Gulf spots opening in China’s polysilicon boom-bust cycle

October 4, 2024, 4:03 AM

Polysilicon is used for the production of solar panels and the Gulf could complement China in making them in-country with local materials

Polysilicon price has fallen steeply
Central to solar PV panels
Gulf states aim to produce locally

Solar power capacity across the Middle East region trebled from 3 gigawatts to 9GW between 2020 and 2023, according to the trade association Energy Industries Council.

In the Gulf alone, a further 40GW of photovoltaic (PV) solar power are scheduled for installation by 2030, the International Renewable Energy Agency (Irena), an intergovernmental organisation, says.

For this to be achieved more solar panels are going to be required. And lots of polysilicon – a central ingredient in PV solar panels.

Polysilicon is made using the Siemens Process, a high-tech method requiring expertise and plenty of electricity. As the name suggests, the feedstock is silicon, usually extracted from sand.

The Gulf has plenty of sand and cheap power, and Gulf countries are looking to establish entire industrial supply chains locally.

A handful of vertically integrated Chinese companies dominate polysilicon production. Chinese capacity stood at around 2.1 million tonnes per annum at the end of 2023, out of a global total of 2.3 million tpa, EnergyTrend data shows.

This capacity now far exceeds demand, explaining a recent price crash – which itself came after a price surge resulting from polysilicon shortages in 2021-2022.

Three Chinese manufacturers – Tongwei, GCL Tech and TBEA – account for around half of global capacity between them.

Tongwei works in the Gulf through a series of local partnerships, such as that with PowernSun in Dubai.

In June GCL Tech and Mubadala – the $300 billion Abu Dhabi sovereign wealth fund – announced plans to build a polysilicon plant in the UAE.

GCL has also been working with the Saudi authorities on plans for a production facility, Bloomberg reported.

Oman is the most advanced, however. China’s Shuangliang is working with United Solar Polysilicon on a 100,000 tpa, $1.3 billion production facility in the Sohar free zone.

This is likely to open early in 2025 and become the first such facility in the region.

Polysilicon – polycrystalline silicon – is dervied from silicon, usually sand, using the electricity-intensive Siemens Process

The Gulf also has a good relationship with the US and Europe, which together account for around a fifth of the global solar installation market, says Johannes Bernreuter, head of consultancy Bernreuter Research.

The US market is also expanding rapidly, thanks to the Inflation Reduction Act giving a major boost to solar deployment.

Accessing that market, however, is becoming increasingly difficult for Chinese companies. This is because much Chinese polysilicon production is in the province of Xinjiang, where the US and others say that Muslim Uighurs are used as forced labour.

This has led to the Biden administration putting a ban on imports made in the province and those that use materials sourced from there.

In 2027 the EU is also due to introduce its own forced labour law, which is likely to block imports.

“Chinese companies don’t want to lose the European and US markets, so they are heading for other locations,” Bernreuter says.

Polysilicon manufacturers in the GCC will be able to point to a production process – from mining to final product – all located outside China.

“If you were about to open a new polysilicon plant in China right now, I’d say, well, good luck,” Alex Barrows, UK-based head of PV Economics and Sustainability at commodity analyst CRU, tells AGBI.

“But in Oman, or elsewhere in the Gulf, there is still the potential to make money from that non-China premium.”

Under the plans, Gulf states’ polysilicon production capacity will increase rapidly from the present level of zero. Output is likely to begin as early as the first half of next year.

The schemes also chime with the GCC states’ ambitions for economic diversification. These focus on localisation of supply chains – meaning those solar PV panels and modules will be made in-country from local materials.

Yet, while making polysilicon has the potential to benefit both aspirant regional manufacturers and Chinese investors, the market itself is a tough one.

The price of polysilicon manufactured in China has collapsed. Prices now average only around $5.90 per kg. They were around $8 per kg at the start of the year and $22 per kg in 2023, according to Bloomberg.

The Gulf’s new investments therefore come at a low point in the notorious polysilicon “pork cycle” – a two-to-three year repetition of boom and bust.

“We’re definitely in the ‘bust’ part of the boom and bust cycle,” says CRU’s Barrows.

However, while the price of China-sourced polysilicon may have crashed, the price of the material sourced from outside the People’s Republic remains higher and far more stable – at around $20 per kg.

Regional investors are therefore keen to take a slice of this premium, while also pushing forward diversification and energy transition plans.

As Bernreuter Research says, even when there is current overcapacity, “It may be that everyone wants to be the one to benefit from a shortage.”