Environmental protection news in Xinjiang on the supply side + polysilicon production reduction on the demand side, how does the supply-demand balance of silicon metal perform? [SMM Analysis]

In November-December, the supply and demand of silicon metal continue to show weakness. On the supply side, there is a seasonal production reduction in Sichuan and Yunnan regions, with silicon enterprises in these areas reducing production by about half in November, and supply is expected to further decrease in December. Additionally, environmental protection news in the "Urumqi-Changji-Shihezi" region of Xinjiang is fermenting, mainly involving the silicon metal capacity of West Hoshine (Shihezi), East Hope (Changji), and Goens (Changji). Due to heavy pollution weather, although production policies have not yet been implemented, there is still a significant possibility of production reduction in December.

On the demand side, silicone companies saw an increase in operating rate MoM in November-December due to capacity resumption after maintenance and new capacity ramp-up, maintaining a high level of demand for silicon metal. The reduction in silicon metal consumption is mainly reflected in the polysilicon sector. In October, polysilicon production was 131,500 mt. In November, due to production reductions and stoppages by first-line polysilicon enterprises in Sichuan and Yunnan, polysilicon production schedule decreased to 111,600 mt, a 15% reduction. In December, the production schedule is expected to drop to 91,100 mt, an 18% decrease MoM.

Based on the supply-demand balance calculation, the confirmed supply surplus in October was 126,000 mt. In November, both supply and demand decreased, with a monthly supply surplus of around 70,000 mt. The supply in December remains uncertain, and the following four assumptions are made for December: Assumption ①: Environmental protection in Xinjiang does not affect local silicon enterprises' production, and the industry is expected to continue inventory buildup in December, with a surplus of around 65,000 mt. Assumption ②: Shihezi region limits production by 50% in December, while Changji silicon enterprises produce normally, with an estimated impact on Xinjiang production of around 25,000-30,000 mt, narrowing the surplus supply in December to around 35,000-40,000 mt. Assumption ③: Both Shihezi and Changji regions limit production by 50% in December, with the supply-demand balance expected to be around 15,000-20,000 mt, indicating a basic balance. Assumption ④: Shihezi and Changji regions significantly reduce production beyond expectations, shifting the supply-demand balance of silicon metal towards destocking.

In summary, from a fundamental perspective, the potential environmental protection-related production reduction in Xinjiang is unlikely to reverse the supply-demand situation but has a strong positive impact on market sentiment, affecting the volatility of silicon metal futures. During the week, the most-traded silicon futures contract fell sharply, with some downstream and traders actively restocking. In the short term, demand is expected to decline, and silicon enterprises without hedging face resistance in shipments. Spot market prices remain under pressure in the near term.