Abstract In the past year or two, due to the long-term contractual terms of polysilicon, most PV companies in China have suffered from the default of long-term raw material prices. Today, this situation begins to decrease and is likely to be resolved. Close to Germany
In the past one or two years, due to the long-term contractual terms of polysilicon, most PV companies in China have suffered from the shackles of having to default because of the high price of raw materials. Today, this situation begins to decrease and is likely to be resolved. A person close to the German Wacker Company revealed that the company’s second-quarter revenues accounted for a significant reduction in the proportion of damages. “An important reason is that the default situation of Chinese companies has decreased significantly,†the source said.
The reporter was informed that a number of PV giants, including Trina and Jingao, are negotiating with foreign manufacturers, hoping to amend the long-term terms. Some companies are waiting for the Chinese Ministry of Commerce to announce the preliminary ruling on anti-dumping investigations on polysilicon products produced in Europe, America and South Korea, and hope to use this as a bargaining chip to terminate long-term contracts.
Slowdown
Wacker Chemie AG is the largest polysilicon producer in Europe. 60% of the polysilicon products exported by the EU to China are produced by WACKER. The company has also become a raw material supplier to most downstream companies in China.
In the past two years, in the operating income of WACKER, the liquidated damages from the purchaser’s termination of the contract have been a large proportion. WACKER's 2013 first quarter report showed that the company's polysilicon sector revenue fell 36% year-on-year to 235 million euros. Among them, the total amount of compensation from retained prepayments and termination contracts was 32.2 million euros, accounting for nearly 14%. "Now almost no downstream companies will sign long-term contracts with upstream manufacturers, so this part of WACKER's income is basically from damages, and most of them are from China."
In the fourth quarter of 2012, WACKER's operating income came from customer prepayments and the amount of compensation paid by customers for the termination of the contract was €55 million.
A senior executive of a large polysilicon manufacturing company in China revealed that in the second half of 2012, most of China's downstream components and battery companies were forced to default with Wacker, not buying WACKER's polysilicon, and instead sourcing from the spot market.
A photovoltaic company executive said that Chinese companies are actually not willing to default and break the liquidated damages, but the long-term price is too high, even if it is purchased from the spot market after the breach of contract is more cost-effective.
In fact, not only WACKER, but also Chinese customers of OCI and Hamrock Silicon Company of the United States frequently defaulted. WACKER, OCI and Hamrock are the world's three major suppliers of silicon materials. More than 90% of China's silicon materials are sourced from these three companies.
However, the income from the breach of contract has been decreasing.
In fact, China's downstream companies are negotiating with WACKER, OCI and Hamrock, and the bargaining chip is the preliminary results of the anti-dumping investigation on polysilicon products produced by the Chinese Ministry of Commerce.
An insider said that the company has been negotiating with foreign silicon suppliers since the beginning of this year, hoping to amend the terms of the contract.
The Ministry of Commerce of China was originally scheduled to announce the preliminary results in June. This has led some downstream companies to consider taking the opportunity to terminate long-term contracts with foreign raw material suppliers. However, by the end of June, the Ministry of Commerce still did not announce the preliminary results. "Now components and battery manufacturers are waiting for the preliminary results of the Chinese Ministry of Commerce. Without this, it is difficult to win in negotiations with foreign manufacturers." Yan Dazhou, deputy general manager of Luoyang China Silicon High-Tech Co., Ltd. said.
Forced
In July 2012, it applied for the application of Jiangsu Zhongneng Silicon Industry, Jiangxi Saiwei LDK Photovoltaic Silicon Technology, Luoyang Zhongsi High-Tech, Chongqing Daxin Energy and other four domestic polysilicon enterprises. The Ministry of Commerce conducts solar grade polysilicon originating in the United States. The “double-reverse†investigation conducted an anti-dumping investigation on solar-grade polysilicon products originating in South Korea.
Three months later, the Ministry of Commerce initiated a “double-reverse†investigation of solar-grade polysilicon originating in the European Union and decided to investigate the merger of the two cases. Today, the investigation has been filed and only the results of the preliminary ruling are announced.
In this process, the foreign silicon supply giant's attitude is no longer tough, and began to discuss better solutions with Chinese PV companies.
Many industry insiders interviewed by the Economic Observer reported that because of the large deposits waiting for foreign raw material suppliers, it is very difficult to terminate the contract directly, and it is more reasonable to discuss the modification of the contract. "Rather than trying to terminate the contract, it is better to negotiate, modify the contract, and let it lower the price. After all, it will be dealt with in the future, and the world's major three (raw material suppliers)." Wang also said.
At present, the solution of Yingli and WACKER, OCI, Hamrock and other suppliers is that by negotiating with them, the other party promised to lower the supply price, Yingli promised to increase the purchase amount and ensure that the total purchase amount remains unchanged. "The price that is signed with them is not much different from the market price. In fact, they also know that the price is high and you can't buy it. Since the price is reduced, you are required to buy more, as long as the total purchase amount is guaranteed to be the same." Say.
Wang Yiduo introduced that Yingli began to make corresponding adjustments in the second half of 2011. Wang Yi is more than willing to disclose the long-term price of Yingli's purchase of raw materials from foreign countries, but he revealed that Yingli's imports of silicon materials accounted for 60% to 70%, mainly to WACKER, O-CI and Hamrock. Three major factories.
There are several types of polysilicon contracts, one is long order, the amount and quantity are determined in the contract; the other is the accompanying city contract to execute the spot price.
The so-called long order is that the polysilicon supplier and the buyer can sign a long-term purchase contract, which can last for several years or even ten years, which stipulates the quantity, price and payment terms of polysilicon purchased each year. Such contract prices were significantly lower than the current market price, which at the time effectively reduced the purchase price of raw materials while reducing costs.
When signing a long-term contract, there are often clauses such as “If the force majeure cannot be fulfilled, the parties can terminate the contractâ€, and the EU’s “double-reverse†Chinese anti-silicon measures are considered to be “ force majeure".
Long sleepy
When many PV giants are squandering their heads, Suzhou Artes Sunshine can stay out of it. "We are probably the only PV company that doesn't have to worry about long-term orders." Zhang Hanbing, senior director of global markets at Artes, told the Economic Observer.
Artes is the fifth largest solar energy company in the world. In the first quarter of this year, Artes achieved revenue of 264 million US dollars, down 19% year-on-year, operating profit margin of 6.8%, and net loss of 3.9 million US dollars.
But compared with Trina Solar's net loss of 63.7 million US dollars, Yingli green energy operation loss of 52.3 million US dollars, etc., Artes has become one of the most stable enterprises in China's photovoltaic giants.
Most of the long-term orders of Chinese PV companies and foreign polysilicon producers such as WACKER were signed about three or four years ago. Between 2007 and 2008, polysilicon prices soared at the time, reaching a maximum of $500 per kilogram.
At that time, in order to avoid further increase in raw material prices, many PV companies began to hoard polysilicon on a large scale, causing the supply and demand of polysilicon to reverse. At the end of 2008, polysilicon prices began to dive and fell to $150 per kilogram.
In 2009, polysilicon prices continued to fall. At this time, foreign raw material suppliers began to lobby Chinese downstream companies to sign long-term contracts with them to lock in prices and reduce costs. In the process, most of China's PV giants have signed long-term contracts with international suppliers.
Since there was no long-term supply contract with any foreign manufacturer, At the time, Artes had a tight supply of silicon materials. Zhang Hanbing said that the days at that time were not good. "In those years, those companies that signed long orders had a high gross profit margin of 30%, and Artes only held 15% of the gross profit at the time." Zhang Hanbing said.
An executive from GCL-Poly told the Economic Observer that the price of these long orders is between 40 and 60 US dollars per KG. In contrast, in the past month, the foreign spot price was 16.5~17 USD/Kg, while the domestic spot price was only 17~18 USD/Kg.
In addition to Artes, Suntech, Tianhe and many other photovoltaic giants are deeply affected by long orders.
In July 2011, Suntech announced that it had terminated a wafer agreement with silicon supplier US MEMC for ten years, which resulted in a loss of 200 million US dollars. The reason why Suntech Power would rather destroy the contract is mainly because the price of MEMC is too expensive, and Suntech is unbearable.
Another giant, Trina Solar, had previously sold a long-term order worth $14 billion, with an implementation period of 2012-2020. According to estimates, Trina Solar's annual purchase of silicon materials is about 1.6 billion US dollars.
Trina Solar responded to the Economic Observer on June 28 that it had signed a new contract with Hama Rock. The corresponding raw material purchase agreement has been updated in the 2012 annual report. There is no 14 billion long order, and the purchase price follows the market. In addition, the company also conducts a certain number of purchases with Korean and German suppliers.
Some insiders expect that China's PV companies will have more than $50 billion in long-term contracts with foreign polysilicon between 2006 and 2011. Today, these long orders that have been guaranteed to supply have become “hot potatoâ€.
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