Average pricing in May for solar polysilicon declined by a larger margin in the spot market than in contract negotiations – an indication that price declines will continue in the near future, according to a new market report from IHS iSuppli.
The average global price for a kilogram of polysilicon used in PV solar cells fell to $23.50 in May, down 3.3% from $24.30 in April. In contrast, pricing for contracts – also known as long-term agreements (LTAs) – dropped by just 2.4% during the same period.
According to IHS, this means that the gap between spot and LTA pricing is widening, expanding to $5.20/kg in May, up from $5.10/kg in April.
"The escalating spread between LTA pricing and that for the spot market reflects the continuing oversupply in the global polysilicon market, which is expected to result in further price declines," explains Glenn Gu, senior PV analyst at IHS." We predict pricing for all grades of polysilicon in both the LTA and spot markets to weaken again in June."
On the spot market, polysilicon is sold for cash by third parties and delivered immediately. In contrast, on the contract market, polysilicon is sold directly by suppliers on credit, often with LTAs for delivery and pricing.
The inflated prices on the contract market are resulting in increased production costs for LTA buyers, IHS says. Already, the production cost for crystalline silicon solar modules is $0.03 higher per watt for an LTA compared to the spot market. As a result, PV polysilicon buyers increasingly are turning away from LTAs and heading for the spot market, according to IHS.
"Makers of solar cells were already flocking to the spot market to take advantage of lower pricing, with the spot market accounting for 44 percent of polysilicon shipment volume in April, up from 36 percent in March," Gu says." This trend continued in May, with spot-market volumes rising to 47 percent of all shipments.
"The exodus to the spot market is expected to continue, causing a decline in LTA prices that will minimize the pricing gap," he continues." Unless the gap decreases, buyers will start to try to renegotiate the terms of their LTAs with suppliers."
IHS predicts that the differential between contract and spot prices will narrow only slightly in July. Over the next few months, the firm expects that some LTA polysilicon suppliers will follow the spot-market pricing trend to avoid disputes with customers. For high-grade polysilicon, the price gap will stabilize at the current level, IHS adds.