Soleil Securities analyst Paul Lemming has issued a note warning of a polysilicon glut that will hit the solar industry in 2010, according to a post by Eric Savitz on the Barron’s Tech Daily Trader blog.
Over the next three quarters, he calculates, the amount of polysilicon available to the solar cell makers will increase by about 70% because every major producer of polysilicon will ramp new capacity in the first half of 2010. That will send the spot price of polysilicon to the mid $30s per kilogram over the next six months from the current $50 to $55 range. (Read more of Savitz’s post here http://blogs.barrons.com/techtraderdaily/2009/12/09/solar-huge-poly-glut-coming-in-2010-soleil-analyst-says/ ) Spot polysilicon sold for a high of $450 per kilogram at its peak in 2008 and for $130 to $150 per kilogram in February 2009.
The effects of this will be devastating on polysilicon suppliers who will see the price for the silicon that they deliver to solar cell makers drop. Already in February polysilicon maker MEMC Electronic Materials (WFR) announced that had renegotiated its contract with solar cell maker Suntech Power (STP).
Who will take the punishment?
 Major polysilicon manufacturers include MEMC, Hemlock Semiconductor, Wacker Chemie, REC, Tokuyama, Mitsubishi and Sumitomo. Those seven companies account for about 75% of global production.
Unfortunately, there’s not really much of an upside from falling polysilicon prices. Silicon makes up only a small percentage of the costs for solar cell makers so companies such as Suntech Power and SunPower (SPRWA) won’t see a big drop in their costs. And solar power systems won’t get suddenly cheaper for consumers.
Furthermore, some solar cell makers responded to the shortage of polysilicon in 2007 and 2008 by beginning work on their own polysilicon manufacturing facilities. LDK Solar (LDK), for example, broke ground on a polysilicon plant in August 2007 when the spot price for polysilicon was $350 per kilogram.
I think the only conclusion here is that companies, which bet on high silicon prices will not get their profits. It is very unlikely that there will be under-supply of polysilicon for the next 5 years; however, silicon solar market (the major driver for the polysilicon prices) is also not quite predictable. Too many players ….
Keep in mind, polysilicon does have other applications aside from solar. It can be used in CPU’s and LCD’s too. I can’t say I know enough about polysilicon to speak intelligently about the specific manufacturing process for solar panels, but that is one important question before anyone starts shorting polysilicon manufacturers.
Also, they may be ramping up to restore depleted inventories in anticipation of a good year. Just because they are making the stuff doesn’t mean they plan to sell it right away. IF they are increasing production in anticipation of an increased demand, then shorting the stocks right away could be hazardous for your portfolio. 😉
Mind you, I’m just speculating here. Feel free to shoot my theories down.
Is this an opportunity to short the major polysilicon producers?