Even as Chinesesolarcompanies Solarfun Power Holdings and Canadian Solar announced contracts for silicon and solar cells this week, an industry report suggests such manufacturers could be faced with lower margins in the next year.
Cell- and module-maker Solarfun (NSDQ: SOLF) said Monday it’s beefing up its silicon supply, paying Hoku Scientific (NSDQ: HOKU) up to $306 million over eight years for the coveted key ingredient in converting the sun’s light into energy.
The contract calls for Hoku, a Kapolei, Hawaii-based company, to deliver a predetermined amount of silicon each year,with the first shipment expected in the second half of 2009, for set prices that will decline during the length of the agreement.
The news boosted investor confidence, sending Solarfun’s stock up 47 cents, or 4.30 percent, to $11.40 per share.
Meanwhile, Chinese cell- and module-maker Canadian Solar (NSDQ: CSIQ) said Monday it signed a $60 million deal to buy between 17 and 22 megawatts worth of solar cells from Gintech Energy Corporation of Taiwan, with shipment expected to start in January.
Canadian Solar stock jumped $1.11, or 7.18 percent, to $16.58 per share.
The solar industry has been in the midst of a silicon shortage that has squeezed company margins, especially those of new entrants (see Could China Steal the Solar Throne?, Silicon Shortage Has Big Impact, Silicon Starvation, Panelists Debate When the Silicon Shortage Will End).
Securing long-term silicon contracts, such as Solarfun’s, has been the key to helping solar manufacturers get through the tough times.
And competition to acquire silicon is expected to continue, including fighting over silicon scraps.
Prices for scrap wafers have reached $300 per kilogram, falling closely in line with spot-market silicon prices that range between $300 and $350 per kilogram, according to a story from DigiTimes.
That’s up from prices of about $250 three months ago. And with the additional cost of reprocessing scraps into usable material, the rising prices could squeeze gross margins below 5 percent, the publication notes.
But in spite of the higher prices for silicon, a report Global Sources published Monday found the Chinese solar industry plans to keep prices steady -- or even to lower them -- in an effort to take market share.
About 88 percent of solar panel manufacturers plan on decreasing or keeping prices stable, according to the report.
That suggests that, if silicon prices continue to grow, Chinese solar companies will see margins drop.
Of course, manufacturers also hope to cut costs by streamlining production, the report’s publisher, Spenser Au, said in a statement.
Companies plan to lower costs by reducing waste, increasing automation, upgrading their management systems and improving manufacturing efficiency, according to the report.
But while 97 percent of Chinese manufacturers expect their exports to increase during the next year, Au said excess capacity will reach the "high double digits" and most suppliers will reduce prices to gain orders.
According to investment bank and securities firm Jefferies, the average global solar-module price will drop 15 percent in 2008.