South Korean polysilicon manufacturers are showing the white flag in the chicken game with their Chinese counterparts. Although the South Korean government is aiming to increase the ratio of renewable energy-based power generation from 6 percent to 20 percent by 2030, the industrial ecosystem in which polysilicon is turned into ingots, wafers, cells and photovoltaic modules is being shaken to the foundations.
OCI and Hanwha Solutions, the last two South Korean polysilicon manufacturers, are considering withdrawing from the market. According to industry sources, one of the two companies already made its decision and is going to make an announcement within this year.
This is because the price of the material is continuing to drop. The price of high-purity polysilicon fell more than US$1 to US$7.1 per kilogram from Feb. 5, 2019 to Feb. 5, 2020 whereas their break-even point is around US$14 per kilogram. Besides, a global supply glut is accelerating the price decline. The current oversupply ratio of the material amounts to 140 percent.
It is Chinese companies that are controlling the price. With electricity costs accounting for approximately 40 percent of polysilicon manufacturing costs, the price they pay to buy electricity is about half of that paid by the South Korean companies because of subsidies provided by Chinese local governments. In other words, the South Korean companies’ cost competitiveness is lower than that of Chinese companies by at least 20 percent.
Hankook Silicon, which was the second-largest South Korean polysilicon manufacturer, filed for receivership two years ago. OCI, the largest local player, posted an operating loss of 56.4 billion won in the third quarter of 2019. Hanwha Solutions remained in the red in that quarter, too. Subsidies for them are unlikely due to the possibility of trade disputes and the 3.7 percent discount in electricity price the South Korean government is currently considering with regard to companies improving energy consumption efficiency is unlikely to include large corporations.