China's polysilicon profits have dropped from 500% to 100%, marking a dramatic shift in the industry. According to an industry report submitted by the China Electronic Materials Industry Association to the National Development and Reform Commission, by the end of June 2009, 19 polysilicon projects were already operational, with a combined annual production capacity of 30,000 tons. Over 10 additional companies were under construction, and the total planned capacity was expected to exceed 100,000 tons by 2010. However, in 2008, China’s demand for polysilicon stood at just 17,000 tons. If all these projects came online, the supply would far exceed global demand, raising concerns about overcapacity.
This led to heated debates within the industry. Since July, the photovoltaic sector had seen a steady recovery, but after years of rapid expansion, the polysilicon industry caught the attention of the State Council. The sector now faces a critical moment of restructuring. Industry insiders expect that by year-end, more detailed and targeted policies for the polysilicon sector will be announced.
Six ministries recently launched a comprehensive investigation into the issue of overcapacity in the polysilicon industry. This move highlights the growing concern at the national level. The August 26 executive meeting of the State Council warned that emerging industries like polysilicon are prone to repeated construction and overcapacity. As a result, the government is taking a closer look at how the industry is developing.
In recent months, several major ministries held symposiums to discuss the challenges facing the sector. Companies such as Jiangsu Zhongneng Silicon Technology Co., Ltd., Luoyang Silicon High Technology Co., Ltd., and LDK Solar were among those invited to share insights on production, scale, cost, and profitability.
Before 2009, the photovoltaic industry was heavily reliant on upstream polysilicon, which accounted for 80% of costs. Profit margins soared to as high as 500% or even 800%. But the financial crisis hit hard, causing polysilicon prices to drop from $400/kg in 2008 to around $60/kg today. Despite this, demand remained strong, with many companies struggling to meet orders.
The price surge and subsequent crash created a rollercoaster for the industry. In 2007 and 2008, it was a buyer's market, where relationships played a key role in securing supplies. Now, with oversupply and falling prices, companies are focusing on cost control and efficiency.
Jiangsu Zhongneng Silicon, one of the leading players, saw its polysilicon production rise from 155 tons in 2006 to 1,850 tons in 2008. Its net profit in 2008 reached over 2 billion yuan, a figure that surprised even the company itself. By 2010, the company aimed to reduce production costs to $25/kg, matching international standards.
However, the industry is now facing a new reality. With so many projects under construction or planning, there are fears that supply could outpace demand. Experts suggest that not all planned capacities will be realized due to funding, market conditions, and technical challenges.
Local governments have also played a significant role in the rapid expansion of the polysilicon industry. Cities across China have set up solar parks, aiming to boost local economies and GDP. Some regions, like Sichuan’s Leshan City, have invested billions in polysilicon projects, with plans to increase output to 7,500 tons by the end of 2009.
Despite the optimism, some industry insiders argue that the current capacity may not be excessive. Zhao Yuwen, chairman of the Photovoltaic Branch of the China Renewable Energy Association, noted that in 2008, domestic polysilicon production met only a quarter of the market demand, with the rest imported. This suggests that while overcapacity is a concern, there is still room for growth.
As the industry moves forward, the focus is shifting from expansion to sustainability. New policies are expected to set higher standards for production scale, energy efficiency, and environmental impact. Banks are also tightening credit, signaling a more cautious approach to investment.
In summary, the polysilicon industry has experienced a wild ride—from explosive growth to sharp declines. While the future remains uncertain, the path ahead will likely involve greater regulation, cost control, and a more balanced approach to development.
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