(Yicai) June 20 -- Silicon prices in China are not expected to rally much this year as oversupply continues to flood the market, the co-chief executive officer of Chinese photovoltaic materials giant GCL Technologies Holdings told Yicai.

The price of silicon plunged 75 percent over the course of last year to CNY60,000 (USD8,264) per ton and it is unclear when the price will bottom out, said Lan Tianshi.

Silicon prices are not related to the production cost, but rather to the relationship between supply and demand, Lan said. The sector will only truly make a recovery when most of the new players who recently entered the market exit, go bankrupt or experience meltdowns.

Many industry players believe they can still afford to make losses due to the profits they made in the last two years, Lan said. This struggle is unlikely to end this year.

"A lot of companies that entered the industry from other sectors thought they could recover their investment within a year and a half. But at that time the price of silicon was CNY200,000 (USD27,500) per ton. Now it is less than CNY60,000 per ton and these firms are too afraid to even start using their new production lines,” Lan said.

A lot of silicon firms are concentrating on maintaining their current capacity and are controlling the pace at which they increase output, Sinolink Securities said in a recent report.

This should help narrow the gap between supply and demand this month. And as more producers indicate that they will cut output, some buyers might purchase early, which will help reduce stockpiled inventories and allow prices to recover.

In the second half, industry leaders will make a small profit or break even, but those with smaller outputs will continue to operate at a loss, Sinolink Securities said. Silicon prices are not likely to rebound this year, considering the current production capacity, the amount of new production due to come online in the second half and next year's anticipated demand.

The profits of most leading silicon producers plummeted around 70 percent last year as prices tumbled. GCL’s net profit sank 84.7 percent year on year to CNY2.5 billion (USD340 million) while revenue slumped 6.2 percent to CNY33.7 billion (USD4.6 billion).

Editor: Kim Taylor