Nearly two years ago, Chinese solar photovoltaic wafer maker LDK Solar (LDK) signed a 10-year supply agreement with German solar panel maker Q-Cells SE for 43,000 metric tonnes of wafers between 2009 and 2018. About 1,000 metric tons of LDK’s wafers were to be sold to Q-Cells in 2009.
Q-Cells announced this morning that it was terminating the contract because LDK “did not fulfill significant contractual obligations.” Furthermore, Q-Cells is reclaiming its initial $244.5 million payment made in 2008.
The issue is almost certainly pricing. While precise figures aren’t given, it is a near certainty that the original contract price is substantially higher than the current market price. Q-Cells wants to re-negotiate the pricing, and LDK has dug in its heels.
The Chinese company has already lost a battle in the German courts to stop Q-Cells from retrieving the initial payment, and continues to dispute the termination of the contract.
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Polysilicon wafer pricing has been hit hard this year, as production has increased substantially with new Chinese manufacturers coming online. It appears that China’s central planners made the mistake of thinking that demand for wafers would continue to grow both in China and around the world, as government stimulus programs kicked in.
As recently as last week, LDK bumped up its revenue outlook for the third quarter from the $240-$270 million range to the $270-$290 million range. It also kicked up its shipment outlook from 260-300 megawatts to 310-330 megawatts.
LDK’s revised forecasts didn’t seem to match the experience of other solar makers. First Solar Inc. (FSLR) reported lower revenues and lower margins last week and issued a weaker outlook for the rest of the year. SunPower Corp. (SPWR-A) also revised its outlook downward for the fourth quarter earlier in October.
While LDK still has some cards to play in the disagreement with Q-Cells, the deck looks like it is stacked against the Chinese maker. And the timing of Q-Cells’ announcement, just a week after LDK issued an improved outlook, is probably intended to demonstrate the German company’s will to force LDK’s hand.
Even if the dispute is settled, LDK will undoubtedly receive less for the wafers it sells to Q-Cells. LDK had better get used to lower wafer prices because all the evidence is that prices are in a trough and won’t be rising any time soon.
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