Suntech Sees Upside as Polysilicon Prices Continue to Drop

by Trefis Team
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Trefis
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Suntech Power
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While the solar industry continues to feel the repercussions of falling government support for the industry, panel manufacturers like Suntech (NYSE:STP) and Trina Solar (NYSE:TSL) may have some respite as the price of a key raw material – polysilicon, continues to fall. Lower input costs could help the companies improve their margins in the present low price environment. The polysilicon industry is facing a supply glut as major producers are ramping up production as the demand for solar equipment is set to fall. A Bloomberg survey estimates that the spot prices of the raw material may continue to fall over 9% over the rest of the year despite prices being at their lowest point in over a decade. [1]

We have a $3.54 price estimate for Suntech, which is at a 45% premium to its current market price.

Click here for our full analysis of Suntech.

Supply glut

Global demand for solar panels is set to fall in 2012, as major European markets see cuts in government subsidies. Solar panels constitute 90% of the demand for polysilicon. As panel demand started to falter in 2011, spot prices of polysilicon dipped sharply, falling from a peak of $475 /Kilogram (KG) in 2008 to $29 /KG towards the end of 2011. Prices fell to around $24 /KG last month, their lowest level in at least a decade. [1] According to Bloomberg estimates, prices could fall even further this year as the oversupply situation worsens. Low polysilicon prices are a boon to multi-crystalline and mono-crystalline solar module manufacturers, helping them withstand the low pricing environment, and making them more competitive against rival technologies such as thin cell Cd-Te panels, which do not use polysilicon.

A further drop in polysilicon prices should help Suntech survive the industry downturn. Chinese companies are placing their hopes on local demand to drive sales in 2012 as sales from Germany and Italy are expected to see a major fall.

If polysilicon prices fall to around $22 /KG, only the largest manufacturers can operate at a profit. [1] Some of the distressed smaller companies could sell their inventories for as low as $18 if the situation worsens according to Bloomberg estimates. This could result in better margins for Suntech Power and Trina Solar over the next few quarters.

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Notes:
  1. Solar Silicon Falling 9% Widens Slump That Hit Solyndra, Bloomberg [] [] []
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