Polysilicon recovery to be slow and painful, GCL-Poly's Shu Hua says
World industry leader says poorly equipped makers of the raw material for solar power panels will fall by the wayside as demand increases
The loss-making polysilicon industry, responsible for supplying the raw material for solar power panels, will gradually recover, but consolidation will be achieved through attrition rather than mergers and acquisitions, according to the industry leader.
Shu Hua, the executive president of GCL-Poly Energy, said troubled players had unsuitable equipment because of their small production scale, low product quality and high operating costs.
"Since the industry downturn, no maker has been acquired," Shu said. "They are basically mothballed, shut down or in bankruptcy."
The Hong Kong-listed, Jiangsu province-based company is the world's largest maker of polysilicon and solar wafers, which are used to make solar panels.
Controlled by industrialist Zhu Gongshan, whose family owns a 32.4 per cent stake, it also operates power plants that contributed about 30 per cent of sales in the first half of the year.
Polysilicon fetched as much as US$450 a kilogram in 2008, luring huge capital investment in the nascent industry. But it has since slumped to US$18 because of oversupply, while declines in production costs failed to keep pace, resulting in steep losses.
Jeff Lu Jinbiao, a deputy general manager of GCL's main solar panel material subsidiary Jiangsu Zhongneng Polysilicon Technology Development, said a market price of US$20 a kilo was required for GCL to break even.
It posted a first-half operating loss of HK$1.4 billion on its solar business and a profit of HK$240 million on its power business.
The firm is building a dedicated power plant that will meet 75 per cent of its needs by next year's first quarter.
Lu said the plant could cut its average polysilicon production cost of US$17 per kilo by US$3 to US$4. It buys electricity from the power grid and energy costs account for about half its production cost.
Lu said there was still an upside for prices, adding a "more reasonable" level was US$25, at which the largest few global players would be profitable.
Price recovery in the short term would be supported by rising demand in China, Japan, the US and emerging markets, although prices would fall in the long term in tandem with declining production costs, he added.
Sanford Bernstein senior analyst Michael Parker forecast in a report that global solar panel demand would rise to 50 gigawatts next year, up from 31GW last year, as sharply lower prices cut the need for government subsidies to support growth.
He projected polysilicon prices to average US$25 a kilo next year and US$30 in 2015.
GCL's top rivals are Hemlock Semiconductor of the US, Germany's Wacker Chemie and South Korea's OCI, which has the capacity to produce 30,000 to 50,000 tonnes a year.
GCL has invested more than 200 million yuan (HK$254.8 million) on a 1,000 tonnes a year trial production line based on the fluidised bed reactor (FBR) method.
It plans to build a 6,000 tonnes a year commercial-scale FBR line, which Lu said could halve its production cost to US$9 a kilo when combined with savings from its self-owned power plants.
The savings compare with its seven existing production lines built on the well-proven "modified Siemens" method because of FBR's much-reduced costly-to-process by-products. GCL has not decided on the construction time-frame for the new FBR line.
The industry had more than 20 makers several years ago, with annual output capacity of several hundred to several thousand tonnes each.
GCL's annual capacity is 65,000 tonnes. Its first-half output of 21,980 tonnes accounted for about 80 per cent of that of the mainland and more than 20 per cent of global output.
The industry at one point had government approval to build as many as 200,000 tonnes of annual capacity, Shu said, but less than half were completed.
Even among those commissioned, many stopped production, and only seven companies have operating facilities. "We definitely have no plan to acquire players in trouble, despite the government trying to talk us into it," Shu said.
Lu said GCL was also not keen to acquire struggling rivals more exposed to downstream solar cells and panels production. Jiangsu-based Suntech and Jiangxi-based LDK are mired in steep losses and have trouble repaying loans.
Shu expected GCL to have installed 300 megawatts of solar farms on the mainland and 200MW overseas by the end of this year. It plans to develop 500MW to 1,000MW domestically and overseas annually in the next few years, by investing independently and with partners.