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Abstract "Polysilicon enterprises have come to this step, not just because of the financial crisis. It is not others, but the polysilicon companies themselves that are responsible for their current situation." From 2002 to 2012, the term "polysilicon" went from being unknown to widely recognized. In the past decade, the Chinese polysilicon industry started from scratch, grew rapidly, and then suddenly collapsed, leaving many companies in deep trouble. How can these firms break out of the crisis and find a way forward?
Pain of Overcapacity
Looking back to around 2004, there were very few polysilicon companies in China. Some products were still stuck in research labs, while others were stored in warehouses. By 2008, the situation had completely changed. At its peak (the first half of 2008), the price of polysilicon reached $400/KG, a far cry from the $50/KG it was four years earlier.
The soaring price led to overcapacity. After 2011, as the financial crisis deepened and industrial overproduction worsened, polysilicon prices continued to fall. By the end of 2012, the price had dropped below $20/KG, causing massive losses for companies.
According to the China Photovoltaic Industry Alliance in 2012, more than 160 Chinese PV cell and component companies had a total production capacity of around 40 GW. Meanwhile, global PV module capacity stood between 50 to 60 GW.
Globally, polysilicon production capacity was also severely overextended. The five major suppliers had a combined capacity of 227,000 tons. With each watt of silicon wafer requiring about 5.5 grams of material, the estimated demand was 40 GW, but global PV installations in 2012 only reached 30 GW. As a result, many polysilicon companies both in China and abroad were forced to halt or reduce production.
In the first half of 2012, over 50% of domestic polysilicon companies were either partially or fully shut down. Although China’s polysilicon output reached 38,000 tons during the period, actual company production was only 25,000 tons, suggesting that most firms were not operating at full capacity.
High costs forced some companies, like those in Xinjiang and Sichuan, to stop operations in April 2012. A new energy company based on polysilicon in Xinjiang and Chongqing Wanzhou admitted: "We are working on the Wanzhou polysilicon project, which is undergoing technological upgrades. We don’t know when it will resume production."
A Policy Windfall
Polysilicon companies found themselves in this difficult position not just due to the financial crisis, but mainly because of internal missteps. When investors poured billions into the sector, they underestimated market supply and demand, as well as the pricing of downstream PV products such as modules and cells. Additionally, domestic companies lacked the hydrogenation technology, R&D capabilities, product recovery systems, and cost control measures that established players like Wacker in Germany already possessed.
As global polysilicon prices plummeted, the technical level of local firms remained underdeveloped, worsening the cost-price imbalance. At the same time, overseas companies with strong pricing power, such as those in the U.S. and Germany, flooded the Chinese market with low-cost polysilicon, forcing domestic producers to cut production and minimize losses.
Some experts suggest that mergers and acquisitions could offer a lifeline. Wang Liusheng, an analyst at China Merchants Securities, proposed that Zhongneng Silicon might acquire polysilicon companies in eastern China or purchase production lines in Sichuan and Chongqing. Through technological upgrades or adopting the silane method, they could lower the costs of smaller firms.
A representative from Zhongneng Silicon told reporters that investing in technological upgrades might be more cost-effective than shutting down large-scale factories. Thus, enterprise integration and shared technology may be the key to survival.
However, the challenges of integration are significant. Hou Wentao, an analyst from Guo Wenjun, pointed out that one of the biggest obstacles is the M&A price. In a shrinking market, sellers struggle to get a high premium and are often forced to sell at a discount—something that is not favorable for major shareholders who invested heavily in the sector.
Despite the difficulties, recent government policies aimed at supporting the PV industry have brought hope. During a State Council meeting, officials emphasized adjusting overcapacity through market mechanisms and strictly controlling new production capacities. They also plan to promote distributed energy and expand the PV installation market for households, businesses, and communities. Notably, during the “Twelfth Five-Year Plan,†the goal of increasing domestic PV installed capacity from 21 GW to 40 GW is seen as a potential policy shift that could revitalize the industry.
With the rapid development of China's PV market, global PV installations are expected to continue rising, which may signal the revival of the polysilicon industry."
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