Metals producer 5N Plus Inc said on Thursday it has again expanded supply agreements with key customer First Solar Inc and it plans to build a solar cell byproducts recycling plant in Malaysia to meet growing customer demand.
The news lifted 5N Plus shares as much as 11 percent to a two-year high on the Toronto Stock Exchange on Thursday.
Montreal-based 5N Plus, a major supplier of cadmium telluride (CdTe) used in making thin-film solar panels, said First Solar will increase the minimum CdTe it orders by 30 percent initially and that will expand to 60 percent by 2013.
The two companies will also extend the deal to December 31, 2015, from July 31, 2013.
U.S.-based First Solar, the world’s biggest producer of thin-film solar panels, had previously agreed, in June 2009, to increase its minimum order by 50 percent and extend the deal to 2013.
Versant Partners analyst Massimo Fiore said this second supply deal revision is “very positive” and “displays First Solar’s strong commitment to growth using 5N Plus as a supplier of CdTe.”
Stonecap Securities analyst Michael Goldberg said pricing terms will likely be consistent in the new contract, with price declines of about 5 percent per year. That will likely erode gross margin slightly, he said, but bigger sales volumes should result in net earnings growth.
5N Plus produces high-purity metals, compounds and wafers for electronic applications, including solar modules and medical devices.
“This is positive news for 5N Plus as it increases its baseline for revenue and earnings going forward,” Goldberg said.
“Although 5N Plus’s reliance on First Solar is high (about 75 percent of revenue), First Solar continues to grow and gain market share as the low-cost leader in the industry.”
First Solar’s production capacity is expected to almost double within two years to 2,714 megawatts from 1,430 MW, Goldberg said. He estimates that 5N Plus’s share of this business will decrease to 45 percent in 2012 from approximately 48 percent currently, as First Solar attempts to diversify its supply.
5N Plus also said it plans to build a new recycling plant in Malaysia that it sees operating by mid-2012. It will provide recycling services for solar cell manufacturing byproducts, including those from First Solar.
By 2013, it is expected that more than 60 percent of First Solar’s production will come from Malaysia or Vietnam, Fiore said.
First Solar, which dominates the thin-film market, uses CdTe to make solar panels as it works out to be at least 10 percent to 15 percent cheaper than using the widely available silicon.
Lured by the low cost, companies such as General Electric, Q Cells SE and privately held Abound Solar have jumped into the CdTe thin-film space.
The handful of other CdTe suppliers include China’s Apollo Solar Energy Inc, India’s Vital Chemicals, German-based PPM Materials, Japan’s Nikko Metals, and U.S.-based Honeywell International’s Honeywell Electronic Materials.
The new 5N Plus supply deal comes amid expectations that governments will start to cut solar subsidies this year.
Germany and France are seen chopping subsidies in the first half and Italy trimming them in the second. Combined, those three countries account for about 70 percent of the global market, according to Bank of America Merrill Lynch.
By mid-afternoon on Thursday, 5N Plus shares were up 9 percent, or 64 Canadian cents, to C$7.74 in Toronto.
First Solar was down 2 percent at $161.48 on Nasdaq, while the Wilder Hill Clean Energy Index was down 1 percent.
($1=$0.99 Canadian)
