• Insurance Directions
• January 15, 2025

Firms Gain New Hedging Tools for Volume and Price

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On December 26, a pivotal moment in the realm of renewable energy took place as polysilicon futures were officially launched on the Guangzhou Futures Exchange, marking a significant addition to the trading portfolio after the earlier launches of industrial silicon and lithium carbonateThis new commodity underlines China's commitment to enhancing its footprint in the clean energy sector, particularly as the demand for solar technology continues to surge globally.

The year 2024 has been tumultuous for the polysilicon industry, characterized by a drastic decline in pricesAt its nadir, the spot market saw polysilicon prices plummet to a historic low of approximately 40,300 yuan per ton, representing a staggering decrease of 86.9% from the peak price of 308,000 yuan per ton recorded in November 2022. This volatility raises critical questions about market stability and the resilience of companies operating within this space.

Industry experts have pointed out that the introduction of futures trading offers a strategic platform for producers to secure sales and lock in prices ahead of time

This mechanism is particularly pivotal for companies aiming to optimize their production strategies in an environment rife with uncertaintyFurthermore, downstream consumption and procurement entities also benefit by having a reliable avenue to hedge against fluctuating costs and ensure a steady supply.

On its first day of trading, polysilicon futures generated impressive activity, with a transaction volume of 331,300 lots and a total turnover of 41.635 billion yuanThis initial flurry of trading underscores investors’ enthusiasm and the anticipated influence this new financial instrument will wield over the polysilicon market.

According to the management of the Guangzhou Futures Exchange, industrial silicon is a key raw material for various industries, including photovoltaic systems, organic silicon, and aluminum alloysThe introduction of polysilicon futures is expected to work in tandem with existing industrial silicon futures and options, enhancing risk management capabilities for stakeholders within the photovoltaic ecosystem

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This interplay is intended to transform the scale advantages of China’s polysilicon industry into a more significant pricing influence both domestically and internationally.

The industry faces a juxtaposition where the rapid growth of global photovoltaic installations has led to demand outstripping supplyHowever, mismatched production expansion timelines between different segments of the supply chain have resulted in erratic market conditions, which began impacting prices as early as 2022. The fluctuating prices exhibit stark contrasts; during peak demand periods, supply shortages loom, while during slumps, companies grapple with operational losses due to severe cost constraints.

Recent statistics reveal that from 2021 to 2023, the annual price volatility of polysilicon reached astonishing figures of 226.63%, 63.49%, and 280.17%, highlighting the urgent need for more predictable pricing mechanisms within this volatile market

The downward trajectory for industrial silicon futures launched in December 2022 further reflects ongoing struggles, with cumulative declines of approximately 21% anticipated by 2024.

As of late November 2024, trading statistics for industrial silicon futures showed daily averages of 471,100 lots traded and a cumulative transaction value nearing 4.85 trillion yuanThe daily average positions were reported at 419,100 lots, amounting to nearly 39% of the domestic market's scale, illustrating the depth and engagement within the sector.

Initial trading of polysilicon futures demonstrated bullish sentiment, with all seven listed contracts gaining value by the end of the sessionThe lead contract, PS2506, opened at a price of 44,000 yuan per ton and closed at 41,570 yuan, a rise of 7.69% above the benchmark listing price of 38,600 yuan per ton.

Analyst Zhang Jie from New Lake Futures elaborated that the PS2506 contract corresponds to periods of optimal water availability, typically when polysilicon supply and demand fundamentals show improvement

As such, it is expected that future prices will maintain stability around practical production costs, providing a semblance of balance to the tumultuous pricing history of the sector.

Given that polysilicon is a foundational input in the photovoltaic supply chain, fluctuations in its price directly influence production costs across the industryA representative from Tongwei Co., noted for its high technical barriers and investment intensity, underscored that polysilicon’s position in the market is critical due to its lengthy construction cycles and slow expansion ratesSince 2021, these factors have led to significant supply-demand mismatches, culminating in sharp price increases and subsequent downturns.

The repercussions of polysilicon price volatility are profound, affecting various operational aspects, including profit margins, cost control, scheduling production, employment, and taxation

This interconnectedness prompted announcements from leading companies like Tongwei and Daqo Energy seeking to limit production and curb engaging in cutthroat competition, both of which threaten the sustainability of the solar market.

Amid these pressures, it is anticipated that stringent production and quota measures could emerge to mitigate excess supplyThis approach aims to alleviate the burden of existing high inventory levels and encourage a healthier market environment moving forward.

Commenting on the advent of polysilicon futures, the Daqo Energy spokesperson emphasized that this innovation offers firms in both production and sales newfound avenues to manage revenue streams and pricing volatilityBy leveraging futures trading, businesses can fine-tune their operational frameworks significantly, enhancing strategic planning and cost certainty.

Tongwei has expressed optimism that the introduction of polysilicon futures will remodel prevailing pricing structures within the industry