Overview of China’s Silicon Industry 2014

By Peter Zong, Strategic Alliance of Green Silicon Industry Development (SAGSI)

Silicon materials play an important role in the economy and have potential to replace petrochemical materials and great development prospects in the fields of “new energy” materials and electronic materials, owing to the earth’s abundant reserves of silicon. Through dozens of years of development, China’s silicon industry has set up a complete system, including the main branches such as high purity quartz, silicon metal (SM), trichlorosilane (TCS), crystalline silicon, organosilicone, silicon-aluminum alloys and silica, and China dominates the world in the production, consumption and export of some silicon products.     
In 2014, China’s economy entered a new development mode, with a slower, moderate growth rate, bringing pressures to each industry, and the silicon industry is no exception. Compared with other industries, China silicon industry performed better and more stably. The pressures and difficulties pushed the industry to phase out backward players and develop the advanced ones. Some companies enjoyed gains and other suffered worry and failure. Each branch of the silicon industry has different highlights.

A.  SM/TCS looking good

As the initial, upstream end of the silicon industry, silicon metal (SM) and trichlorosilane (TCS) were both steady in 2014, particularly in market prices. Supported by cost pressures like environmental protection, their market prices were steady, touching a bottom in mid-year. It is worth noting that in the second half of 2014 TCS prices went up as petrochemical prices slid. Thanks to the APEC meeting held in Beijing in November, many plants around Beijing were required to lift grades of environmental protection or shut down temporarily from the end of October, which led to a significant drop of operating rates for TCS plants in Shandong and Hebei provinces, which are both important TCS production areas of China. Furthermore, China polysilicon production increased month by month, intensifying the supply deficit of TCS. At the end of December, TCS ex-works prices were RMB5 400-5 700 per ton, 15% higher than in April-September. With the severe price drop of bulk commodities worldwide, it is hard to predict how long TCS prices will remain firm.    
Since it was listed by China’s MIIT as a key monitoring object in phasing out outdated production capacity ten years ago, China’s SM producers have faced heavier and heavier pressure from environmental protection policies. In 2014 many producers who could not meet environmental protection requirements were not allowed to start production even in June-July when the rainy season can support them to use cheap hydraulic power. In Yunnan province, China’s biggest SM producing region, the power price supplied to SM producers reached a historical high in 2014, making power cost a rigid support of SM selling price.
Based on rough statistics, China’s overall operating rate of SM production averaged around 45% in 2014, with a total output of 1.66 million tons, 11.4% higher than in 2013. Operating rates in Xinjiang region and Yunnan province both exceeded 60%. In 2014, China exported 871 256 tons of SM, a year-on-year growth of 23.7% and a historic high.  
Turning to demand, the growth rates of the automobile and house building industries both slowed down in 2014. China produced 23.72 million automobiles in 2014, a year-on-year growth of 7.3%, in sharp contrast with 14.8% growth in 2013. In 2014, China’s total investment in the house building sector grew 10.5%, year over year, falling from 19.8% in 2013. Silicon-aluminum alloy is mainly consumed in automobile production, followed by house building. It is estimated that silicon-aluminum alloy makers’ demand for SM grew around 10% in 2014. SM demand from organosilicone makers remained steady, while that from polysilicon makers increased rapidly.
In 2014, Zhejiang Hoshine Silicon Industry Co., Ltd., Yunnan Yongchang Silicon Industry Co., Ltd and Hubei Sanxin Silica Mining Industry Co., Ltd respectively ranked as the top three in China’s SM production.  
China’s photovoltaic (PV) industry attracted a lot of attention in 2014, and polysilicon production increased greatly, but only beginning in October TCS, the key raw material of polysilicon, its price started to rise, thanks to APEC. Tangshan Sunfar Silicon Industries Co., Ltd, one of China’s biggest TCS producers, has remained at 50% load since October, due to a supply shortage of liquid chlorine and other technical problems.  
Both polysilicon and organosilicone (functional silane etc.) are important markets for TCS. Many silane makers met difficulty in purchasing TCS in the fourth quarter. Prices of polysilicon and silane went down in December, and TCS purchasers have found it necessary to cut down operating rates in order to manage high costs.  
There are two new trends in the polysilicon production worth noticing for those TCS makers who sell all products on the market and have no captive uses. The first, experiencing the fierce competition in 2012-2013, many polysilicon makers worked hard on cutting costs. Recycling of silicon tetrachloride is nearly necessary for a company to restart and join in the competition. The consumption rate of TCS dropped greatly, and some companies can even realize nearly 100% utilization. The second, the silane fluidized bed reactor (FBR) method, which does not require purchasing TCS, is being embraced by more investors. GCL Poly Energy Holdings Limited of China, the world’s largest polysilicon maker, has started up a 3 000 t/a FBR facility using its in-house FBR technology in the fourth quarter of 2014 and plans to expand its FBR capacity to 25 000 t/a as of 2015. The US company, SunEdison announced plans in October to build a US$2 billion polysilicon plant in China with an initial capacity of 20 000 to 30 000 t/a, without disclosing its Chinese partner. In March REC Silicon ASA has entered into agreements with Shaanxi Non-Ferrous Tian Hong New Energy Co., Ltd. for the formation of a FBR polysilicon production joint venture in Shaanxi province. The new plant will be located in Yulin and is expected to have capacity of 18 000 t/a of granular polysilicon, an additional 1 000 t/a of Siemens polysilicon, and 500 t/a of silane gas loading.
Overcapacity of China’s TCS industry is similar with that in the SM industry. China has more than 50 TCS factories, with only 15 keeping up operation in 2013-2014. If TCS prices stay high for six months or more, some idle companies will have opportunities to restart.   
New joiners for SM production in 2014 include Xinjiang Pei New Materials Co., Ltd. (100 000 t/a) and Baotou Hesheng Industry (Group) Co., Ltd. Ruzhou Furui Quartz Company and Gansu Sanxin Silicon Industry Company both are constructing new capacity. For TCS, Chongqing Tianyuan Chemical Co., Ltd expanded its capacity from 15 000 t/a to 25 000 t/a. Zhenjiang Jiangnan branch of Wynca Group (Zhejiang XinAn Chemical Industrial Group) completed construction of a 25 000 t/a unit at the end of 2013 and put it online in early 2014.

B. Polysilicon recovers its shine  

Big news of the polysilicon/PV industries in 2014 included new policies, antidumping/anti-subsidy actions, and bankruptcy.
On January 20, 2014 China’s Ministry of Commerce issued a final judgment to start antidumping measures on polysilicon imported from USA and Korea; makers in these two countries were judged to have dumped at rates of 53.3%-57% and 2.4%-48.7% respectively. The total imports from USA, Korea and Germany always accounted for around 80% of China’s total imports in recent years.
On February 11, 2014, China’s National Energy Administration issued plans to add 14 GW of PV installed capacity in 2014, which gave great prospects for market players to chase for, although the final completed installation turned out to be far below the plan. Other stimulating policies followed one by one, such as Notice on Further Strengthening Management of Construction and Operation of Photovoltaic Power Station, Notice of Increase Xinjiang’s 2014 Annual Construction Scale of Photovoltaic Power and Notice on Regulating Order of Photovoltaic Power Station Investment and Development. Hence China’s polysilicon industry, which has picked up since July 2013, was increasingly spurred, and producers’ enthusiasm became higher day by day. Even LDK Solar Co., Ltd., which is involved in heavy financial crisis, restarted a 5 000 t/a polysilicon production line in July. From September, insiders started to warn of overcapacity and call for controlling operating rates, and the price of polysilicon stopped increasing. Adding to this the impact of imports, polysilicon prices fell from November. It is predicted that prices in 2015 will be lower than in 2014.              
China’s polysilicon output in 2014 is estimated to have been 125 000 tons, an annualized growth of 50% or more. The country’s total import was 102 kt, a year-over-year growth of 26.7%. Consumption in 2014 is estimated to have been around 227 kt, equivalent to 36 GW of PV installations, while China’s new PV installations are only around 12 GW. Given the large volumes of imported polysilicon and exported PV modules, trade frictions are inevitable.
In March, Australia, followed USA and EU, announced an investigation of PV products imported from China. On March 19, a polysilicon trade dispute between China and EU was reconciled. In May, Japan and India respectively disclosed intentions of investigating dumping and subsidy of imported PV products made in China. On August 14 China’s governmental departments announced plans to prohibit the import of polysilicon in the processing trade mode from September 1. On December 5, Canada launched a dumping and subsidy survey of imported PV products made in China. On December 16, the US announced its final judgment on polysilicon PV products that China exports to the USA.
In November, two key M&A events happened. China Bluestar Group agreed to purchase REC Solar at a price of US$640 million. GCL Poly Energy Holdings announced a plan to sell its RMB8 billion wafer business in order to cut down short term debt and strengthen its production and technical ability in its polysilicon business. But on December 19, GCL Poly cancelled the plan.   
In 2014, some companies phased out or spun off their polysilicon businesses, while others expanded or announced new projects. Jiangsu Sunshine Co., Ltd. quitted the polysilicon business through spinning off its controlling subsidiary Ningxia Sunshine Silicon Industry Company Limited (2 500 t/a), the latter then went into bankruptcy. Zhejiang Xiecheng Silicon Industry Company (3 000 t/a) went into bankruptcy. Xinguang Silicon Technology Company Limited (1 260 t/a) went into bankruptcy. Leshan Ledian Tianwei Silicon Technology Company Limited (3 060 t/a) was urged by some shareholders to go into bankruptcy. YaAn Yongwang Silicon Industry Company Limited (800 t/a) was shut down. LDK Solar applied for bankruptcy.


Table 1   China’s polysilicon expansion projects and new units in 2014

Company    Location    Additional capacity (kt/a)    Remark
Shaanxi Non-Ferrous Tian Hong New Energy Co., Ltd./REC Silicon ASA    Yulin, Shaanxi    19    agreement signed in Feb. 2014
SunEdison Inc    China    20-30    announced in Oct. 2014
GCL Poly Energy Holdings Limited    Xuzhou, Jiangsu    25    Phase I, 3 000 t/a started up in Sept. 2014
Daqo New Energy Company Limited    Shihezi, Xinjiang    6    construction completed in Dec. 2014
Yichang CSG Polysilicon Co., Ltd.    Yichang, Hubei    3    startup in May 2014
Wuhan Dongli Polysilicon Co., Ltd.    Wulate, Inner Mongolia    60    agreement signed in May 2014
Inner Mongolia Dun An PV Technology Co., Ltd.    Bayannur, Inner Mongolia    5    startup in Nov. 2014



C. Organosilicone sector to develop fine products

China’s organosilicone industry began late but developed rapidly and now occupies a big market share worldwide, with individual silicone products leading. Considering the balance between supply and demand, China’s production capacity of silicone monomer is already in surplus. In 2014 monomer import is basically equal to export, and a net export will be seen for the first time in 2015. In the first three quarters of 2014, China imported 90 500 tons of polysiloxane in primary forms, a drop of 12.1% year over year and exported 88 600 tons with a year-on-year growth of 28.6%.  
In China, almost all silicone monomer makers are large scale companies, and silicone preparation makers include small, medium and large scales companies. Probing into the financial results from the first three quarters of 2014, it is found that monomer makers have found it difficult to make money, but downstream players have bigger possibilities to earn higher profits.  

Table 2    Financial performance of silicone companies in the first 3 quarters of 2014

Listing code    Company     Main silicon related business    Other businesses    Revenue (million RMB)    YOY growth (%)    Net profit (million RMB)    YOY growth (%)
SZ:000830    Luxi Chemical    Monomers, elastomers    Fertilizers, organic chemicals    9293.94    15.77    302.15    11.40
SH:600409    Sanyou Chemical     SM, monomers, RTV, HTV    PVC, caustic soda, soda ash, fibers    9077.93    4.41    376.33    12.37
SH:600141    Xingfa Chemicals    Monomers, RTV, fluid     Phosphorus chemicals, chlor-alkali, fertilizers    8851.74    2.48    523.08    269.33
SH:600299    Bluestar New Materials    Elastomers, HTV, RTV    Petrochemicals, epoxyresin, engineering plastics, rubbers    7605.76    26.73    -643.64    -10.00
SH:600596    XinAn Chemical     SM, TCS, monomers, silica, OFS, HTV, RTV, LSR    Glyphosate    5898.19    13.81    94.40    -73.31
HK:00189    Dongyue Group (first half of 2014)    Monomers, silica, HTV, RTV    Fluoro-silicon materials, chlor-alkali, cryogen    3511.83    9.89    194.63    2.25
SZ:002091    Jiangsu Guotai    OFS    Lithium battery    4377.34    0.32    166.55    4.17
SZ:002010    Zhejiang Transfar    Fluids and emulsions     Organo-fluorines, dyestuffs, butadiene rubber, etc.    3843.59    30.61    154.33    47.62
SZ:002709    Tinci Materials    Fluids and emulsions, elastomers    Lithium battery    998.95    17.91    50.51    -3.72
SZ:002054    Dymatic Chemicals    Fluids and emulsion    Auxiliaries of dying, papermaking, coating    880.76    -0.84    70.76    -22.88
SZ:300041    Huitian New Materials    RTV    Adhesives, films for solar battery    615.53    35.70    76.51    25.60
SZ:002211    Hongda New Material    Monomers, fluids, HTV, RTV    Plastics, mechanical equipment    550.70    -3.13    6.82    suffering a loss in the same period of 2013
SZ:300019    Chengdu Guibao    RTV, OFS    Mechanical equipment    370.37    16.48%    59.03    5.05%

HTV: high temperature vulcanized silicone elastomers; RTV: room temperature vulcanized silicone elastomers;
LSR: Liquid silicone rubber; OFS: organic functional silane.

Among silicone products in China, silicone elastomers is produced in the largest quantity. The house-building sector, the biggest consumer of silicone elastomers, particularly RTV, developed more slowly in 2014, damping demand for elastomers. But the leading elastomer maker, Huitian New Materials was not impacted. Among elastomers, LSR gets more attention, and some companies try to find a business breakthrough via LSR.
Sharp price drops of crude oil, synthetic rubbers and natural rubbers weakened silicone elastomers in the competition with other rubbers.
The consumption pattern of silicone fluids changed greatly in 2014. The personal care sector’s demand for silicone fluids grew rapidly in 2013 but slowed down in 2014.  
Consumption of OFS (silane coupling agent) maintained steady growth in 2014. M&A is active in this sector. Due to some deflation in the economy, the profits of many OFS companies went down. Around half of them may have suffered losses in 2014. A vinyl silane supply shortage developed in the second half of 2014.  
On April 2, Momentive Performance Materials Inc. filed to reorganize under the US Bankruptcy court. This shocked Chinese silicone players. China’s silicone leader Bluestar New Materials Company Limited also faced huge financial difficulty. Jiangsu Hongda New Materials Co., Ltd. sold its monomer subsidiary to Zhejiang Xinan Chemical Industry Group. Sichuan Guifeng Silicone Materials Company officially announced plans to sell its monomer business, which includes an old 30 000 t/a line and a new 70 000 t/a line. Construction of the new line was completed in early 2013, but it was not started up.    
Other new projects are as follows: Bluestar New Materials’ 200 000 t/a new silicone monomer facility at Xinghuo Plant started up in April. Hubei Xingfa Chemicals Group (Xingfa Chemicals) announced a plan to construct a 200 000 t/a silicone monomer line. Tangshan Sanyou Chemical Industries Co., Ltd. (Sanyou Chemical) completed construction of its phase II 100 000 t/a silicone monomer line in November and plans to start up early in 2015. Taiwan Yuen Liien Enterprise Co., Ltd. started construction on a 10 000 t/a silicone elastomer project in Yongxiu, Jiangxi province, with an investment of RMB500 million. Chengdu Guibao Science & Technology Co., Ltd (Chengdu Guibao) started trial production at a new 50 000 t/a silicone adhesive unit in November. Inner Mongolia Huijia Chemical Co., Ltd is constructing the first phase of a 80 000 t/a silicone project.    

Table 3   China’s main fumed silica makers, 2014

Company    Capacity
(kt/a)    Feedstock    Remark
Wacker    16    MTCS&STC    
Cabot Bluestar    15    MTCS    
Tokuyama Zhejiang    10    STC    
Guangzhou GBS    8    STC    
Chifeng Shengsen    7    STC    Expanded by
4 000 t/a in July
XinAn Chemical    7    MTCS&STC    
Dongyue Group    6    MTCS    
Zhejiang Fushite    6    STC    
OCI-Sunfar    6    STC    
Yichang CSG Polysilicon    3.4    STC    
Hoshine Silicon    3    MTCS    
Sucon    2.5    MTCS    
Xingfa Group    2    MTCS    Started up in
November 2014
Jiangxi Blackcat    2    MTCS    
Hungpai Chemical     2    STC    


D. Fumed silica makers considering alternative raw materials

Since June 2014, the silicon tetrachloride (STC) supply has been very tight, confounding fumed silica makers. As an alternative raw material, STC’s price rocketed up, due to a low yield rate from polysilicon production, while prices of monomethyl trichlorosilane (MTCS), another alternative raw material for fumed silica, also increased. STC, which has been viewed as a waste by-product of polysilicon production that is difficult to treat, became a hot seller with prices increasing from RMB1 500/t in May to RMB3 000/t in October. It is not easy for an existing fumed silica plant to shift between two alternative raw materials.   
With the increase of polysilicon output, the STC supply should have increased. However, almost every polysilicon plant in operation is mated with a STC retreating facility in order to cut cost. And the conversion rate of STC went up day by day, causing the STC supply in the market to go down. In the long term, it is better for fumed silica makers to use MTCS as feedstock. FBR polysilicon capacity will account for an increasing share, which will also cut down STC availability. The supply of MTCS from silicone monomer production will remain steady in the future.
On July 14, Zhongneng Polysilicon Technology Development Co. Ltd., a wholly owned subsidiary of GCL-Poly Energy Holdings Limited and Evonik Industries signed a LOI to establish a JV for the production of fumed silica and ultra-pure silicon tetrachloride in Xuzhou, Jiangsu province. The plants, with a combined capacity of 20 000 t/a, are scheduled to start operation in 2016. Zhongneng Polysilicon has 68 000 t/a of polysilicon capacity as of the end of 2014, the world’s largest.
It is estimated that China’s overall capacity utilization rate of fumed silica was around 60% in 2014, with total output around 60 000 tons, representing only small growth from 2013.