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Polysilicon defaults less than the photovoltaic giant has more bargaining chips
**Abstract**
In the past one or two years, Chinese photovoltaic (PV) companies have faced significant challenges due to long-term polysilicon supply contracts. These agreements, which locked in high prices for raw materials, became a burden as market prices dropped dramatically. However, this situation is now gradually improving and may soon be resolved. The issue has also caught the attention of international players, such as Germany's Wacker Chemie AG.
Over the past few years, many Chinese PV firms were forced into defaulting on their long-term contracts with polysilicon suppliers, mainly because the contracted prices were far above the current market rate. This led to substantial financial losses and legal disputes. Recently, however, the number of defaults has decreased significantly, signaling a potential shift in the industry dynamics.
According to a source close to Wacker Chemie AG, the company’s second-quarter revenue saw a notable drop in compensation from contract terminations. "A major reason is that the number of defaults by Chinese companies has declined," the source said. Meanwhile, several major PV manufacturers, including Trina Solar and Jingao, are actively negotiating with foreign suppliers to revise these long-term contracts.
Some companies are waiting for the preliminary results of China's anti-dumping investigations into polysilicon imports from Europe, the U.S., and South Korea. They hope to use these findings as leverage to renegotiate or terminate existing agreements. This strategy reflects a broader trend among Chinese PV firms trying to reduce their exposure to costly long-term contracts.
Wacker Chemie AG, the largest polysilicon producer in Europe, supplies over 60% of the EU’s polysilicon exports to China. For years, the company relied heavily on penalties from terminated contracts, particularly from Chinese buyers. However, this income stream has been shrinking as more companies seek alternatives.
In the fourth quarter of 2012, Wacker reported €55 million in revenue from prepayments and termination fees. By 2013, its polysilicon division revenue fell by 36% year-on-year to €235 million, with €32.2 million coming from contract-related damages. This highlights how much the company depended on these penalties.
Chinese downstream companies, such as those in the solar panel and module sectors, were previously forced to default on contracts with Wacker, opting instead for spot market purchases. Many found it more cost-effective to break contracts rather than pay inflated prices.
This pattern was not unique to Wacker. Companies like OCI and Hamrock in the U.S. also experienced similar defaults. Together, these three suppliers account for over 90% of China’s polysilicon imports.
Despite the decline in penalty income, negotiations between Chinese PV firms and foreign suppliers have intensified. The key bargaining chip remains the outcome of China’s anti-dumping investigation, which could provide leverage for renegotiation.
While some companies are still waiting for the final ruling, others have already started discussions. According to Wang Yi, Yingli’s Chief Strategy Officer, the company has successfully negotiated lower prices with Wacker and other suppliers, while committing to higher purchase volumes.
The shift away from long-term contracts is also evident at Artes Solar, one of the world’s top five PV companies. Unlike many of its peers, Artes avoided the pitfalls of long-term commitments. “We’re probably the only PV company that doesn’t have to worry about long-term orders,†said Zhang Hanbing, Artes’ senior director of global markets.
Artes’ approach has allowed it to remain more financially stable compared to other Chinese PV giants, despite a recent revenue decline. Its success underscores the risks of long-term contracts in a volatile market.
Many PV companies signed these contracts during the 2007–2008 period when polysilicon prices spiked to $500 per kilogram. As prices plummeted, the contracts became a liability. Some, like Suntech, had to pay millions in penalties after breaking their agreements.
Today, the industry is moving toward more flexible arrangements. Contracts are being revised to reflect current market conditions, and companies are increasingly relying on spot purchases. This evolution marks a turning point in the global polysilicon supply chain.