Polysilicon prices fell in 2009 to one tenth of what they were two years ago as a glut of new capacity came online. They are likely to tumble further.
Producers had just begun to emerge in recent months from the numbing days of the downturn, when sales and profits plunged. Now this recovery is threatened by government policies in China, which are keeping the discipline of a free market from taking hold.
Chinese government makes investments in polysilicon makers
According to Lux Research, the Chinese government stepped in to prop up key polysilicon manufacturers with cash late last year. This should shield them continued price declines and allow them to expand plants if they wish, or keep unneeded ones operating.
Publicly, Chinese officials have warned domestic suppliers they have too much manufacturing capacity. But the recent actions run counter to the warning and appear to make some sort of accommodation unnecessary. The country had the capacity to produce 50,000 tons of polysilicon at the end of 2009, or more than 80 percent of projected worldwide demand for 2010.
Despite the call for companies to scale back production, the government took aggressive steps to put more financial resources in company hands.
In November, Jiangxi International Trust and Investment, an arm of the Xinyu provincial government, bought a 15 percent stake of an LDK Solar plant for $219 million. The same month, GCL Silicon sold a 20 percent stake of the company to the China Investment Corp., a state-sponsored investment house.
The investments come only several months after the country imposed import restrictions to keep local prices from falling too fast.
Clearly the country hopes to manipulate the market to favor its companies, If the world wants a free market in polysilicon – and more realistic prices – its needs to confront government subsidies and protectionism in China.
The only thing that matters is driving down the cost of solar cells so they can displace coal plants as a source of electricity. Loyalty to free market ideology is just a pointless distraction.