China’s Solar Polysilicon Giants Are Expanding as Profits Surge

By Bloomberg

Apr 26, 2022

image is BloomburgMedia_RAVWEKT1UM0W01_26-04-2022_12-53-05_637865280000000000.jpg

Chinese producers of the key material for solar panels are planning major expansions as demand stays strong despite high prices, sending profits soaring.

(Bloomberg) -- Chinese producers of the key material for solar panels are planning major expansions as demand stays strong despite high prices, sending profits soaring.

Tongwei Co. on Monday announced first quarter net profit of 5.19 billion yuan ($792 million), about six times higher than the same period last year. That came just a few days after Daqo New Energy Inc. beat estimates with revenue of $1.28 billion in the quarter, 42% of which was net profit.

The firms are no. 1 and no. 2 in global polysilicon production, according to BloombergNEF, and now is the best time in years to produce the super-conductive material that solar panels are made of. Prices averaged about $32 a kilogram in the first quarter, up from $13 in the same period in 2021, and both companies said they expect pricing to remain strong this year, even as new capacity is expected to come online.

That’s propelling expansion within the companies. Daqo completed a project at the end of last year to bring its annual capacity to 105,000 tons, and plans to complete another 100,000-tons-a-year factory in the first half of next year. Tongwei said Monday it would raise its capacity targets, with plans to grow from 180,000 tons at the end of last year to as much as 1 million tons by 2026.

Long-term optimism over global solar demand prevails, although polysilicon prices could come under pressure starting from the second half of this year as new factories come online, Morgan Stanley analysts including Simon Lee said in a note on Monday.

Still, the firms should be able to lean on the technological advantages gained from being industry leaders. Daqo is the main Chinese supplier of so-called “n-type” polysilicon used in more advanced solar cells. It expects market share of the material to grow from less than 10% this year to as much as 50% in 2024. The new factory it opens next year will produce 100% n-type material, whereas it might take two to three years for new entrants to build up the same expertise, Jefferies analysts including Johnson Wan said in a note on Friday.

Moreover, the boost to polysilicon capacity may not fully match the surge in solar demand. The ambitious solar installation tenders recently announced by state-owned energy companies, China’s major renewable developers, has continued to lift prices for solar panels and the rest of the supply chain, according to industry media Solarbe. Market demand for solar products could continue to rise and prices for polysilicon will remain high throughout the fourth quarter if the SOEs don’t lower their installation targets this year, the report said.

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