China’s polysilicon factories, which supply the raw ingredient for solar panels, may suspend output this month because of a slump in prices, an analyst at an industry trade group said.

Xie Chen, who conducted a study of the polysilicon industry for the China Nonferrous Metals Industrial Association, said about 90 percent of the plants accounting for half of the output from China risk closing, forcing solar module makers to import more of the raw material from abroad.

“The halt is temporary, while these companies won’t resume production until the market situation becomes better,” Xie said in a telephone interview from Beijing yesterday. “Additional production of polysilicon is sending prices tumbling.”

The report, which first appeared in the China Securities Journal, boosted shares of Norwegian polysilicon maker Renewable Energy Corp ASA. (REC) Chinese manufacturers led by GCL-Poly Energy Holdings Ltd. (3800) and LDK Solar Co. have suffered as the commodity fell 21 percent in the past month to an eight-year low of $34.51 per kilogram, according to Bloomberg New Energy Finance data.

LDK and its rivals are expanding capacity even though prices are dropping, aiming to grab market share as smaller companies are shaken out of the business.

Shakeout Ahead
Those smaller companies have higher costs and may shut in half the nation’s production capacity, Xie said. His association acts as a conduit between the Chinese government and companies in the solar industry, advising both ministers and executives.

LDK Solar, whose shares have lost about 63 percent this year, this week announced plans to triple its capacity and make 55,000 metric tons of polysilicon a year by 2014. GCL-Poly said in March it would more than double polysilicon capacity to 46,000 metric tons this year.

Hemlock Semiconductor Corp., the world’s biggest polysilicon maker, is building a new factory in Michigan. That company is majority owned by Dow Corning Corp. of the U.S.

Polysilicon production in China rose as much as 60 percent so far this year compared with the same period a year ago, while output of solar panels that use the material increased at only one-third of that rate, Xie said.

“The glut is hard to be reversed even next year,” he said “China will increase imports of high-grade polysilicon” to raise the rate at which sunlight is converted into electricity on photovoltaic cells, he said.

Source:bloomberg.com