Polysilicon

What it is

Polysilicon (多晶硅) is the purified silicon that solar wafers are made from. In the Siemens process, metallurgical-grade silicon reacts with hydrogen chloride to form trichlorosilane, which is distilled and then reacted with hydrogen at about 1,100°C for 200 to 300 hours, so that pure silicon deposits on thin rods (PVEducation, Honsberg and Bowden). Daqo uses an improved version of the process. It says its main raw material is industrial silicon powder and that electricity is a large share of its cost (Daqo 2026 interim report, p. 24), and that its location gives it low-cost energy and a cluster of silicon suppliers (p. 9). Tongwei makes its polysilicon in Leshan, Baotou and Baoshan (Tongwei 2026 interim report, p. 8).

Why it matters for the chain

Every crystalline silicon solar panel starts here. Polysilicon is melted and grown into crystal ingots, which are sliced into solar wafers (Daqo p. 9). Wafer making is concentrated, so the customer lists are short: Daqo's largest customer took 15.54% of its sales in the first half of 2026 and its top five 47.60% (p. 24).

Tongwei sells to wafer makers under long-term contracts (Tongwei p. 8). One that LONGi disclosed shows how loose such contracts can be: a framework contract to buy 251,280 tonnes from May 2023 to December 2027, with prices negotiated each month and volumes adjusted to the market. LONGi bought nothing under it in the first half of 2026 (LONGi 2026 interim report, p. 38).

Where China stands

Global output was 1.957 million tonnes in 2024, and China made 94% of it, up from 86% in 2022 (IEA PVPS Task 1, October 2025, p. 7).

Outside China, Germany's Wacker makes polysilicon for both the chip and solar industries. Its polysilicon division's EBITDA fell to €11m in the second quarter of 2026 from €34m a year earlier, which it put down to lower demand and prices for solar-grade polysilicon and higher energy costs; semiconductor-grade volumes kept growing (Wacker Q2 2026 results, pp. 4, 5, 7).

Two of the leading Chinese producers:

• Tongwei (通威股份, 600438.SH) shipped about 155,300 tonnes in the first half of 2026 and says it has held the largest global market share for many years (Tongwei pp. 9, 11).
• Daqo (大全能源, 688303.SH) has 305,000 tonnes a year of capacity. It produced 87,077 tonnes in the half, which it puts at 16.19% of China's output (Daqo pp. 9, 10).

Selling below cost

CPIA (China Photovoltaic Industry Association) data cited by Daqo put China's output at about 541,000 tonnes in the first half of 2026, down 9.3%, with the industry running at 33.8% of capacity and holding 510,000 tonnes of stock at the end of June. Producers were widely selling below cash cost (Daqo p. 10). Tongwei, also citing CPIA, says polysilicon prices in July 2026 were more than 40% below January's (Tongwei p. 9).

Daqo's figures for the half show what that means (p. 10):

• It sold at an average ¥30.63 a kilogram, against a cash cost of ¥34.75 and a full unit cost of ¥60.69.
• In the second quarter the price was ¥27.48 and the cash cost ¥32.72.
• It produced 87,077 tonnes but sold only 19,672, and wrote down its inventory by ¥1.03bn.
• Revenue fell 57.63% to ¥622.8m and the net loss was ¥1.60bn (p. 7).

Tongwei's polysilicon subsidiary, Sichuan Yongxiang, lost ¥4.06bn on revenue of ¥5.23bn in the same half (Tongwei p. 17).

The policy response

The government campaign against loss-making price wars, known as "anti-involution" (反内卷), produced binding rules in 2026:

• Mandatory national limits on energy use per unit of polysilicon were issued in mid-2026 and take effect on 1 January 2027. Daqo expects plants that miss them to come under pressure to close (Daqo p. 10); Tongwei says all of its capacity meets them (Tongwei p. 10).
• On 27 July the CPIA published a cost-accounting standard for the industry. On 6 August eight major polysilicon makers, Daqo among them, pledged not to sell below full cost as calculated under it (Daqo p. 10).

Daqo says curbing price competition has moved from industry self-discipline to standards and enforcement (p. 11).

What to watch

• The price floor. Daqo expects prices to recover moderately in the fourth quarter (p. 11). Our view: a floor at full cost would mean a large rise, since Daqo's full unit cost in the first half was about twice its selling price, and with 510,000 tonnes in stock, close to the industry's output for the whole half, the floor will be hard to hold without deep output cuts.
• US trade. Daqo has been on the US Commerce Department's Entity List since June 2021, which it says limits its purchases of US-origin materials and technology without materially affecting production (p. 25). It has also been on the US government's UFLPA Entity List since 21 June 2022, which presumes goods it makes to be barred from US import (CBP). Wacker cites unresolved US trade policies on imports of polysilicon and its derivatives as a source of uncertainty (Wacker p. 5).
• Diversification. Daqo plans a ¥6bn base in Kunshan for storage systems, solid-state transformers and breakers for AI data-centre power, and solid-state batteries; the project is at the preparatory stage (Daqo p. 9).