OCI, Hanwha production threats corner Korean solar power industry

OCI Vice Chairman and CEO Lee Woo-hyun, left, and Hanwha Solution Chemical Division CEO Lee Koo-yung.

By Nam Hyun-woo

South Korea's solar power sector is under threat as the country's leading materials suppliers ― OCI and Hanwha Solution ― move to cease production of polysilicon, a key material for solar cells, due to continued supply and demand mismatches.

Since the two companies are the only remaining polysilicon suppliers here, the country will have to rely on imports. That will impact the Moon Jae-in administration's initiative to increase solar power as one of the country's main energy sources and a growth driver.

OCI said in a conference call that it will shut down its three plants in Gunsan, North Jeolla Province, on Feb. 20 for maintenance. Of them, plant 1, which produces polysilicon for semiconductors, will resume operation on May 1, but plants 2 and 3, which are producing polysilicon for solar cells, will cease operations for an undetermined period.

“Since 2012, there has been a structural decline in polysilicon prices,” the company said during the call. “Given the current polysilicon price, we are skeptical about resuming the operation of plants 2 and 3.”

After shutting down the domestic lines, OCI will only produce polysilicon for solar cells at its plant in Malaysia. The company said it expects at least a 25 percent cost saving with the move.

Polysilicon is widely used as a key material for solar cells (solar-grade silicon) and semiconductor wafers (electronic-grade silicon). PVInsights, a market tracker, said the price for high-purity polysilicon for solar ingots or bricks was $7.1 a kilogram as of Feb. 5, which is far lower than OCI's break-even point of $13 a kilogram.

OCI swung to a 180.7 billion won operating loss last year, compared with a 158.7 billion operating profit the previous year. Its sales contracted 16.3 percent to 2.6 trillion won.

The low silicon price is also driving Hanwha Solution to consider abandoning domestic solar-grade polysilicon production.

“As the market condition continues to aggravate, we are also thinking of ceasing the domestic production of polysilicon, though there is nothing confirmed so far,” a Hanwha Solution official said. “The worsening market environment is also affecting fellow companies in other countries, as oversupply from Chinese firms is driving down overall prices.”

Hanwha Solution has been cutting production at its polysilicon plant in Yeosu, South Jeolla Province. The Hanwha Group affiliate is scheduled to release its 2019 earnings on Feb. 20.

According to industry officials, Chinese firms are virtually “controlling” global polysilicon prices as they can supply the material at nearly half the price of Korean firms as they receive electricity subsidies from regional government. Since power accounts for nearly 40 percent of total polysilicon costs, this gives Chinese players an advantage over Korean and other global firms.

“Since the Chinese government indirectly supports polysilicon makers, they have strengths in cost structures and this virtually controls the global price,” an industry official said on condition of anonymity. “South Korean firms discussed the matter with the government throughout last year, but failed to draw out a favorable response.”

If Hanwha Solution ceases its solar-grade polysilicon production, there will be no firms making the key material here, meaning the country has to rely on imports of solar ingot wafers, which are used to make solar cells and modules.

Officials said the production halt would not increase Chinese polysilicon imports to Korea immediately, as solar ingot wafer and solar cell makers mostly import polysilicon from Germany. However, it will be a major headwind for the government's initiative to grow the domestic solar energy value chain as a growth driver.

According to the Ministry of Trade, Industry and Energy, polysilicon imports from China accounted for less than 3 percent of the total from 2017 to 2019, and 78.7 percent of solar modules installed in Korea are made by Korean firms.

Citing this, the ministry expected OCI's decision to stop solar-grade polysilicon production would not increase Chinese imports.

“The government claims the domestic solar power industry stands robust, citing nearly 80 percent of modules used in Korea are manufactured in the country,” another industry official said.

“With most materials for the modules being imported, however, saying the Korean solar power industry is hitting its stride ― and downplaying the meaning of OCI's production halt ― seems to be a complacent reaction.”