Suntech in US$678m take-or-pay deal for solar cell components

Suntech Power Holdings, the mainland's largest solar-cell maker by market value, has signed a 10-year contract to buy polysilicon for up to US$678 million to ensure supply for its rapid expansion.

Suntech, based in Wuxi, Jiangsu province, said it had signed the deal with United States-based Hoku Materials, a subsidiary of Nasdaq-listed Hoku Scientific, to buy a fixed amount of polysilicon each year at set prices from mid-2009 on a 'take-or-pay' basis. .

This means Suntech must take delivery of the undisclosed shipments even if they are not needed. The prices were not disclosed.

This form of long-term agreement usually allows the buyer to take advantage of lower spot market prices, at the risk of holding excess inventory.

'Securing a long-term supply of polysilicon from Hoku will enable us to continue to expand our manufacturing capacity and execute Suntech's strategic plan,' Suntech chairman Shi Zhengrong said.

Global demand for polysilicon has outstripped supply since 2004, as high fossil fuel prices and incentives offered by governments to develop solar power drove up demand.

Morgan Stanley last year estimated the supply gap to persist until next year, with polysilicon prices to rise 35 per cent this year.