The polysilicon industry saw huge profits in the early days of the solar (NYSEARCA:TAN) industry with a few players and limited supply.
The price of polysilicon on the spot market reached as high as $400/kg, while the prices in the contract market were only $60-80/kg. In those days, solar cell and module manufacturers which had long term contracts used to be the masters of the industry with high shipments and profits. Given that a new plant used to take two years to be built and with only 4-5 major companies, the polysilicon industry saw huge windfalls.
The demand which used to come only from the semiconductor industry suddenly doubled overnight with demand surging from the solar industry. However, with increased supply came lower profits with most of the existing companies such as Hemlock, Wacker, REC setting up large plants. Even then in the early part of the decade, polysilicon companies used to regularly make EBITDA margins of 40 to 50%, which is quite high when you consider the commodity (NYSEARCA:DBC) industry with hardly any major technological barriers.
With the entry of new entrants like GCL, OCI, and others, the polysilicon industry saw higher competition and reduced prices. However, margin stayed at a reasonable level since the competition was lower than that of cells and modules where anyone could enter with very low capital. With the Chinese dominating the industry and huge capacities being set up, the polysilicon industry has started resembling the downstream solar industry with wafer-thin to negative margins now. Wacker, the German chemical major with a large polysilicon capacity reported the third loss-making quarter in a row for its polysilicon division. With prices hitting $8/kg, only the lowest-cost producers are able to make a profit. The company polysilicon sales of Euro 169 million for the last quarter, also marked a decline of 30% in volumes from last year.
Also, read China’s Smaller Polysilicon Companies go Bankrupt as Price Goes Below Cost
I don’t think the polysilicon industry is going to ever see 40% margins that it saw with increased competition and the fragmentation of the industry across the world with numerous players. The only way to stay profitable is to build capacities in low power price locations and with lower costs across the board.