SMM: Supply-Demand Analysis and Price Forecast of China Silicon Metal Market 2021-2022

SHANGHAI, Nov 25 (SMM) - The total silicon metal output in Jan-Oct increased 36% year-on-year, and is likely to total 2.86 million mt throughout 2021, a historical high. China’s combined output of offgrade silicon (Si ≤ 97%) and secondary silicon in the same period stood at 250,000 mt, which made up some of the supply shortage of silicon metal. Meanwhile, the imports of silicon metal performed well due to higher prices in China, which totalled 4,000 mt in Jan-Sep, up 782% on the year.

The output in Xinjiang increased in 2021 thanks to expanding capacity, and its proportion in total supplies in China surged 9 percentage points on the year. However, the cumulative output in Yunnan in Jan-Oct decreased 10% year-on-year in light of less hydro power supply in dry season and power rationing on energy consumption control.

The port inventory of silicon metal has walked into the downside trajectory due to rising home trade demand and falling exports. Hence the inventory of silicon metal in 2021 will fall below the 10-year average. It is estimated that the social inventory of silicon metal will record only 78,000 mt by the end of 2021, slightly lower than the same period last year.

In terms of secondary aluminium alloy, the operating rates failed to recover significantly in the face of multiple obstructions like power rationing, short supply of aluminium scrap, high silicon metal prices, and chip shortage across the automobile industry. More importantly, the rising prices of silicon metal, the major auxiliary material, have resulted in production losses of secondary aluminium alloy. A new pricing model thus emerged which correlates silicon metal prices with aluminium alloy conversion margins.

The exports of silicon metal in May-Jul experienced great losses, which narrowed in August and turned into profits in October. And the foreign trade prices are likely to stay higher than that of domestic trade for quite some time. Hence, the export volume of silicon metal in 2021 is estimated to rise by 29% from a year ago. The exports stood at 72,000 mt in September, up 6% MoM and 32% YoY. The cumulative exports in Jan-Sep totalled 605,000 mt, up 40% YoY.

SMM Comments: The near-term silicon metal output is unlikely to pick up greatly due to prolonged production cuts in south-west China and de-stocking demand of leading manufacturers by end of the year. The mainstream prices of silicon metal of 3 and 4 series are likely to move between 30,000 – 40,000 yuan/mt in 2022 amid support from a rapidly expanding downstream sector though the potential power rationing in south-west China and energy consumption control in major producing areas will lead to supply shortage uncertainties in the first half of 2022.

Risks: production resumption of silicon metal in south-west China, and greater-than-expected capacity expansion in Xinjiang; delayed commissioning of silicone and polysilicon capacity; shrinking silicone consumption after COVID comes to an end.