REC Silicon surges on rosier outlook

The future of REC's Silicon unit appears far more uncertain after China's announcement.
REC Silicon turned in an encouraging set of figures in its first quarter as a standalone company, and sees positive signs ahead, as it successfully sidestepped China’s polysilicon tariffs via the so-called “Process in Trade” loophole.

2013 was a tough year polysilicon makers, and REC Silicon was no exception, but the fast-improving fortunes of the global PV industry meant that demand, prices and revenues rebounded late in the year – and look set to remain strong through 2014.

REC Silicon's total 2013 revenues (excluding REC Solar) slid significantly to NKr2.45bn ($400m) – from NKr3.26bn the year prior, and the company swallowed a full-year operating loss of NKr505m.

However, by the end of 2013 things were looking substantially brighter, with fourth-quarter revenue up 2% sequentially and polysilicon prices predicted to rise significantly in 2014.

Oslo-listed REC Silicon’s share price was up more than 14% in early trading on Wednesday.

Last October REC Solar – the wafer-to-module maker now based in Singapore – was spun off from REC Silicon, whose factories are located in the northwest US.

The spot price of PV-grade polysilicon has risen from about $16/kg at the beginning of 2013 to nearly $20/kg at present – and REC Silicon believes it could climb as high as $30/kg by the end of 2014.

Global demand for polysilicon will rise 25% this year, according to NPD Solarbuzz.

REC Silicon is now producing polysilicon via its fluidized bed reactor technology for $10.50/kg – or $18.40/kg once things like depreciation and sales costs are accounted for – a drop of 17% since the beginning of 2013.

The company is currently experiencing “stronger than anticipated” demand, although whether that is due to market pull from PV manufacturers or customers piling up their polysilicon inventories in anticipation of higher prices is unclear.

The biggest threat to REC Silicon is the 57% anti-dumping duty China imposed on its polysilicon last summer and reaffirmed last month.

More than half of REC Silicon’s revenues in 2013 came from China, where it held an 18% share of the market towards the end of the year (down from 22% before the duties were put in place).

US-based polysilicon makers have been swept up in the wider China-US solar dispute, even as Beijing let Europe- and Korea-based producers off the hook.

But REC Silicon has thus far largely managed to sidestep the duties via the Process in Trade loophole embedded in China’s custom laws, which exempts goods imported only to be processed into products for export -- in this case Chinese PV modules -- from duties.

The proportion of US polysilicon imported into China taking advantage of this loophole is now above 90%, according to Bernreuter Research.

Still, with the US now contemplating closing a loophole in its own duties on Chinese PV cells – which allows Chinese module makers to simply import cells from Taiwan – the future of the Chinese market for US polysilicon producers like REC Silicon and Hemlock Semiconductor remains highly uncertain.

REC Silicon's primary markets at present are China and Japan -- which together account for nearly three-quarters of revenues -- but is placing a "new focus" on Taiwan.

REC Silicon expects to sell 19,400 metric tonnes of polysilicon in 2014. The whole of the global PV-grade polysilicon market last year amounted to about 200,000MT.

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