Average pricing in May for solar polysilicon declined by a larger margin in the spot market than in contract negotiations, presaging continued price declines for the near future, according to the IHS iSuppli PV Perspective Market Brief and the IHS iSuppli Polysilicon Price Index from information and analytics provider IHS.

The average global price for a kilogram (kg) of polysilicon used in photovoltaic (PV) solar cells fell to $23.50 in May, down 3.3 percent from $24.30 in April, as presented in the figure attached.

In contrast, pricing for contracts-also known as long-term agreements (LTAs)-dropped by only 2.4 percent during the same period. This means that the gap between spot and LTA pricing is widening, expanding to $5.20/kg in May, up from $5.10/kg in April.

"The escalating spread between LTA pricing and that for the spot market reflects the continuing oversupply in the global polysilicon market, which is expected to result in further price declines," said Glenn Gu, senior analyst, PV, with IHS. "We predict pricing for all grades of polysilicon in both the LTA and spot markets to weaken again in June."

On the spot market, polysilicon is sold for cash by third parties and delivered immediately. In contrast, on the contract market, polysilicon is sold directly by suppliers on credit, often with LTAs for delivery and pricing.

The inflated prices on the contract market are resulting in increased production costs for LTA buyers. Already, the production cost for crystalline silicon solar modules is 3 cents higher per watt for an LTA compared to the spot market. Because of this, PV polysilicon buyers increasingly are turning away from LTAs and heading for the spot market.

"Makers of solar cells were already flocking to the spot market to take advantage of lower pricing, with the spot market accounting for 44 percent of polysilicon shipment volume in April, up from 36 percent in March," Gu said.

"This trend continued in May, with spot market volumes rising to 47 percent of all shipments. The exodus to the spot market is expected to continue, causing a decline in LTA prices that will minimize the pricing gap. Unless the gap decreases, buyers will start to try to renegotiate the terms of their LTAs with suppliers."

IHS predicts the differential between contract and spot prices will narrow only slightly in July. Over the next few months, IHS expects that some LTA polysilicon suppliers will follow the spot market pricing trend to avoid disputes with customers. For high-grade polysilicon, the price gap will stabilize at the current level, IHS expects.