PRICING FOR POLYSILICON used in PV cells is expected to drop in 2009 and the following years due to fundarnental imbalances in the solar supply chain,according to iSuppli Corp. Global supply of polysilicon is expected to double in 2009, while demand will grow by only 34 percent. The sharp increase in supply will cause polysilicon pricing to plunge in 2009 after peaking this year.
 
Due to strong solar driven demand that arose in 2005, suppliers of silicon and wafers have been able to dictate pricing and contract terms to customers during the past three years. This situation hit a crescendo in 2008, with spot rnarket prices rising as high as $500 per kilogram, up from as Iow as $200 in 2007.

The corresponding wafer price rose to $13 per piece and higher in 2008.However, the average price for polysilicon is expected to decline during 2009, falling to as Iittle as $200 per kg.

 With new competitors entering the market, supply will outstrip demand starting in the beginning of 2010. Spot market pricing is expected to decline to as low as $100 per kg in 2010.

'The dramatic variance in the ramp up rates of the polysilicon suppliers and their PV cell customers will Iead to major supply chain imbalances,'said Henning Wicht, PhD, senior director and principal analyst, PV, for iSuppli.

In 2007, more than 90 percent of polysilicon was supplied by only seven companies: Hemlock, Wacker, REC,Tokuyarna, MEMC, Mitsubishi and Sumitomo. However, more than 60 other companies have announced plans to produce polysilicon by 2009. 

'The PV supply chain is immature and inflexible, which wifi result in significant supply chain instability and waste,''Wicht said. 'iSuppli estimates that more than 90 percent of the existing PV supply chain is characterised by fixed supply agreements that are incapable of
adjusting to changes in end demand.

Supply and demand will not be able to maintain balance at the various nodes in the supply chain, resulting in substantial swings in inventory and pricing over the next two years, at which point polysilicon supply will exceed demand so much that all contracts and sales channels will need to be redefined.'

Mounting supply chain problems come at a time when the market is undergoing rapid growth. Wafer based solar cell operational production capacity will increase from 6.2 Gigawatts (GW) in 2007 to 17.8 GW in 2010 and 27.5 GW in 2012, iSuppli predicts. However,polysilicon production will rise even faster, with production equivalent to 5.7 GW in 2008, to 19.4 GW in 2010 and to 37.6 GW in 2012.

 The decline in pricing and oversupply of polysilicon will benefit PV makers that buy the raw material. However, the pure solar wafer market will become a less attractive business in the future.

 'The pure wafer business is a siren's caff,' Wicht observed. 'The wafer business today is driven by profitability that results from the disposing of scarce supplies of polysilicon. Producing a wafer is not beyond either the polysilicon suppliers or the cell producer. Eventually they will try to drain the profit out of this level of the supply chain.'

The solar wafer segment will undergo consolidation sometime after 2012 after polysilicon prices collapse completely,iSuppli predicts.