Silicon metal most-traded futures contract rebounded above 10,000 yuan/mt and major producers increased quotations, boosting market sentiment

In H2, the silicon metal market continued to be sluggish, with spot prices continuously declining. After nearly half a month of price stagnation in August, market sentiment showed some recovery recently. On one hand, the most-traded silicon metal futures contract rebounded continuously and broke through the 10,000 yuan/mt mark. On the other hand, leading company Hoshine raised its price by 200 yuan/mt, which had a certain positive impact on market sentiment. Can spot prices stop falling and start rising?

Recently, the overall atmosphere of macro policies has been relatively warm. Last week, Fed Chairman Powell supported the upcoming interest rate cuts and pointed out that further cooling of the labour market would be unwelcome, while also indicating more confidence in achieving the 2% inflation target. Domestically, the NDRC and the National Energy Administration recently issued the "Basic Rules for Medium and Long-term Electricity Transactions - Special Chapter on Green Electricity Transactions," and the State Council Information Office released the white paper "China's Energy Transition," clarifying the path of energy transition.

Fundamentally, on the supply side, some high-cost silicon metal enterprises in Sichuan, Xinjiang, and other regions have slightly reduced production, but most capacities remain in normal operation. Some capacities of medium-frequency furnace recycled silicon and silicon metal (Si≥97%) have reduced production to a certain extent in August due to cost pressures, with a supply reduction of nearly 10,000 mt compared to July. On the demand side, polysilicon continued to reduce production in August, showing poor demand performance, while the demand from silicone and aluminum-silicon alloy remained relatively stable. August showed weak supply and demand.

From the supply and demand data, the overall silicon supply remained in surplus during July and August, with a combined surplus of approximately 200,000 mt over the two months.

According to the data from the Guangzhou Futures Exchange, as of August 29, the warehouse warrants for silicon metal increased by 11,000 mt compared to July 1, and the increase in other social spot warehouses was also limited, estimated to be within 50,000 mt. So where did the remaining over 100,000 mt of goods go? On one hand, behind the continuous decline in the market, some recycled silicon and small silicon enterprises were not willing to sell due to losses, leading to some inventory buildup. On the other hand, downstream users had been replenishing their inventories at low levels due to just-in-time needs, and with the transition between peak and off-peak seasons, coupled with the increased attractiveness of spot silicon metal, some traders and downstream users indeed engaged in appropriate inventory replenishment and stockpiling in July and August.

From the perspective of spot goods, in the past week, some grades such as above-standard #553 and #99 have indeed experienced a slight shortage in spot goods. In addition to the high supply share of the three major companies, the shift of some small factories in Xinjiang to producing new standard #553 silicon metal also has a certain impact.

Overall, the silicon metal fundamentals remain weak, and the market has been sluggish for a long time. This time, the sentiment boost is relatively strong, which can stimulate demand release from aluminum-silicon alloys and other users in the short term. There is an expectation that the transaction focus of some low-grade specifications may rise by 100-200 yuan/mt. However, given the broader supply and demand context, it will take time to digest industry inventory, and some users in the industry remain cautiously observant. The possibility of a sustained rebound is still low.