2012 – A Hard Year for China’s Polysilicon Industry

By Zhang Dingding, China National Chemical Information Centre

Having started in the 1960s, China’s polysilicon industry, in the last 40 years of the 20th century, developed at a slow pace, but in the recent 10 years, five years more exactly, it has witnessed ups and downs.

1. Rapid Growth before Sharp Fall

China’s polysilicon output was just 80 tons (0.5% of the world’s) in 2005, when the industry faced many disadvantages like outdated technologies, small production scale, high unit consumption and production costs, great demand for imports, etc. But propelled by national preferential policies, the output increased to 287 tons next year.
   Since 2007, China’s polysilicon industry has gradually entered the stage of large-scale production, with many polysilicon units activated. Through introducing foreign technologies and projects, and because of growing demand for polysilicon overseas, domestic output soared 296.9% YOY to 1 139 tons in 2007, achieving additional 296.4% YOY growth to 4 515 tons in 2008, when the price rose from US$100/kg to the record high of nearly US$500/kg, but 70% of demand was still met by imports.
High profits attracted many enterprises. And benefiting from abundant domestic resources, local industry cluster areas have been established, distributed in Inner Mongolia and Fujian (both boasting rich silicon mineral resources), Ningxia (electric energy), Jiangsu, where the polysilicon industry develops most rapidly, Hebei (solar energy) and Sichuan (water and electricity). By the end of 2011, domestic polysilicon enterprises totaled 43.
   However, a “storm” came. In 2011, on the one hand, Europe adjusted its PV subsidy policies under pressure from European debt crisis; on the other hand, the U.S. and European Union conducted “anti-dumping and anti-subsidy investigations” to restrict China’s PV product import business. Many domestic polysilicon enterprises lowered output, stopped production or went bankrupt. Furthermore, greatly supported by their governments, American and Korean corporations dumped polysilicon into China’s market, making most domestic enterprises suffer losses. By the end of October 2012, only five to seven firms of the 43 maintained active production. And product prices plummeted to below US$20/kg. For domestic polysilicon enterprises, 2012 is the hardest year yet.

2. Prices Dropped, small and medium-sized enterprises can hardly survive

To survive in the market, domestic polysilicon enterprises have adopted different measures including reducing costs, avoiding market risks, cutting jobs, improving efficiency, upgrading technologies, stopping production since 2011, with even Jiangxi LDK Solar Hi-tech Co., Ltd, the PV giant in the past, not escaping reorganization. However, the impact of huge losses is too big to be reversed. Many enterprises shut down, leaving fewer than seven companies in operation.
   Falling prices and production costs that surpass sale prices are the main reasons. Domestic polysilicon prices decreased to RMB140 000-150 000/t by the end of October 2011. Due to backward technologies and high production costs, small and medium-sized enterprises can hardly survive. Leading companies may not suffer losses, but their profits shrank significantly.

3. Domestic Market Challenged by Dumping

From January to August 2012, the State has imported 55 776 tons of polysilicon, up 32.7% YOY, and exported 897 tons, down 7.3% YOY, according to customs statistics. The soaring imports are attributable to insufficient international demand owing to plummeting PV subsidies, foreign capacity expansion, domestic output reduction, and small and medium-sized enterprises closing down.
   Because of oversupply and international polysilicon enterprises lowering prices, polysilicon prices decreased from US$59/kg in July 2011 to US$24/kg in August 2012, dropping 145.8%. And in China, old technologies and higher costs make survival harder for polysilicon firms.
Imported polysilicon is mainly from the U.S. (46%), Korea (22%) and Germany (20%), accounting for 88% of the total imports. These three countries also started a “trade war” with China’s PV industry.

4. Trade Disputes Frustrate Business

In October 2011, German SolarWorld, America Branch, filed a “request for antidumping investigation” at the United States Department of Commerce; in May 2012, Germany and the U.S. made a decision to impose anti-dumping tariffs of 30%-250% on Chinese enterprises. For PV firms on the brink of shutting down, the two cases worsen prospects.
   On July 20, 2012, China conducted a antidumping investigation on solar-grade polysilicon, imported from the U.S. at the request of Jiangsu Zhongneng, Jiangxi LDK Solar Hi-tech Co., Ltd, SINOSICO and DAQO New Energy Co., Ltd. Considering that most Korean enterprises reduced prices voluntarily mainly to seize market shares, having no relation with governmental subsidies, the State initiated only an anti-dumping investigation on solar-grade polysilicon from Korea on the same day.
   In August 2012, four polysilicon giants in China, boasting a 70% market share, filed a request for a antidumping investigation on polysilicon from the European Union to avoid unfair competition, and to warn other countries.
   Trade disputes regarding downstream PV products have become increasingly fierce. On October 10, 2012 the U.S. finally judged that there are dumping and subsidies behaviors on crystalline silicon PV batteries and components imported from China, eliminating obstacles for the U.S. to impose anti-dumping and anti-subsidy tariffs on such products, which will protect American enterprises, but at the same time will also hurt interests of raw material and equipment exporters, and consumers, because China, courting a promising market, works closely with Europe and America in the clean energy field. If the trade war continues, all involved parties will pay a lot.

5. Integration Brings Hope

At present, China’s polysilicon enterprises are far behind foreign firms in scale, equipment, technology, product quality, production costs, etc. Only a few enterprises can compete with foreign corporations.
   China imports plenty of polysilicon, and sells a few PV products in the domestic market. Domestic enterprises continue to expand capacity, but the fact that equipment and technologies have to be imported keeps the production costs high. With a poor profit margin for downstream PV components, many enterprises have no choice but to import polysilicon materials, blocking China’s PV industry.
   As a strategic emerging industry, the PV industry requires government support. But at the same time, enterprises have to improve the product competitiveness, boost R&D ability, promote reorganization, develop domestic market and stimulate the industry chain.
   Through integration, the industrial concentration degree will be greatly improved, and the industry growth rate will be more reasonable, thus restricting blind expansion, making the industry develop in an orderly way.