Wednesday, February 15, 2012

China Solar Silicon Production Curbed 30% to Lift Prices

This fairly straight-forward article reports that some of the major Chinese producers of poly-crystalline silicon (including DongFang Electric, mentioned in class yesterday), have been cutting back their output to bolster prices. Poly-crystalline silicon prices had plummeted to a decade-low $28/kilogram at the end of last year before the output cut.

Major Chinese PV manufacturers, who purchase the raw material, noted that the rise in prices lowered their margins but did not prevent them from operating, while some smaller manufacturers were prohibitively affected. Analysts expect an upper bound of $40-50/kg before suppliers re-enter the market.

Being a big-time homer for raw materials use and commodity markets, I found one inference of the article fascinating. While the pricing mechanism for polysilicon isn't entirely clear, it appears to be market driven rather than centrally set (unlike power, for example). This makes for an interesting interplay of the supply chain. With fixed power prices and market-determined prices for a key input (silicon) and the power-producing product (the PV cell), who takes the profits/losses from the fixed prices? It will be interesting to see how the industrial organization of poly-crystalline PV unfolds, and I suspect that we will see some vertical integration in the sector


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