Polysilicon suppliers to the solar industry have been significantly lowering plant utilization rates during the past six months, with average quarterly utilization rates falling below 70%, according to NPD Solarbuzz.
This contrasts with historic plant utilization rates at above 90% typically provided by the leading polysilicon suppliers to the solar industry. Even when polysilicon spot prices declined 70% between first-quarter 2011 and second-quarter 2012, tier-one polysilicon suppliers maintained these high utilization rates.
"Polysilicon makers strive to run plants at optimal capacity levels, where maximizing production offers the lowest cost structures by spreading depreciation costs over a larger volume. This often results in the highest yields, avoids shutdown/start-up costs, and enables volume purchases of raw materials," stated Charles Annis, vice president at NPD Solarbuzz.
Accordingly, polysilicon suppliers maintained high utilization rates while prices remained above cash costs. When average spot prices fell below US$20/kg in third-quarter 2012, and continued down to US$16/kg in fourth-quarter 2012, even tier-one makers with best-of-class cost structures were forced to adjust production levels.
China, the world's largest end-market, consumed approximately 188,000 tons of polysilicon for solar applications between first-quarter 2011 and third-quarter 2012. However, during the same time period, 262,000 tons of materials were provided to the China market from a combination of domestic production and foreign imports.
In particular, foreign imports grew to record highs during most of 2012. As a result, the 74,000 tons of excess supply contributed to a strong inventory build-up and, combined with weaker than hoped end-market solar demand during second-half 2012, ultimately led to the recent utilization corrections.
The reduced utilization rates have also had a profound impact on the previously aggressive capacity expansion plans of solar polysilicon suppliers. In fact, several tier-one polysilicon manufacturers, including Wacker, Hemlock, OCI, and Tokuyama, have now decided to delay ramping up and building new polysilicon plants.
"The rationalization of supply finally started stabilizing polysilicon prices towards the end of fourth-quarter 2012, and this trend continues into early first-quarter 2013," added Annis. "Even so, price pressure is expected to remain strong with polysilicon makers hoping to increase utilization rates as early as possible. Moreover, several polysilicon plants are still currently scheduled for completion, but this new capacity is likely to remain idle until end-market solar demand increases."
