In Friday's press release, Renesola (SOL) gave an update on its polysilicon division, which is also known as RuiNeng Polysilicon Material LTD. The design capacity for Phase I was at 3,500 MT but it has reached already 4,000 MT at the end of Q1. Capacity for Phase II expansion was reported to be 5,000 MT, but the company said the total capacity would be 10,000 MT after completion, implying a 6,000 MT capacity for Phase II. The expansion is expected to be finished at the end of the year.
The production at Q1 was a 900 MT, lower than the 1,089 MT at 2011-Q4 due to the local power supply issues. The cost of production at Q1 was at $33.0 /kg, above the $30.0/kg recorded last quarter. The company’s explanation for the increase was quoted as “maintenance and equipment upgrades”. However, there are likely few design and operational factors, which weighed on the result.
Compared to other polysilicon producers, the low $30.0/kg cost is actually higher-end average. The prevailing costs for international producers’ including OCI, Wacker, and Hemlock are in the mid-$20s. The cost target for the company is $25.0/kg by the end of Q2-2012, and $22.0/kg by the end of 2012. These numbers would put the company in a strong competitive position, if they are reached. Poly plant is a complicated business and risk factors are greater than in the wafer, cell or module vertical, as attested by experiences of Yingli Green Energy (YGE) or even LDK Solar (LDK).
The reported Capex for the Phase II expansion is $175 million, or $35.0 per kilogram based on the 5,000 MT capacity. This is a remarkably low-end figure, when compared to Capex published by others, typically being a double or $70.0/kg. It is well known that Renesola had plenty of issues with its first 3,000 MT poly plant due to design flaws. CEO Li had traveled hundreds of times to Sichuan, where the plant is located, to work with the design team and construction companies. Hundreds of modifications have been made during, and after the construction. The process gave Mr. Li some level of confidence in Phase II, since he used the same design team –now equipped with the experience and through it, capable to support low capital engagement. Lower depreciation resulting from those arrangements makes the $22.0/kg cost objective achievable.
Right now, the overcapacity in polysilicon is the most serious among all the c-Si verticals. Spot poly price has stayed in low-to-mid $20s for a while. Given the overcapacity, the poly price is likely to stay in the low 20s (if not lower) for the next two years. Therefore, the best scenario for Renesola’s poly plant is to break even on own production and seek gains through module sales, incorporating entire value chain cost in the final product. Had the CEO foreseen the situation, perhaps he would not have planned the expansion. Still, comparing to LDK’s massive and expensive foray into polysilicon, the company’s venture does not look out of hand.
Most poly plants in China remain closed down at the moment. For them, the hope is the “anti-dumping” petition in the U.S. and possibly one expected in Europe. If the U.S. assesses high tariff on Chinese module companies in its initial ruling next week, the Chinese poly industry will have a better chance winning its own anti-dumping case against the U.S. exporter Hemlock or REC of Norway, which is operating in the US. Although not likely, there is a chance for Renesola’s poly business to turn in profits if a tariff is imposed by China.
