According to calculations based on supply and demand data, silicon metal supply in China was tight throughout 2023, with an estimated supply deficit of 80,000-90,000 mt.

However, social inventory kept piling up throughout most of the year. According to SMM data, as of December 22, the combined social inventories in Huangpu port, Tianjin port and Kunming port were 125,000 mt, up 4,000 mt or 3% YoY. After the launch of silicon futures contract, more delivery warehouses appeared in various regions, and goods were gradually put into storage since the end of April. As of December 22, inventory of delivery warehouses in various regions piled up by 238,000 mt (including some goods that were not registered as warehouse receipt), while social inventory of silicon metal in China totalled 363,000 mt.

Under the background of tight supply throughout the year, where did the social inventory come from?

Inventory transfer. Domestic silicon metal market in 2022 was oversupplied by 300,000 mt. Most of the goods were held by silicon plants, while some were possessed by traders and downstream buyers who refilled goods. Silicon prices kept dipping in the first half of 2023. In addition, prices of polysilicon, DMC and other products continued to fall this year. Under this circumstance, downstream buyers opted to digest their own inventory and silicon plants cut production.

In the second half of the year, silicon supply in Sichuan and Yunnan increased amid production resumption. Major suppliers in the regions delivered 421# silicon to delivery warehouses. At the same time, inventory in the delivery warehouses also hiked rapidly. At this time, silicon plants kept inventory low, while downstream buyers purchased silicon for hand-to-mouth use amid large profit erosion triggered by falling silicon price.

Liquidity of goods in delivery warehouses was limited, and most of goods were 421# silicon. Inventory in ordinary warehouses only increased by 3% YoY, while monthly demand (calculated in November) increased significantly by 26% YoY. Excluding delivery brand goods that are unavailable for sale, stocks at non-delivery warehouses are lower than a year ago based on the daily average consumption.

Under the background of rapid capacity expansion of upstream and downstream enterprises in the industry chain, the emergence of delivery warehouses indeed played a role in balancing supply and demand. High and low-grade silicon market saw divergent supply-demand patterns, while goods at delivery warehouses were dominated by 421# silicon. Low-grade silicon remained popular. Under this circumstance, short-term price spread between high and low-grade silicon may remain small.