Performance of Polysilicon Futures and Future Outlook
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On December 26, 2023, a significant milestone was reached in China's futures market as polycrystalline silicon made its debut on the Guangzhou Futures Exchange, adding a new member to the growing family of renewable energy metalsFollowing closely, polycrystalline silicon options are set to be introduced on December 27. This move is a testament to the ever-expanding role of renewable energy in the global economy and reflects China's commitment to sustainability.
Trading on the first day saw all seven contracts of polycrystalline silicon futures open with a surgeThe leading contract, PS2506, hit its limit up, recording a remarkable rise of 13.99% to reach 44,000 yuan per tonAs trading closed for the afternoon session, total trading volume for polycrystalline silicon futures stood at an impressive 331,300 lots, with an open interest of 39,700 lots, reflecting a trading value of 41.635 billion yuan
The PS2506 contract closed at 41,570 yuan per ton, marking an increase of 7.69%.
The introduction of polycrystalline silicon futures marks the third addition of renewable metal varieties on the Guangzhou Futures Exchange, following the listings of industrial silicon and lithium carbonatePolycrystalline silicon is central to the photovoltaic industry, serving as a crucial raw material in the production of solar cellsThe significance of this material in the renewable energy sector cannot be overstated, as it underscores China's pivotal role in global solar energy production.
Strong Performance on Day One
Polycrystalline silicon, also referred to as high-purity polycrystalline silicon, is defined as silicon material that has been refined from industrial silicon of around 99% purity through physical or chemical methods to achieve a purity level of over 99.9999%. Its applications are vast, primarily serving as a key ingredient in solar cells and integrated circuit silicon substrates, making it essential for both renewable energy and information technology sectors.
The Guangzhou Futures Exchange has established the initial trading contracts for polycrystalline silicon futures, which are PS2506, PS2507, PS2508, PS2509, PS2510, PS2511, and PS2512. Each contract debuted at a base listing price of 38,600 yuan per ton, with a required margin of 9% for the first day of trading, and a daily price fluctuation limit set at 14% of this base price.
The lively trading session on the opening day highlights an optimistic outlook within the market regarding the future development of the photovoltaic industry's supply chain
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As commented by Xia Yingying, a non-ferrous analyst at Nanhua Futures, “The robust performance of polycrystalline silicon futures reflects active market sentiment, which aligns with expectations of the industry's growth.”
Explaining the contrasting trends in near-month versus distant-month contracts, Xia noted that this divergence is primarily due to seasonal variations, with the near-month contracts falling within the abundant water period, while the latter months coincide with a drier period in southwestern China, raising production costs and impacting price support.
Safeguarding the Photovoltaic Industry
With the implementation of China's dual carbon goals, the photovoltaic industry has emerged as a key driver for renewable energy transformation, entering a phase of rapid expansion
The importance of polycrystalline silicon as the fundamental raw material in this industry highlights its role in fostering sustainable energy development.
Data indicates that China holds the position of the world's leading producer, consumer, and importer of polycrystalline siliconIn 2023, China's production reached nearly 1.5 million tons, accounting for approximately 92% of global outputThis statistic not only emphasizes China's dominance in the sector but also its critical nature in meeting global energy demands.
Zhang Jie, an energy and new materials researcher at Xinhu Futures, pointed out that although the polycrystalline silicon industry is undergoing rapid growth, it faces challenges such as a lack of long-term pricing signals and risk management toolsThese issues have led to a mismatch of supply and demand, chaotic market competition, and significant price fluctuations
The introduction of polycrystalline silicon futures and options is seen as a vital step in establishing objective, continuous, and authoritative pricing signals, thus facilitating stable industry development.
Zhang also mentioned that the launch of polycrystalline silicon futures would play a crucial role in stabilizing and advancing the healthy development of the renewable energy sectorThis could involve reducing costs and increasing efficiencies in the photovoltaic industry, fostering secure supply chains while encouraging a rational layout among various sectors within the industryMoreover, it may help in promoting the integration of production and finance, thereby supporting the development of western regions and enhancing regional stability under China's broader economic strategy.
Furthermore, the introduction of futures could bolster China's position in international trade, particularly concerning energy initiatives along the “Belt and Road” route, allowing China to gain more leverage regarding pricing power in the global market.
Analysts believe that the emergence of polycrystalline silicon futures could enhance the price discovery function, thereby increasing price transparency and providing objective, consistent, and authoritative benchmarks for stakeholders in the industry
Furthermore, this move is poised to solidify China's competitive advantage in the global photovoltaic market.
Zhang also highlighted that polycrystalline silicon futures could serve as a risk hedging tool, aiding enterprises along the supply chain in managing price volatility and ensuring stable operational strategiesIn the present context, many companies within the polycrystalline silicon sector are grappling with excess capacity, and the futures market can improve their ability to manage inventories, broaden sales channels, and support upstream players in appropriately planning future production schedules.
Recommendations for Cautious Positioning
Looking ahead, how will the polycrystalline silicon futures market perform? Zhang asserts that the underlying supply-demand fundamentals appear relatively loose, with the industry experiencing a surplus
The high inventory levels present a challenge for manufacturers, especially as end-of-year initiatives from leading firms have resulted in voluntary cutbacks, leading to a tightening of underlying fundamentals in the near future.
He anticipates that the main contract, PS2506, will correspond to the delivery period coinciding with the initial water abundance phase, ultimately resulting in industry self-regulation leading to reduced productionThis may strengthen market support for silicon prices compared to December, stabilizing them within cost ranges.
Zhang also indicated that while the fundamental landscape showcases a surplus, the activation of negative feedback loops regarding falling prices could further drive production cutsGiven the persistent demand for polycrystalline silicon among downstream users, inventory destocking is expected to gain traction in the first quarter of 2025, lending some support to prices
Overall, he indicates a strong short-term price trajectory in response to recent innovations.
In the medium to long term, he forecasts that around 380,000 tons of new capacity will be on stream in China by 2025, while global photovoltaics are expected to grow at a rate of 15% to 20%. As such, demand for polycrystalline silicon is poised to experience a slowdown, continuing to exert pressure on prices due to excess supplyAdditionally, increased capacity and mass production following hedging in the futures market may further push prices downward, suggesting a strategic approach focused on shorting during peaks.
According to Guotai Junan Futures' analysis, there is a possibility of market sentiment shifting in the near term, although fundamental conditions may persist due to early demand prompted by downstream consumption advance in December
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