Polysilicon outlook for 2022

This year, polysilicon prices have stayed on an upward trend, as short supply persists due to mismatched production capacities in up and downstream and long construction time that new polysilicon production capacities take. High prices rose further amid energy consumption and intensity control during September and October. In November, prices hit decade-high, coming in at RMB 269/kg (USD 37.3/kg). Price hikes made the polysilicon sector the most profitable this year. Polysilicon manufacturers produced and sold at full capacity, with most of them reaching 60% or higher gross margin, raking in enough to prepare for future expansions.
 

Polysilicon production expansion in the coming year

Supply falls short

In early November, Tongwei’s unit of Yongxiang and GCL Silicon each had 50,000 MT Phase-2 polysilicon production capacity in Leshan (not including 1,000 MT of EGS capacity) and 20,000 MT of FBR production capacity commissioned. Meanwhile, Yongxiang’s 50,000 MT Phase-1 in Baoshan, Yunnan and Daqo’s 35,000 MT Phase-3, Stage-B in Xinjiang are both expected to enter operation by the end of the year. It takes production lines one to two quarters of time to undergo debugging and come fully online. Therefore,  polysilicon production output from lines installed before the end of the year still fails to satisfy demand from the wafer sector, who is running at full utilization rates. In the fourth quarter this year, polysilicon is expected to see 142,000 MT of production output, enough to supply 51.7 GW of module production, but insufficient as compared to 88 GW of wafer production capacity per quarter. Polysilicon shortage resulted from mismatched supply chain production capacities will endure into the end of 2021. 
 

New production capacity gradually coming online in the first half of 2022

In the first quarter, East Hope’s 60,000 MT Phase-3 in Xinjiang and Asia Silicon’s 30,000 MT in Qinghai will start coming online, followed by Tongwei’s 50,000 MT Phase-2 in Baotou, Inner Mongolia and TBEA’s 20,000 MT after line modification in the second quarter. Putting new capacities in the first half and capacities coming online in 2021 into account, polysilicon may see 887,000 MT of total production capacity in the first half of 2022, a 26.3% growth as compared to the fourth quarter of 2021. The lofty prices will likely to drop, supposing new production capacities come online as scheduled, easing polysilicon shortages.
 

Polysilicon shortages will ease in the second half of 2022, when new capacities come fully online. Manufacturers heeded to energy consumption target.

The second half of 2022 will see leading manufacturers commissioning new production capacities, such as TBEA’s 100,000 MT of new lines in Baotou, Inner Mongolia, Asia Silicon’s 40,000 MT Phase-2 in Qinghai, and Tongwei’s unit of Yongxiang’s 100,000 MT Phase-1 new project in Leshan, Sichuan. Meanwhile, East Hope announced its intent to set up new lines with 250,000 MT of annual production capacity in Ningxia. 

Besides leading manufacturers, new players bullish on the prospect of the PV industry and polysilicon’s high gross margin joined the game. For instance, Qinghai Lihao set to build 200,000 MT of production capacity through three phases in Qinghai, expecting Phase-1’s 50,000 MT to enter operation in the second half of 2022. Some manufacturers mulled on re-initiating old lines previously halted, such as CSG Holding, in position to reinitiate production capacity in Hubei. 

By the end of 2022, polysilicon production capacity will reach 1.02 million MT, a 15% growth on levels in the second quarter of the year. Several new production capacities are scheduled for the second half of 2022 but will either remain on the drawing board or under preliminary construction, with the announcement of energy intensity index posing uncertainties to actual commission timeline. 

From the second half of 2020 to mid-November this year, polysilicon prices have been on the rise. The fat profit attracted not only existing manufacturers, but also new players and those withdrew previously, to expand capacity, starting with at least ten thousand and even hundred thousand MTs of capacities. Large scale expansion projects seem to ease polysilicon shortage. However, variables still exist in terms of polysilicon supply in 2022, considering times it would take for actual implementation and new capacities to come online. Thus, price trend remained obscured.

The graph below shows considerable polysilicon shortages, although its production grows faster than capacity in the other segments and is sufficient to supply end user demand in the second half of 2022. In the future, polysilicon prices will decline as new production capacities enter operation. Still, given enormous gap between supply and demand, prices will not see significant decrease until the second half of 2022, when newly expanded capacities come online, and some old ingot facilities retired.

Factors affecting polysilicon supply

Besides production expansion timelines and the imbalance supply-demand relationship across up and downstream, factors affecting polysilicon supply and demand next year include foreign trade barriers and China’s energy intensity control. For now, Chinese PV products are not only subject to custom duty, but also Withhold Released Order (WRO) and “Uyghur Forced Labor Prevention Act.” The former was issued by the U.S. Customs in June, targeting products of Hoshine, a major silicon metal supplier, whilst the latter still pending at the House of Representatives. Once the act comes into effect, end user in China and abroad will see polysilicon shortages, or price differences will emerge between Xinjiang and non-Xinjiang made polysilicon.

Hit by energy intensity and consumption control during September and October, Chinese manufacturers experienced significant changes in production timelines and raw material prices. The PV industry was the worst affected, for silicon metal, polysilicon, and wafers were all highly energy and carbon intensive sectors. From September onward, silicon metal prices surged amid heavy-handed production curb, sending production costs of the entire supply chain up. Polysilicon prices spiraled faster than downstream sectors, remaining obstinately high for the time being. Under energy intensity and consumption control, and given carbon peak and carbon neutral goals, the Chinese government may set stricter requirements for highly energy and carbon intensive manufacturers, affecting actual production capacity and commission timeline.
 

Polysilicon price forecast

Subject to its own nature and energy intensity control, polysilicon production capacity will come online steadily in the future. Meanwhile, wafer and cell production capacities will remain far higher than polysilicon. As a result, prices will see fast declines. Presently, polysilicon prices sit at around RMB 269/kg (USD 37.3/kg) of decade high and will sustain above RMB 240/kg (USD 33.2/kg), from the end of the year till the stockpiling rush prior to the Lunar New Year. After the Lunar New Year, prices will step on a slow downward trip as new capacity gradually come online, with chances to dip under RMB 200/kg (USD 27.7/kg) by mid-2022. As new capacities continue coming online, and larger scale expansion projects are commissioned in the second half of 2022, prices will go down further, with price range situated at RMB 180-140/kg (USD 24.9-19.4/kg). 

Conclusion

Polysilicon shortage will persist, and prices will not see immediate declines until the second half of 2022, for it takes more time for polysilicon production capacity to come online, which accordingly, fails to catch up with huge production capacities of wafer and cell sectors. In the second half of 2022, despite newly expanded capacities, factors such as energy intensity control still pose uncertainty to commission timelines. As a result, prices still slowly decline as production capacities come online. Since prices are not expected to drop rapidly throughout 2022, the polysilicon sector will see better profits, as compared to other sectors with surplus production capacities. Whilst incumbent and upstart manufacturers successively planning production expansions, their Tier-2 and overseas counterparts, who were forced to halt production lines in face of Tier-1 makers’ lower production costs, are now sustaining higher utilization rates, and thus improve profits.

The wafer segment, holding enormous production capacity but failing to acquire sufficient polysilicon, manufacturers are found in a tight corner, unable to raise utilization rates, and thus may phase out unupgradable production lines in advance.