The polysilicon spot market has been the subject of many analyses and commentaries since prices started to drop, leading to oversupply and demand issues across the PV manufacturing board. Average pricing for a kilo of solar-grade polysilicon on the spot market in May dropped to US$23.50, down 3.3% from its US$24.30 price in April. IHS’s Polysilicon Price Index has shed light on the fact that poly pricing for contracts dropped by only 2.4% for the same period, which means that the discrepancy between spot and contract pricing is widening ever further.
“The escalating spread between LTA pricing and that for the spot market reflects the continuing oversupply in the global polysilicon market, which is expected to result in further price declines,” said Glenn Gu, senior analyst, PV, with IHS. “We predict pricing for all grades of polysilicon in both the LTA and spot markets to weaken again in June.”
However, the IHS report does not take demand and manufacturing costs into account. Polysilicon prices from major players such as Hemlock, Wacker, MEMC and GCL need to be maintained as close as possible to production cost. As a result of this fiscal necessity, contract poly prices falling to the mid teens or even the low twenties in terms of dollars per kilo is the lowest they can accommodate and remain in business.
Spot prices, on the other hand, have the leeway to dip below product cost. Many of the spot market sellers will be releasing product from built-up inventory from earlier in the year when demand was weak, hence the price discrepancy of around US$5.20/kg in May compared to US$5.10/kg in April.
It would appear that the contract market’s higher prices are leading to increased production costs for contract, leading to their deciding to purchase from the spot market in some cases.
“Makers of solar cells were already flocking to the spot market to take advantage of lower pricing, with the spot market accounting for 44 percent of polysilicon shipment volume in April, up from 36% in March,” commented Gu. “This trend continued in May, with spot market volumes rising to 47% of all shipments. The exodus to the spot market is expected to continue, causing a decline in LTA [long-term agreement] prices that will minimize the pricing gap. Unless the gap decreases, buyers will start to try to renegotiate the terms of their LTAs with suppliers.”