US polysilicon tariffs could test India’s wafer ambitions

As the AI boom tightens DRAM and NAND supply, pushing up prices and squeezing consumer electronics makers, another vital upstream link in the semiconductor value chain is bracing for a supply-chain shake-up: polysilicon.

In a bid to strengthen its domestic semiconductor and solar supply chains, the US has introduced minimum import prices for polysilicon, silicon ingots and wafers, along with a 15% tariff on specified downstream products.

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Polysilicon is one of the first building blocks in the silicon chip supply chain. It is melted and converted into single-crystal silicon ingots, which are sliced and polished to make the wafers on which semiconductor chips are manufactured. The same material also forms the backbone of the much larger solar PV industry.

US moves upstream

The global supply chain is heavily concentrated in China, which accounts for more than 90% of polysilicon production. Other producers include Germany, Malaysia, South Korea and the US. This concentration, along with a sharp expansion in global production, has become a concern for the US.

The White House says global polysilicon production has increased more than 270% since 2020. Solar-grade material accounts for more than 97% of global production, with semiconductor-grade polysilicon making up the remainder.

The US has been trying to bring more of its semiconductor supply chain back home and is now extending that push upstream, seeking to build domestic capacity in polysilicon, ingots and wafers. From December 4, the US will impose minimum import prices of $21 per kg on polysilicon and $100 per kg on polysilicon ingots and wafers, along with a 15% tariff on specified downstream polysilicon products.

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The move could disrupt global polysilicon trade flows, with excess Chinese supply potentially being redirected to non-US markets at lower prices. India, too, could feel the impact.

Cheap feedstock, tough competition

When it comes to polysilicon, India is entirely import-dependent and has no commercial polysilicon production capacity. Dumping of polysilicon, ingots or wafers in India could be a double-edged sword.

On one hand, cheap foreign polysilicon could benefit India’s solar and semiconductor ecosystem by giving upcoming foundries access to low-cost raw material. For instance, India’s planned semiconductor fabs, including Tata Electronics’ $11-billion Dholera facility, will initially remain dependent on imported silicon wafers.

“At this point or even in the near future, no company (in semiconductors) in India needs to import polysilicon in large quantities. For example, what Tata Electronics fab will need to import (buy) are "starting wafers" which are essentially high purity (which are defect free) mono-Si (at least "11N"),” explains Arun Mampazhy, an independent semiconductor analyst.

On the other hand, cheap imports could hurt India’s plans to establish greenfield wafer manufacturing, given the high capital expenditure and long payback periods.

Danish Faruqui, CEO of Fab Economics, explains that greenfield wafer manufacturing, which involves melting polysilicon into high-purity ingots and then shaping them, is highly vulnerable to global dumping.

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“Building integrated ingot and wafer facilities requires heavy capital investments. If international players flood India with wafers priced near or below marginal cost, the return on investment (ROI) timeline stretches indefinitely. Banks and financial institutions will view these projects as non-viable, leading to stranded projects or delayed financial closures.”

Faruqui adds that high-efficiency wafers require advanced technological setups. If cheap, standard p-type (older standard) or entry-level n-type (next-gen standard) wafers flood the market, domestic developers will delay investing in next-generation greenfield technologies, locking India into a tech-generation lag.

Can ISM 2.0 spur wafer manufacturing?

While ISM 2.0 aims to build a more complete semiconductor ecosystem in India, details of the scheme are yet to be released. Experts point out that under the “machines and materials” pillar, it is still unclear which raw materials will be covered.

Even if the government starts incentivising wafers, Mampazhy is doubtful if anyone will go for it. “If I remember correctly, in 2020 under SPECS too there was perhaps a 25% Capex subsidy for wafer making, but no one applied. One may argue that the present situation is slightly better, there is a fab upcoming and perhaps 1 or 2 more may get approved under ISM2 and so for backward integration it may be helpful to have a wafer making plant also in India. But it is not easy given that the top-5 players already have a firm grip and price competitiveness.”

Also, fabs usually don’t risk working with a new supplier unless there is a significant price advantage, and even then only after multiple rounds of quality checks. He adds, “if ever a stage comes where Indian companies hold about 2-4% of market share of fabrication (by volume) then it may be a priority for us to have backward integration all the way. As of now, with only one HVM fab being built in India, the countrymay not even hit a 0.1% by 2030.”

The next step

To insulate domestic wafer manufacturing from Chinese overcapacity without driving Indian fabs out of business with inflated input costs, India must move away from generic trade barriers and implement a dual-track economic balancing policy.

“The goal is to subsidise the capital difference for local wafer makers while allowing fabs to selectively leverage global market pricing, gradually enforcing localization as domestic yields mature.  Specifically for wafer manufacturing, the government should introduce high-percentage electricity and power subsidies specifically for ingot-pulling facilities to directly combat China's state-subsidized utility advantages,” adds Faruqui. This structure will allow domestic wafer manufacturers to lower their prices closer to Chinese dumped levels without going bankrupt, ensuring fabs can buy locally without a massive cost penalty.

Imposing aggressive tariffs would not work, as they would strain the cost structures of Indian fabs before domestic alternatives are available, Faruqui notes. An alternative is to deploy a gradual, tiered sourcing quota linked to local production milestones.

Such an approach, which guarantees local wafer startups a baseline order book while letting fabs use cheap imports to keep their overall average production costs globally competitive, can help India build a robust polysilicon industry.