Polysilicon Hits Bottom and Rebounds, Surging Over 6% During Trading! What Are the Reasons? What Supports the Market? [[SMM Flash News]]

SMM reported on May 9: On May 8, after hitting a historic low of RMB 34,375/mt in the intraday session, the main polysilicon futures contract staged a strong rebound, closing up 2.43% for the day. On May 9, it continued to open higher, surging over 6% at one point during the session, showing strong performance in the morning.

Regarding the reasons behind the strong rebound in the main polysilicon futures contract, SMM understands that it may primarily be related to the limited delivery brands held by several of the five major delivery enterprises in the market (mostly concentrated in a few thousand mt). As the delivery period approaches, the limited spot quantity has made it impossible for bears to deliver sufficient goods for settlement as required by the contracts.

Moreover, with the continuous weakening of polysilicon futures prices in the previous trading sessions, futures prices once fell below spot prices. According to SMM's spot quotes, the recent transaction prices of N-type polysilicon in the spot market mostly hovered around RMB 37,000/mt. However, in contrast to the futures price on May 8, the main polysilicon futures price fell to a low of RMB 34,375/mt, creating a significant price spread with the previous spot price.Some downstream enterprises in the market have even begun to calculate the feasibility of purchasing from the futures market.

However, considering the lack of significant fundamental support, after this round of capital market games, the main polysilicon futures contract's gains narrowed as it approached midday. By the end of the daytime session, the main polysilicon futures contract closed at RMB 37,830/mt, up 5.7%.

In terms of spot prices, according to SMM's spot quotes, as of May 9, the N-type polysilicon price index was reported at RMB 37.05/kg, down RMB 5.95/kg from RMB 43/kg on March 27, representing a decline of 13.84%.

》Click to view SMM's spot quotes for PV products

From a fundamental perspective, SMM understands that the sentiment among downstream players in the polysilicon market is currently slightly pessimistic, mainly due to the impact of the previous price declines across the entire PV industry chain and the market's concerns about potential demand weakness following the "531" installation rush. Meanwhile, the continuous decline in wafer and solar cell prices has also exerted considerable downward pressure on polysilicon spot prices.

At the same time, polysilicon enterprises have recently faced some inventory pressure, and crystal pulling plants also have relatively abundant raw material inventories. This inventory pressure has been a major factor contributing to the weak performance of the polysilicon spot market in late Q1 and early Q2. However, SMM predicts that polysilicon may experience some destocking expectations in May, primarily because according to SMM data statistics, global polysilicon production in May is expected to be around 99,000 mt (including 94,500 mt of domestic production), representing a decrease of about 2% MoM from April. Although downstream wafer production has also declined MoM, overall global wafer production is expected to be around 57-58 GW, with wafer demand for polysilicon at about 110,000 mt. Subsequently, with the improvement in the supply-demand relationship in the polysilicon market, inventory pressure may be alleviated to a certain extent.

》Click to view SMM database

Looking ahead to the spot market outlook, according to SMM, some top-tier enterprises are gradually increasing their willingness to stand firm on quotes due to cost rationality. There are also plans to reconvene relevant industry conferences in the near future, and some production capacities are experiencing delayed resumption of work and commissioning, which may have a certain positive impact on the subsequent market. It is recommended to continue monitoring the operation status of the main production capacities and the price trend of downstream wafers.》Click for details

Institutional Comments

Guangzhou Futures stated that, on the one hand, downstream wafer prices fell significantly during the week, and purchases of polysilicon were made cautiously, mainly for just-in-time procurement. Actual market transactions were sluggish, and there is a risk of further accumulation of factory inventory in the future. Coupled with the upcoming rainy season, the cost center may shift downward, and there are expectations of a marginal weakening of the fundamentals. On the other hand, as the first delivery of the 2506 contract approaches, the current number of registered warrants is relatively low, and there are concerns about insufficient warrants for the first delivery. In summary, with bullish and bearish factors intertwined in the market, under the tug-of-war between longs and shorts, short-term fluctuations in the futures market may intensify. However, in the medium and long term, there are strong expectations of a weakening of the fundamentals, and it is expected that the rebound pressure on far-month contracts will remain significant. Strategically, cautious funds are advised to wait and see for the time being, while aggressive funds may attempt to establish short positions in the PS2507 contract at high levels, with a reference range of (35,000, 38,000).

Everbright Futures stated that before the holiday, traders cleared inventory and drove down prices, and downstream stockpiling willingness was lower than in previous years. After the holiday, the pressure of a slowdown in downstream demand persists. In the short term, silicon metal is struggling to break away from the bottoming-out trend due to negative feedback from the downstream. Polysilicon production has a high degree of flexibility, and insufficient warrants add bargaining chips to the game. In the short term, significant declines are limited, and sideways movement is expected. Attention should be paid to the dynamics of production restrictions by enterprises and whether new large-scale infrastructure or mandatory assessment policies for PV installations will be introduced, which are expected to trigger a new round of oversold rebounds.

Xinhu Futures stated that polysilicon spot prices are in the doldrums, market demand is weak, and orders have tightened. Downstream purchases are made on a need-to-buy basis, and market transactions are stagnant. The industry's operation rate is running at a low level, and there are expectations of a downward adjustment in production schedules within the month. Recently, there have been rumors of industry self-regulation meetings aimed at standing firm on quotes, and it is still necessary to monitor changes in production schedules after the meetings. Wafer enterprises are offering discounts in exchange for volume, and low-price transactions are increasing. Downstream demand continues to slump, and production schedules are currently stable. Overall, although the fundamentals of the polysilicon industry are weakening, polysilicon enterprises are controlling production and refusing low-price orders. The main warrant volume is relatively small, and the ratio of virtual to actual warrants is high. The 06 contract is experiencing intense bargaining. It is recommended to anchor the cost range of delivery brands for operations, and short positions can focus on far-month contracts. It is still necessary to monitor the generation of warrants and the actual sales situation of futures-to-spot traders, and calendar spreads can still be held.

Xinhu Futures stated that, based on projections from the supply-demand balance table, there is an expectation of a decrease in overall demand in May. From wafers to module scheduled production, a pullback trend is expected. At the same time, polysilicon enterprises are also taking production cuts, and polysilicon production is unlikely to increase. Combining the overall supply and demand situation, the polysilicon industry is still in a state of slight destocking.However, the current inventory pressure remains significant. From the perspective of purchasing pace, downstream crystal pulling enterprises have a strong tendency to bargain down purchasing prices, with some only purchasing small quantities based on immediate needs. This has led to another round of inventory buildup at the polysilicon enterprises' end. The market still expects a decline in subsequent prices, resulting in a game between upstream and downstream players. Overall, the fundamental support is insufficient, and spot prices are still under pressure. Currently, some polycrystalline enterprises are reluctant to sign orders at low prices. Attention should be paid to subsequent adjustments in production schedules. After the recent sharp decline in the futures market, comparing the low transaction prices of spot cargo of delivery brand, futures are still in a contango structure. Today, the futures market fluctuated sharply, with prices experiencing a rebound. As the delivery month approaches, the current volume of warrants remains low, and there is still cancellation and outflow today, while open interest continues to increase. The market may further trade on the delivery logic, and attention should be paid to the risk of a short squeeze.