China solar industry faces rising silicon costs

The price of polysilicon has been on the rise for the past seven years. And recently the prices have reached an all-time high of $400 per kilogram, according to a research report released today by ResearchInChina.

The rising price is largely due to a supply imbalance, which is expected to ease slightly next year and more in 2010 because of new polysilicon capacity coming online, researchers say. In the short term, those rising prices could trigger higher manufacturing costs for Chinese solar wafer makers that have been signing many supply deals over the past year.

China’s leading solar wafer manufacturers including Xinyu, China-based LDK Solar (NYSE: LDK) and Wuxi, China-based Suntech Power Holdings (NYSE: STP) have signed a good number of wafer supply deals with customers during the last several months.

Over the past few years, the cost of silicon has been steadily moving up, which drives up the price of wafers. From 2001 to 2003, the cost of polysilicon rose 12.5 percent per year, according to the Global and China Solar Polysilicon Industry Chain report from ResearchInChina.

From 2006 to 2007, the cost per kilogram of polysilicon rose 33 percent from $200 to $300 per kilogram. In the past year, the price has hit $400 per kilogram.

Market demands for solar technology is coming from many nations, such as the USA, Germany, Japan, Korea and Spain. The Japanese government, for example, started to ramp up its solar subsidy.

In the last week, LDK Solar said it signed an eight-year deal for 750 megawatts of multisilicon wafers with Tokyo, Japan’s Sumitomo (TYO:8053). The deal starts in 2009 and extends through 2016.

Over the past few months, there’s been a steady stream of solar wafer deals made by LDK Solar, a leading manufacturer of solar modules (see LDK Solar to supply wafers to Moser Baer). Those deals include 550 MW of multicrystalline silicon wafers to Solartech over a five-year period and a $32 million contract with Merrimack, N.H.'s GT Solar International (Nasdaq: SOLR) (see GT Solar to supply polysilicon reactors to LDK).

And Suntech Power Holdings has also signed significant wafer deals over the past few months (see Suntech inks $750M silicon agreement with DC Chemical).

The research report said several factors have challenged Chinese solar PV manufacturers, including a lack of core technologies, an incomplete mix of solar companies and services, and a reliance on imported solar equipment.

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