Impact of Falling Chinese Polysilicon Prices on Solar Panel Costs and Industry Dynamics

Since the onset of the Middle East conflict Wacker Chemie has seen its share price rise by nearly 45% surpassing the 100 euro mark per share. This surge has been driven by rebounds in European chemical and equipment markets which are benefiting from increased demand linked to the energy transition and energy independence initiatives.

In contrast the historical positive correlation between the stock prices of chemical corporations and the price of polysilicon has been interrupted. The recent decline in polysilicon prices which began at the start of the conflict has been overlooked by investors who are optimistic about the potential for raw material costs to be transferred downstream to final product prices like polymers and silicones.

A key question now is whether the recent plunge in Chinese polysilicon prices will influence the cost of Chinese solar panels given the vertically integrated nature of the Chinese solar industry. Currently disruptions such as the blockage of the Strait of Hormuz and restrictions on VAT refunds for exports from China are driving up imported panel prices in Europe. Any decrease in panel costs will largely depend on the resolution of ongoing geopolitical conflicts.

Polysilicon prices have recently hit their lowest levels in years falling by around 24% since early March reaching 5.13 dollars per kilogram. April saw further declines to approximately 4.75 dollars per kilogram with prices maintaining this level through May. Multiple factors have contributed to this decline including the disruption of shipping routes and stagnation in government efforts to regulate capacity and pricing. These efforts faltered due to concerns of monopolisation and violating local anti-trust laws dampening expectations of stabilised prices at around 7 dollars per kilogram.

Demand recovery has also been weaker than anticipated resulting in industry inventories of roughly 480000 tonnes. Since the Chinese Lunar New Year in February solar module manufacturers have curtailed their polysilicon purchasing exerting additional downward pressure on prices despite a backlog of orders before April 1. This date marked the start of the suspension of VAT refunds on photovoltaic product exports.

Wacker Chemie has managed inventory levels by operating its polysilicon plants at minimal capacities which has slightly reduced stocks despite weak solar energy demand. While sales in the semiconductor-grade polysilicon segment have increased year-on-year Wacker has indicated intentions to raise prices in new semiconductor contracts. In the longer term demand from the semiconductor industry is expected to grow further although the company also notes potential increases in solar energy demand driven by regulatory changes especially in the United States.

Meanwhile electronics firms such as SMA Solar report that order intake during the first quarter was not significantly impacted by geopolitical issues. They have observed a shift in demand from traditional solar inverter models towards battery-based inverters in large-scale plants with residential segment trends moving towards hybrid options. Currently the growth in batteries and semiconductor components surpasses that of solar panels underlining a broader industry realignment towards energy storage and distributed generation solutions.