Polysilicon suppliers to the solar PV industry have been significantly lowering plant-utilization rates during the past six months, with average quarterly utilization rates falling below 70%, according to a new report from NPD Solarbuzz.
This contrasts with the historic plant-utilization rates at above 90% typically provided by the leading polysilicon suppliers to the solar PV industry. Even when polysilicon spot prices declined by 70% between the first quarter of 2011 and the second quarter of 2012, Tier 1 polysilicon suppliers maintained these high utilization rates, the report notes.
"Polysilicon makers strive to run plants at optimal capacity levels, where maximizing production offers the lowest-cost structures by spreading depreciation costs over a larger volume," explains Charles Annis, vice president at NPD Solarbuzz." This often results in the highest yields, avoids shutdown/start-up costs and enables volume purchases of raw materials."
Accordingly, polysilicon suppliers maintained high utilization rates, while prices remained above cash costs. When average spot prices fell below $20/kg in the third quarter of 2012, and continued to drop to $16/kg in the fourth quarter, even Tier 1 makers with best-of-class cost structures were forced to adjust production levels, Solarbuzz adds.
China, the world's largest end market, consumed approximately 188,000 tons of polysilicon for PV applications between the first quarter of 2011 and the third quarter of 2012. However, during the same time period, 262,000 tons of materials were provided to the Chinese market from a combination of domestic production and foreign imports.
In particular, foreign imports grew to record highs during most of 2012. As a result, the 74,000 tons of excess supply contributed to a strong inventory buildup and, combined with weaker-than-hoped end-market PV demand during the second half of the year, ultimately led to the recent utilization corrections, the report says.
The reduced utilization rates have also had a profound impact on the previously aggressive capacity-xpansion plans of PV polysilicon suppliers. In fact, according to Solarbuzz, several Tier 1 polysilicon manufacturers – including Wacker, Hemlock, OCI, and Tokuyama – have now decided to delay ramping up and building new polysilicon plants.
"The rationalization of supply finally started stabilizing polysilicon prices towards the end of [the fourth quarter of 2012], and this trend continues into early ," Annis says." Even so, price pressure is expected to remain strong,with polysilicon makers hoping to increase utilization rates as early as possible. Moreover, several polysilicon plants are still currently scheduled for completion, but this new capacity is likely to remain idle until end-market PV demand increases."