A while back one of my customers mentioned that it would be interesting to compare trends in the solar business to those in the semiconductor business. Well, last week a sell-side report was issued where they paralleled the trends in the polysilicon market to the DRAM business. Prices for poly, if you haven't heard, are falling and this has implications - some good, some bad - for companies in the solar food chain. It doesn't look like these price drops are over as large capacity additions from GCL Solar and a Korean manufacturer are looming. If this is a fair comparison what does it mean? If you pull up a chart of a commodity DRAM play like Micron Technology from 2007 to mid-2009 you will see what excess capacity can do to a stock price.
Remember there 's a good and bad side to this story depending upon where you are in the solar food chain. Panel makers will benefit from the declines but the impact on poly companies and equipment suppliers could be problematic.
At the time of the report quoted poly spot prices were at $57.50/kg to $62.50/kg, cells were estimated at 0.90c/watt and panels at $1.33/watt.
I called a few friends in the industry to verify these trends and they said they can see poly hitting $35/kg, maybe $30/kg, but at the same time they are not convinced the Chinese can produce volumes sufficient to drive cost much lower. That said, one contact noted that GCL appears to be standing fast by their $20/kg target. Industry contacts have mentioned that that GCL is still buying higher grade to mix with their own to get quality up. Interestingly, GCL statements run contrary to that data point from my contacts. (As a side note, GCL and Canadian Solar announced a $77 million JV to build a solar wafer plant in Suzhou earlier today).
Call this, unscientific sampling…. So, your mileage may vary. Last week a friend heavily involved in the solar industry shared a story from one of their installer contacts. He had this to say:
"In recently provided post meeting feedback from YingLi, the company was pushing $1.50/watt pricing for June & September quarters, then upping their ASP to $1.60/watt in December. YingLi is reported as having explained that they expect demand to pick up and that they do not want to repeat pricing mistakes from 2009. One would assume the company is aware that any reset of guidance to investors will have implications in customer discussions, so it appears they are coordinating their communications - which is actually pretty sophisticated and bears factoring into the lenses thru which analysis is generated. "
Hmmm… That brings us to the issue in play: Is YingLi, and for that matter, all the other companies, right? Right now it appears as though the installers are willing to take the other side of that bet - which is worth noting as they are directly touching the market whereas YingLi and others are not. The games are just beginning. It's going to be very interesting to see who ends up on the right side.