Silicon prices need to cool down.

Recently, the Ministry of Industry and Information Technology, the State Administration of Market Regulation and the National Energy Administration (hereinafter referred to as the three departments) jointly issued the Notice on Promoting the Coordinated Development of photovoltaic industry chain and Supply Chain, and collectively interviewed some key polysilicon enterprises and industry institutions.

'The main purpose of interviewing companies is to control the price of silicon.' A silicon material business insider said to the interface news.

The three ministries and commissions pointed out that recently, the prices of some parts of the domestic photovoltaic industry have continued to rise sharply, causing dramatic shocks in the industrial chain and supply chain. The reasons include complex international trade environment, repeated impacts of the COVID-19 pandemic, substantial growth of downstream demand, and differences in the construction cycle of all parts, as well as some enterprises' price speculation and individual practitioners' hoarding. We will strengthen investigations and crack down on such illegal activities as price gouging, monopolizing the production and sale of fake and shoddy products.

According to the calculation of Guolian Securities, the silicon material link currently accounts for the vast majority of profits in the whole industry. Taking M10 size as an example, the gross profit rate of silicon material link is as high as 83.9%, while the gross profit rate of downstream silicon wafer, battery wafer and component is only 4.2%, 7.8% and -1.5%, respectively.

Against the background of China's 'double carbon' goal and global energy shortage, the price rise of silicon has been maintained for more than two years, during which the increase has been more than three times, and the balance of the industrial chain is completely in favor of it.

Now subtle market shifts are also taking place.

Silicon controls the discourse

Looking back on the silicon material 'counter-attack' road, 2020 is an obvious cut-off point.

Before this, the domestic photovoltaic industry has suffered from overseas anti-dumping, '531' new policies and other impacts, silicon material is one of the most unprofitable links in the industrial chain.

In the first half of 2020, the photovoltaic industry chain was greatly affected by the epidemic, with project construction delayed, logistics blocked and demand depressed. The outlook was full of uncertainties, and the price of silicon dropped to a multi-year low of around 60,000 to 70,000 yuan/ton.

Since June 2020, with the improvement of the epidemic situation in China, the contradiction between supply and demand in the silicon market has emerged, and the price has started an upward path. By the end of the year, the price of silicon rose to 83,000 yuan/ton, up about 14% from the beginning of the year.

After 2021, stimulated by the goal of 'double carbon', photovoltaic has entered a period of rapid development, especially the rapid and fierce expansion of silicon wafer production. However, due to the investment threshold and the long construction period, the upstream silicon component is in short supply, resulting in a rapid price increase.

In February last year, silicon material exceeded 100,000 yuan/ton, and in May, it exceeded 200,000 yuan/ton for the first time, with a cumulative increase of 160% from January to June.

Since then, silicon has experienced two brief downturns.

In June and July last year, when silicon prices were at a peak of around 210,000 yuan/ton, there was a cost inversion of downstream components, and the demand contraction was transmitted upstream layer upon layer, bringing the silicon rally to a halt.

Starting in July of that year, silicon experienced a five-week decline until early August. As the overall supply of silicon is still tight, as the downstream level of work gradually recovered, silicon prices began to rise slightly. In mid-September, silicon returned to its high for the year.

Since then, polysilicon upstream industrial silicon encountered 'energy consumption double control' production limit, silicon material price was pushed up to nearly 240,000 yuan/ton, compared to the beginning of the year up more than 1.5 times. On September 30, Longi Green Energy (601012.SH), JA Technology (002459.SZ) and other five component leaders to jointly appeal.

Until November of that year, the industry chain appeared new changes. At that time, the price of silicon materials remained stable, and there were fewer transactions at the end of the year. Among them, Longji Green Energy and TCL Central (002129.SZ) have fallen the price of silicon wafers, some industry insiders believe that the price of photovoltaic industry chain has peaked.

Higher prices hurt new installations in the fourth quarter of the year. Data from the National Energy Administration showed that 54.88GW of new photovoltaic installations were installed nationwide in 2021, which hit a record high but fell short of expectations. Among them, the new installed capacity in the fourth quarter was 27.82 GW, down 5.7% year on year.

But this wave of industrial chain price decline only maintained a month and a half. In the first quarter of this year, photovoltaic production and sales are booming, the off-season is not weak, the delayed terminal installed demand picks up, and the industrial chain rises again.

In order to avoid over-interpretation and misunderstanding, the Silicon Branch of China Non-Ferrous Metal Industry Association suspended the release of polysilicon prices on September 8, which had not been interrupted for eight years.

In fact, silicon prices have remained firm. PV InfoLink's statistics on October 12 showed that the highest price of polysilicon compact material reached 310,000 yuan/ton, and the average price was 303,000 yuan/ton. The price has more than tripled since mid-2020.

New demand variable

Driven by the price of silicon materials, the price of components once exceeded 2 yuan /W this year. According to Jiemian news, when the component price exceeds 1.85 yuan /W, the profit of domestic downstream centralized power station will be greatly compressed. If the component price reaches the high level of 2 yuan /W, the acceptance of downstream power plant developers will be limited, and the purchase volume will be significantly reduced.

According to the previous price logic of the industrial chain, downstream power plant developers have a strong dominance. When their acceptance is limited, they will force the price of upstream products.

This year, the turning point for price reductions has been slow to arrive, mainly due to the emergence of two new variables on the demand side: a burst of domestic distributed PV demand stimulated by policy, and a surge in overseas demand for PV products.

After the outbreak of the Russia-Ukraine conflict in February this year, Europe's demand for photovoltaic and other new energy has increased significantly in order to get rid of its energy dependence on Russia.

According to the Commission's plan, by 2025, the installed photovoltaic capacity in the EU will be increased to 320 GW, double the 2020 level; Installed PV capacity will reach 600 GW by 2030, making it the EU's main source of electricity.

Customs export data showed that China exported 78.7GW of components in the first half of the year, up 102% year on year. Among them, Europe imported 42.4GW of components from China in the first half of the year, up 137% year on year.

PV InfoLink statistics show that from January to August, Europe imported 60.1GW of Chinese components, up 127% year on year.

At the same time, the domestic distributed photovoltaic rise. In the first half of this year, domestic photovoltaic newly installed capacity was 30.88GW, distributed accounted for 63%. Compared with centralized power stations, distributed photovoltaic modules have a higher price acceptance.

In July, the China Photovoltaic Industry Association raised its forecast for domestic installations this year. China Photovoltaic Industry Association honorary chairman Wang Bohua said, through the understanding of the installation planning of the provinces, optimistic is expected to open the photovoltaic market or accelerated mode, and this year's new installed capacity forecast up 10 GW, is expected to achieve 85-100 GW.

Jiemian News has learned that the head component companies are currently in strong orders in hand, and have even been lined up until 2023.

'The main reason why silicon prices have not come down is still the lack of capacity.' A component enterprise related person in charge of the interface news.

Although the silicon end has attracted many new investors in the past two years, the production cycle of silicon material is about 2-3 years, compared with the downstream silicon wafer link, the new production cycle is only half a year. The actual supply of silicon material cannot match the downstream demand, which virtually elevates the voice of silicon material in the whole industrial chain.

From July to August this year, due to the impact of maintenance and power rationing, domestic silicon production was lower than expected, with an average monthly output of 60,000-70,000 tons until September. According to SMM statistics, domestic polysilicon production in September was about 76,200 tons, up 23 percent from the previous month.

Will the midstream voice improve?

After the production increase, the recent silicon material price did not rise significantly, the trend of the peak appeared. But the current silicon chip and battery link prices are still relatively stable.

Longi green Energy's latest silicon wafer price announcement has not been adjusted, but the price of the battery has abnormally increased in advance.

On September 27th, the price of all types of battery sheets of Tongwei Solar rose by 2-3 cents /W. On the same day, the quotation of battery sheets of TOPCon showed that the 182 and 210 double-sided battery sheets were both raised by 0.03 yuan /W.

Cailian.com cited analysts that the upstream and downstream of the price gap reversal, or the photovoltaic industry price center differentiation omen.

Compared with silicon materials, silicon wafers and other links, the battery is in the middle of the stream, which is often squeezed by the upstream and downstream, and the power of discourse of the industrial chain is weak.

According to Jiemian News, the current battery technology is an important competitive link in the photovoltaic industry. Major photovoltaic leaders compete to layout the next generation of N-type battery route, N-type battery sheet value highlights.

Another important factor remains demand. Some component companies told Jiemian news that the battery price increase is mainly due to the increase in the production of downstream components and strong demand. The battery production expansion progress is relatively slower than the component link, and there is a partial shortage of battery supply.

In fact, the current supply of silicon wafers has actually increased, there is some inventory, but the price remains stable.

'Even with the volume of silicon wafers, it's not going to be easy for prices to come down, and one of the big reasons is that demand is supporting the back end.' Longzhong Information analyst Fang Wenzheng also said to the interface news.

According to previous years, at the end of the year, due to the pressure of the central enterprises to fulfill the performance targets, the ground centralized power stations will usher in a wave of 'installed capacity'. This year, the component price is high and the return rate of centralized power stations is limited. Whether the 'installed wave' will weaken is also one of the factors affecting the price of the industrial chain in the near future.

As the competition for orders intensified at the end of the year, the price of some components was reduced. According to the survey data, the price of some terminal components was around 1.95 yuan /W in September, and dropped to 1.92 yuan /W in October, Fang Wenzheng said.

The latest long single bidding results of State power Investment also show that the lowest price of enterprises appeared 1.8 yuan /W.

Fang Wenzheng told Jiemijian News that the 'rush for fittings' will occur as in previous years, but some central enterprises are waiting on the sidelines to see further price reductions for components, possibly in November or December.

'The central enterprises may not be able to wait for the components to drop significantly, and it is highly likely that they will buy at a price above 1.9 yuan /W.' A component business person said to the interface news.

Another industry insider, who declined to be named, expressed similar views on Jiemui news. At present, the person said, it is less likely to see a significant drop in component prices.

'The recent bidding situation shows that the central enterprises can accept the current component prices.' China Nonferrous Metal Industry Association Silicon Industry Branch expert Committee deputy Director Lu Jinbiao also said to the interface news.

He believes that both the domestic large ground power station and the European market can bear the price of components, so there is no silicon material price completely downward inflection point.

But with new capacity coming on stream by the end of the year, there is little chance that silicon prices will rise sharply again in the near term.

Soochow Securities released a research report on September 28, pointing out that the current industry chain price game is in a critical period. Silicon price has been at the top position, the upward space is limited, and more than 300,000 tons of production capacity will reach full production in September, the supply will increase quarter by quarter, will break the tight situation of supply and demand, silicon price is expected to start to decline in the fourth quarter.

The agency predicted that in the future, with the release of silicon supply and price decline, will drive the domestic ground large-scale volume, promote the rapid growth of component production, it is expected that the fourth quarter of the four major component shipments will increase by more than 30% quarter-on-quarter.

PVInfoLink also said the release of new silicon capacity will finally peak in the fourth quarter. At present, the mainstream price range is gradually stable, the power of silicon price to continue to rise is declining, and the buyer's mentality is in the stage of continuous adjustment and change. With the expectation of sufficient confidence in the increase of effective supply of silicon in October, the phenomenon of buying or hoarding is gradually fading.

Lu Jinbiao also pointed out that the future market price trend of silicon, also depends on the downstream enterprises' business strategy. At present, the increase of polysilicon supply is increasing month by month, and it is expected to exceed 100,000 tons in December. However, more than 90% of the products have been locked in the long order of large enterprises, leaving a small amount for the retail market. Demand in the retail market continues to outstrip supply, pushing up spot market prices and indirectly driving up long-order prices.

Polysilicon monthly production and price linkage graph picture source: Longzhong Information

In the long term, the industry is more clear about the downward trend of silicon prices, that is, when a large number of new capacity is put into production next year, the price will fall.

PV InfoLink forecasts that in 2022-2023, silicon material production capacity will rise from 293 GW to 663 GW, with an increase of 126.3%. In the same period, the production growth rate of silicon wafers, cells and components is only 84.6%, 59.6% and 41.2%, which is far less than the release speed of silicon material production capacity.

Downstream demand has been supported, and if upstream silicon prices decline, the midstream battery segment is expected to recover profitability.

But in the short term, without changing upstream costs, batteries will need to rely on new technology to reduce costs and increase efficiency.