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Weakness in China's solar market continues to weigh on raw material prices

German chemicals maker Wacker Chemie AG said low polysilicon prices dragged down overall sales in the second quarter as China's slower-than-expected rollout of new solar policies held back development in the world's biggest market.

With new policies now in place, Wacker Chemie expects solar project development in China to "rally" in the second half of 2019, lifting demand and prices for polysilicon, a key raw material in solar panels, CEO Rudolf Staudigl said on an Aug. 1 earnings call.

However, there are few signs that a market rebound is imminent, Staudigl told analysts: "The increased ... installations, I mean, it's really not much" yet in China, he said.

Further complicating matters, "subsidized overcapacity" in China's polysilicon sector is adding additional downward pressure on prices, while solar panel manufacturers are sitting on "significant" inventory they will need to move to create new demand for the raw material, Staudigl said.

"The release of the new Chinese grid rules for solar took longer than anticipated," Staudigl said. "This now results in a later-than-expected recovery of Chinese installations towards the end of the year. This effectively delays the anticipated pickup in polysilicon demand, which we expect to support pricing."

Developments in China's domestic solar sector are of keen interest to international markets. Despite a sharp slowdown in project development in China last year, the country still accounted for nearly half of solar installations globally.

But China's influence may be waning as solar demand becomes more diversified.

Under the policies that Beijing recently announced, the country is likely to install up to about 40,000 MW of solar capacity annually, which is only 35% of expected global installations in 2019, according to consultancy Wood Mackenzie. Meanwhile, 19 countries are expected to install between 1,000 MW and 5,000 MW of solar annually by 2022, compared to seven in 2018.

"We look forward to reducing the oversupply not only in polysilicon but also across the solar value chain," Taekjoong Kim, CEO of South Korean chemicals maker OCI Co. Ltd., said on a July 24 earnings call, pointing to an expected increase in development activity in China as well as strong demand in Europe, the U.S. and "unfamiliar" markets such as Vietnam, Egypt and the United Arab Emirates.

Wacker Chemie reported said second-quarter EBITDA of €210.7 million, down from €260.5 million a year earlier, as sales slid 5% to €1.27 billion. Sales in the company's polysilicon division were down about 30% at €169.9 million.