Having failed to meet polysilcion supply contracts with Suntech Power, first established in June, 2007 and amended in June 2010, Hoku has agreed to significantly change the nature of its contracts with the worlds leading PV manufacturer.
The new deal included a reduction in the overall amount of polysilicon to be supplied, as well as the removal of the previously amended but fixed pricing terms. Instead, the two parties have agreed to negotiate pricing on a quarterly basis but importantly in reference to the average spot market price index for raw polysilicon.
The amended contract also reduces the term of the agreement to 1 year only, which starts from the first shipment of a specified quantity of raw polysilicon. The new deadline for Hoku to ship materials to Suntech has been pushed back to October 31, 2012.
According to SEC documents filed by Hoku, the latest amended agreement would automatically renew for an additional 12 months after the initial term with the same terms unless one party terminates or the parties mutually agree to amend the agreement.
The change to the pricing being linked to spot market prices puts Hoku on an aggressive cost reduction path that few if any have achieved from start-up conditions, especially when the average price has fallen to around US$30/kg since the beginning of 2012 should it be attempting to make a profit or minimize losses from the agreement.
Hoku had US$139.7 million in prepayments received under its various polysilicon supply agreements at the end of 2011 and had US$440,000 of deposits in accordance with the amended polysilicon supply agreements.
Key supply agreements in place include Suntech Power, Hanwha SolarOne, Tianwei New Energy, Solargiga, Jinko Solar and Shanghai Alex New Energy.