China solar power sector hit by surge in polysilicon prices amid supply squeeze

[SHANGHAI] A shortage of polysilicon, a key raw material used in solar energy modules, is expected to keep prices sky-high this year in China's photovoltaic power industry, as fears of a supply crunch drive stockpiling and module makers cap output accordingly.

Prices of polysilicon jumped to more than 100 yuan (S$20.50) per kilogram in March, say analysts and module makers, rocketing more than 40 per cent from around 70 yuan a year ago as polysilicon suppliers - mostly based in China - struggle to keep up with demand across the solar panel supply chain.

The price surge comes after China, the world's biggest producer of polysilicon and photovoltaic products, saw a rise in new solar power capacity in 2020 to 48.2 gigawatts (GW) after falling for two years.

"This year, wafer, cell, and module sectors all have plans for production capacity expansions," said InfoLink Consulting analyst Amy Fang, referring to components along the solar panel supply chain.

"But polysilicon supply has failed to catch up since it does not see much newly installed production capacity," she said.

"As fears of a polysilicon shortage throughout the year pervades, traders started hoarding and stockpiling, aggravating the short supply."

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Polysilicon manufacturers undergoing equipment maintenance also exacerbated the shortage, further impacting module makers already hit by high glass prices last year.

"It's very hard to pass on costs, you want solar energy to be affordable ... Installation projects are delayed, or done at a lower profit," said a manager at one Chinese module manufacturer, estimating that polysilicon price gains have caused module prices to increase by at least 20 per cent.

Analysts say high polysilicon prices could persist into 2022, even with new production capacity plans, as the latter could take up to two years to complete.

In the meantime, module makers are lowering capacity utilisation rates and output, a measure which could impact China's new solar installation growth.

"Module makers continue to cut production since the increasing polysilicon and wafer prices show no sign of stopping," said Ms Fang.

"Major module manufacturers see utilisation rates under 70 per cent during March and April, and might not be running at full capacity even in May."

REUTERS