Activity has plunged in the global photovoltaic polysilicon spot market – one of many hopeful signs suggesting that prices for the key solar raw material will soon bottom out as supply comes into better alignment with demand.
The spot market in December of 2012 accounted for 20% of total polysilicon sales, down dramatically from its peak of 47% in May, according to information and analytics provider IHS.
The high level of spot market volume in mid-2012 indicated that polysilicon was in an acute state of oversupply, the company explains. Producers were dumping excess stockpiles on the spot market, driving down prices to bargain levels that lured buyers away from long-term contract agreements.
This trend was associated with a major, sustained plunge in polysilicon prices, with the polysilicon price per kilogram falling to an average of $20/kg at the end of 2012, down from $31/kg in February of last year.
However, the fact that spot market volumes having fallen by more than half indicates that suppliers have reduced production to accommodate demand, suggesting that pricing is approaching the bottom.
‘As IHS predicted in November, solar polysilicon pricing in early 2013 is nearing the end of its long, 24-month decline,’ says Dr. Henning Wicht, director and principal analyst, for photovoltaics at IHS. ‘The drop in spot market volume, along with a range of other indicators, suggest that the price plunge that hamstrung polysilicon supplier profits throughout 2012 will soon come to an end.’
Tier-one suppliers are leading the way in reducing production, following IHS' advisory issued in September 2012. These companies are attempting to avoid a replay of 2012's miserable conditions by controlling volumes and not inflating the spot market, IHS says.
The top suppliers also have experienced erosion in their profit margins. Even the most competitive suppliers are now warning investors that they cannot afford to continue lowering prices to gain market share.
With their factory utilization reduced, these leading companies are now incurring higher unit costs per part manufactured. This trend also will compel the top-tier suppliers to cease reducing prices, according to the report.
Pricing is expected to start increasing this month and continue through March. Although supply is adjusting to reduced sales, demand is expected to increase only modestly in 2013. Even if demand increases at a higher rate than expected, tier-one suppliers are expected to be reticent to increase production, as they will keep in mind that oversupply would destroy any price recovery immediately.
IHS forecasts that tier-two and tier-three suppliers are likely to play a reduced role in the market for several months. It will take prices higher than $25/kg to stimulate the ramping-up of the idled factories, the company notes.
