Canadian Solar notes challenges to UMG suppliers as polysilicon prices fall

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Canadian Solar executives said during a conference call to discuss 4Q and year-end financial results that polysilicon prices had fallen to between US$110 per kg and US$130 per kg. This had enabled the module manufacturer to renegotiate UMG silicon feedstock prices to approximately US$60 per kg, maintaining a US$50 per kg margin between the two feedstocks. Canadian Solar uses UMG silicon in its ‘e-modules’ and has already secured contracts for these lower (15%) priced modules in 2009, equating to 120MW.

The challenge for UMG suppliers, acknowledged by Dr. Shawn Qu, Chairman and CEO of Canadian Solar during questioning by financial analysts, is that he expects polysilicon prices to drop to approximately US$70 per kg, pushing UMG pricing to between US$15 per kg and US$20 per kg by the end of 2009.

At the recent Photon Technology Show, held in Munich, Germany at the beginning of March, 2009, Photon Consulting market researchers, noted that the significant increase in polysilicon and lower than anticipated demand due to project finance constraints amongst others could see prices fall to as much US$30 per kg.

Although the supply chain dynamics have become complex and highly changeable, financial analysts were concerned in the conference call that should polysilicon prices fall to US$50 per kg or below, UMG’s cost advantages could simply evaporate, destroying the UMG market in its path.

Dr Ou countered this line of argument to some extent, noting that Canadian Solar was working closely with its two UMG suppliers to improve the quality of the material to boost conversion efficiencies of cells as well as internal efforts that had already seen over 1% efficiency improvements in the last year.

Dr Ou also noted that cell efficiencies using UMG silicon had reached 14.7% in 2008, up from 13.3% in 2007, with a clear roadmap to take efficiencies up to 15.5%, though no timeline was given.

“We expect to achieve wafer to module processing costs of $0.60 per watt and polysilicon to module processing costs of $0.90 per watt by the end of Q2 2009,” noted Dr Ou.

Capacity Ramp

Canadian Solar also said in the conference call that it had reached an ingot capacity of between 120MW – 150MW in 2008, a cell capacity of 270MW, which was primarily dedicated to UMG cell based production and 620MW capacity for solar modules, including e-modules.

Based strictly on market demand and improvements in credit facilities the company could potentially add a further 100MW of ingot capacity in 2009 as well as 150MW in cell capacity.

However, citing poor visibility and a halt to capital spending put in place in the fourth quarter, the company did not give guidance as to when further expansions may take place.

Canadian Solar hit by slowdown

Canadian Solar reported lower than expected fourth quarter and full year results, due to weaker demand for PV modules resulting in module price declines and inventory write-downs. 4Q08 revenue was US$73.0 million, compared 3Q08 net revenues of US$252.4 million. Full year 2008 net revenues reached US$709.2 million, a 134% increase over full year 2007 net revenues of $302.8 million.

4Q08 shipments were 19.6MW, bringing full year 2008 shipments to 167.5MW, a 100% increase over full year 2007 shipments of 83.4MW.

However, the net loss for the quarter was US$50.6 million, which included a $23.3 million write-down for inventory as a result of the rapid decline in the market price and value of feedstock, work-in-progress and finished solar modules.

Canadian Solar did not provide first quarter guidance but gave a wide range financial forecast for 2009. The company currently expects net revenue to be between US$600 million and US$800 million on shipments of between 300MW to 350MW.


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