Illustration: Chen Xia/GT

Following the recent approval from the China Securities Regulatory Commission, the Guangzhou Futures Exchange launched polysilicon futures on Thursday, with polysilicon options scheduled to debut on Friday.

This landmark move not only marks a significant step for China in establishing a pricing mechanism for polysilicon but also indicates that China's position in the global photovoltaic industry will be further strengthened.

Polysilicon is primarily used as a major raw material for the production of the photovoltaic industry. Its fluctuations in polysilicon prices not only directly affect the operation of photovoltaic companies but also have significant implications for the healthy and sustainable development of the entire industrial chain.

With the launch of the polysilicon futures, its price discovery mechanism will more accurately reflect the supply and demand dynamics of the domestic polysilicon industry, thereby establishing a "China price" for polysilicon trade. The formation of this price will gradually expand China's influence in the pricing of international polysilicon trade, giving China a bigger voice and pricing power in the global polysilicon market.

Historically, the global polysilicon market has experienced significant growth and changes. At first, the production of polysilicon was monopolized by a few developed countries because of high technological barriers and high production costs. However, technological advancements and decreasing costs have facilitated the global spread of polysilicon production, resulting in a more diversified market landscape.

China, with its rich resources, comprehensive industrial chain, and strong manufacturing capabilities, has rapidly emerged as the world's largest polysilicon producer. This has accelerated the development of China's photovoltaic industry, also making a substantial contribution to the prosperity of the global photovoltaic market.

At present, China is the world's largest producer and consumer of polysilicon. According to data from the Silicon Industry Branch of China Nonferrous Metal Industry Association, global polysilicon production increased from 300,000 tons in 2014 to 1.597 million tons in 2023. China's production accounted for 92.08 percent of the global polysilicon supply in 2023, representing an absolute dominant position.

However, despite China's remarkable growth in polysilicon production, it remains in a passive position regarding international trade pricing. Due to the lack of an effective futures market as a price discovery tool, Chinese polysilicon companies often have no choice but to passively accept fluctuations in international market prices, which increases the operational risks for these companies and limits China's influence in global polysilicon trade.

In recent years, polysilicon prices have exhibited significant volatility, with annual price fluctuation rates reaching 226.63 percent, 63.49 percent, and 280.17 percent from 2021 to 2023, according to the Economic Daily. 

As a result, managing price volatility risks of its core upstream raw materials has become essential for the long-term healthy development of the photovoltaic industry. 

Given that China is the world's leading producer of polysilicon, it deserves greater pricing power in the global market to match its dominant position in the industry. Without influence over pricing, Chinese companies may suffer from unfair pricing in international trade, making it difficult to effectively safeguard their own interests.

Moreover, since the significant fluctuations in polysilicon prices directly affect the production efficiency of photovoltaic companies and the overall stability of the entire industrial chain, the introduction of polysilicon futures offers companies effective risk management tools. It enables various segments of the industry to lock in production costs and anticipated profits in advance, thereby ensuring stable operations. Additionally, these futures provide the market with reasonable forward price guidance, helping to mitigate the risk of overcapacity in the polysilicon sector. This promotes balanced and coordinated development across both the upstream and downstream segments of the industrial chain, enhancing the core competitiveness of China's photovoltaic industry.

In addition, with many photovoltaic companies eyeing overseas investment as their global strategy, polysilicon futures could also play a crucial role in supporting this expansion. Over time, these futures prices may evolve into an international price benchmark, further enhancing China's influence in the pricing of global polysilicon trade. In the meantime, this development will offer a transparent and equitable price reference for the global photovoltaic industry, promoting healthy growth of the market and injecting stability and certainty into the global photovoltaic sector.