fourth quarter of 2023 and 65.3% in the first quarter of 2023.

Daqo expects shipments for n-type wafers to go upto 90% in 2024, from 72% by March, helping it protect margins.

The firm reported that despite production cuts and down time, as usual, during the holidays, polysilicon demand had been strong pre-holiday as wafer manufacturers kept utilization rate unchanged or even higher, in anticipation of higher demand and better product pricing post-holidays. The general polysilicon price range was RMB 65-70/kg for n-type and RMB 55-60/kg for p-type during this period. However, with weaker-than-expected production plans downstream starting in March, the wafer sector faced significant pressure from accumulated inventories and negative margins.

Market sentiment shifted significantly in mid-March with widespread expectations of falling prices throughout the value chain, particularly for polysilicon. As a result, downstream manufacturers began to lower utilization, reduce inventory and delay orders to minimize the impact of falling prices. In April, further pressure on polysilicon prices emerged as the issues of excess inventory among wafer manufacturers worsened and wafer customers further delayed orders and product delivery. Thus, polysilicon prices dropped further by late-April to RMB 47-54/kg for Tier-1 producers, at the industry’s cash break-even cost. At this level, Daqo management believes the entire solar value chain, including polysilicon, is likely to be loss-making in general and that a large number of polysilicon producers are currently unprofitable. “The current low prices and market downturn will eventually result in a healthier market, as poor profitability and losses, as well as cash burn, will lead to many market players exiting the business with some possible bankruptcies. This will bring the inevitable capacity rationalization and solve the overcapacity issue we are currently experiencing. And as demand growth resumes after excess inventories are depleted in the short-run and on the backdrop of positive policies pushing renewable installations in the long-run, the solar PV industry will return to normal profitability and achieve better margins.”

• Daqo New Energy reported a solid recovery on its EBITDA from US$70.2 million in the third quarter to US$128.2 million in the fourth; its EBITDA margin spiked from 14.5% to 26.9%. The improvement was driven by lower production costs and a higher average selling price (ASP).  The higher share of polysilicon for n-type wafers helped Daqo to beat a drop in the broader polysilicon spot market where price fell by 8% in the fourth quarter. At an average selling price (ASP)by 3.8% of $7.68/kg to $7.97/kg, Daqo’s reduced production cost of $6.37/kg helped improve margins.
• OCI Malaysia saw both its revenues and operating income decline by 10.6% and 22.5%, respectively, quarter over quarter. The company has plans to increaseproduction capacity of the solar-grade polysilicon plant from 35,000 metric tons (MT) currently to 56,600 MT in 2027.
• Germany’s Wacker experienced an even stronger downtrend, reflecting the broader European distress in solar manufacturing. EBITDA margins crashed to 6.8% in the fourth quarter. With about 50% of Wacker’s solar-grade polysilicon supply contracts with Chinese customers and tied to the market price in China, the lower Chinese spot prices hurt. However, the firm is hopeful that dropping energy costs in Germany would help improve margins for the energy intensive business.
• REC Silicon on the other hand has announced that it would shut down polysilicon production in the second half of 2024 and concentrate on silicon gases at its plant in Butte, Montana, after it was not able to reach sustainably lower electricity rates.

Even as some capacities shit down, new capacities are also slated to come up through 2025 and upto 2027. Including significantly, outside China as well. That capacity expects prices to be at least $12/kg, pointing to just how the final word on this has not been heard yet.