The constant shortfall in supplies of polysilicon, a key raw material in the manufacture of solar cells, will dampen the fast-growing solar cell manufacturing sector this year, Merrill Lynch said yesterday.
The insufficient supply has resulted from a spike in demand for alternative energy amid rocketing oil prices over the past year, analysts said.
"The shortage is real," Brett Hodess, a senior analyst who tracks semiconductor capital equipment for Merrill Lynch, told reporters at a press conference wrapping up the research house's annual tech forum in Taipei.
Demand for polysilicon has increased 30 percent annually, but supply has only expanded by 10 percent, and the imbalance has been reflected in price hikes, he said. The price of polysilicon has jumped almost 30 percent to between US$80 and US$90 a kilogram, compared with between US$50 and US$60 last year, he said.
The price could rise even higher to around US$100 on some spot markets, he said.
"The shortage will slow solar cell makers rather than semiconductor companies," Hodess said.
Polysilicon accounts for a higher percentage of cost per wafer for solar-cell makers -- at between 35 percent and 40 percent -- compared with around 10 percent for chipmakers, he said.
Previously, industry analysts projected growth for solar cell makers would be around 30 percent annually; now they have lowered the forecast to around 10 percent, due to a shortage in the raw material, Hodess said.
Taiwan's top solar cell maker Motech Industries Inc (
Motech shares have rocketed 62 percent since the beginning of the year, and stood at NT$785 (US$24.1) yesterday on the nation's over-the-counter market, or GRETAI Securities Market.
Hodess did not expect any quick solution for the shortage.
"We believe polysilicon supplies will stay tight, or remain in short supply for at least another two years and possibly through 2008," he said.
That would send prices for already expensive polysilicon up by another 25 percent to 30 percent annually during this year and next, Hodess predicted.
He blamed slow capacity expansion and the high threshold for new players for the insufficient supply.
The major players in the polysilicon industry have announced increasing investment in polysilicon plants, but it takes at least two-and-a-half years to ramp up production in a factory, Hodess said.
On top of that, no new players have appeared on the landscape as patent issues and massive investment costs have discouraged interested parties from entering the market, he said.