In the last year, one of the biggest questions in the solar industry has changed from "When will the silicon shortage ease?" to "When will the oversupply start?"
Companies have different ideas about when significant easing of the shortage will begin, or if it already has begun. And the evidence points everywhere.
For one thing, solar companies have continued to announce long-term polysilicon supply agreements. Among other examples, Suniva on Wednesday said it had signed a five-year agreement - worth more than $300 million - to buy monocrystalline silicon wafers from REC.
The news came a day after Suntech signed an agreement to buy 220 megawatts worth of silicon from Wacker Schott Solar, a joint venture between Wacker Chemie and Schott Solar.
But silicon manufacturers also have announced major expansion plans, leading some analysts to forecast that production could soon exceed demand.
Travis Bradford, president of the Prometheus Institute, which is expected to release a polysilicon forecast with Greentech Media this week, said the shortage had already been easing back in November and last month forecast that the supply of silicon available for the solar industry would far exceed demand in 2010 (see Oversupply of Silicon to Be Worse Than Expected, Analyst Says, Solar Sector Heading for a Shakeout, Solar Margins About to Shrink? and Panelists Debate When the Silicon Shortage Will End).
Meanwhile, Frost & Sullivan has predicted the silicon shortage will end this year, and Navigant Consulting expects the shortage to ease in 2009 (see Silicon Still a Hot Topic at Photon). Meanwhile, Photon Consulting has forecast that small price declines will result in increased demand, preventing an oversupply from occurring in the next few years.
Recent news continues to reflect different ideas about when the end is coming.
Piper Jaffray analyst Jesse Pichel on Tuesday raised his price target for LDK Solar (NYSE: LDK) to $34 from $28, although he reiterated his "Sell" rating.
In his research note, Pichel speculated that LDK could next month announce the mechanical completion of a 1,000-metric-ton plant, which he believes is on track to begin producing test quantities of about 250 metric tons of silicon this year. He added that he believes the first 6,000 metric tons of capacity for LDK's 15,000-metric-ton plant will be completed in 2009.
Pichel also wrote that he expects high polysilicon prices will drive LDK's margin "significantly lower" in the second and third quarters to between 23 and 24 percent. LDK in May lowered its gross margin guidance for the year to between 23 and 28 percent from a previous forecast of between 26 and 28 percent (see LDK Warns Investors of Tightening Margins).
The company expects polysilicon prices to begin to fall in the fourth quarter, Pichel said.
The stock rose 8.4 percent to $42.62 per share Tuesday.
Pichel wrote that polysilicon prices continue to grow, claiming that prices are up 15 percent quarter over quarter, with spot prices at $400 per kilogram and higher.
In the meantime, Bradford last month said that contract prices for silicon have started leveling out. He estimated that prices were about $60 per kilogram in 2007, compared to $55 per kilogram in 2006 and $45 per kilogram in 2004, and projected that substantial new supplies will reach the market by the second half of this year.
Trina Solar (NYSE: TSL) provides another example of changing projections.
The company in April canceled plans to build a $1 billion silicon factory, citing "favorable long-term polysilicon market and supply condition developments" (see Trina Cancels $1B Plant ... Is Shortage Ending?). The company had previously expected to complete the plant in 2012.
That wouldn't have been soon enough to prevent the first-quarter margin squeeze - down to 25.8 percent from 27.2 percent in the fourth quarter of last year -- that Trina reported earlier this month (see Trina Beats the Street, But Shares Fall on Guidance). The company also forecast that margins would shrink to between 23 and 25 percent for the second quarter and remain there for the year.
A week later, Trina's Chief Financial Officer Terry Wang told Reuters the company expects margins to widen in the second half as silicon costs begin to decline. That projection hasn't kept the company's share prices from falling more than 18 percent so far this month.
According to a research note from Thomas Weisel Partners analyst Jeff Osborne this month, many solar-panel manufacturers expect more polysilicon to become available next year, leading to a drop in pricing.
Companies suggested that panel prices would fall 10 to 15 percent as a result, compared to Thomas Weisel estimates of 13 to 15 percent.
As with Trina, Suntech Power thinks silicon prices will fall in the second half of 2008 instead, according to the research note.
Osborne agreed that polysilicon prices will fall this year, but not because of extra production. Instead, he wrote, Thomas Weisel expects prices could fall because Spain's feed-in tariff is set to expire in September, potentially reducing demand afterward if it isn't renewed (see Solar Firms Struggle to Forecast 2009).
Find out the forecast for Concentrating Solar Technologies at our seminar at Intersolar North America July 14, 2008 in San Francisco. Click here to register or for more details.