LDK Solar said Tuesday it has completed the initial phase of its first polysilicon plant, which is expected to have the capacity to produce 1,000 metric tons of silicon when it’s finished by the end of the year.

The news isn’t unexpected, as Piper Jaffray analyst Jesse Pichel last week predicted the company would announce the mechanical completion of the plant this month (see Solar Industry Debates Silicon Supply). But it could dispel some industry concern about LDK’s ability to meet its construction goals (see LDK Investors Say They’re Satisfied).

Xinyu City, China-based LDK (NYSE: LDK) celebrated the installation of equipment – two reactors and five distillation and purification towers – at the plant, in an event that included the mayor of Xinxu City and other local officials.

The company said it is on schedule to start producing silicon from the plant in the next three months, with more equipment expected to arrive before the plant is completed at the end of 2008.

It also plans to build the first phase of a second silicon plant by the end of 2008. The plant is expected to have the capacity to produce 6,000 metric tons of silicon at that point, and 15,000 metric tons when it’s fully completed.

National pride in China runs deep even when it’s not related to the Olympics. LDK made sure to thank the “resourcefulness and dedication of the Chinese people” in the press release about the new plant.

Pichel, for example, wrote in a research note last week that Piper Jaffray remains “cautious on LDK’s ability to ramp its polysilicon plant on time,” although it believes the company can achieve 16,000 tons of capacity in 2009, and added that LDK’s gross margin in the second and third quarter could fall significantly.

LDK, which hopes to become the largestsolar-wafer company in the world, began developing plans to make its own solar-grade silicon after its costs for the material shot up during a worldwide shortage that has lasted for several years.

Many solar companies, including LDK, have had to scramble to secure enough silicon, as silicon suppliers have had trouble meeting the demand of the growing solar industry and the semiconductor industry. Semiconductor companies use silicon for making chips that run all electronic devices, from computers to cell phones.

The silicon shortage became a serious problem in 2005, prompting existing silicon suppliers to spend millions building new plants. It also lured new entrants, such as LDK, Yingli Solar and others, into the field.

Some companies, such as MEMC in St. Peters, Mo. and REC in Norway, have faced delays caused by technical problems or higher cost. Trina Solar in China ditched a plan to build a plant, while Nitol in Russia is having trouble raising enough money to expand production.

LDK raised $400 million in April to finance its two silicon plants, as well as the expansion of its solar-wafer capacity (see LDK to Raise $400M).

With all the activity, many new silicon plants are expected to come online later this year, and the gold rush on the silicon supply business now raises the prospect of a glut (see Oversupply of Silicon to be Worse Than Expected and New Research Predicts End to Silicon Shortage).

As for LDK, its news came a day after the company also announced new contracts for its solar-wafer. The company said it signed a 10-year agreement to sell 800 megawatts of wafers to Canadian Solar through 2018.

All this good news from LDK didn’t lift its stock, which fell 7.63 percent to reach $34.99 per share in recent trading. It’s one of several Chinese solar stocks that fell Tuesday.

Investors were likely weighing the words of Goldman Sachs analyst Jason Channell, who wrote in a research note that Chinese solar companies overall are having trouble with cash flow.

“We believe the industry faces growing concerns over free cash flow generation, due to rising (capital expenditure) requirements, raw material prepayments and a tougher equity funding environment,” wrote Channell. He downgraded Trina Solar from “neutral” to “conviction sell.”

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