Loss-Driven Supply Reduction Heats Up Industrial Silicon Long-Short Game[SMM Analysis]

SMM, July 31: Industrial silicon prices trended weakly with intensified long-short trading tensions this week, as capital activity in the futures market picked up notably. As of July 30, open interest of the SI2609 main contract reached 290,000 lots, up 21,000 lots week-on-week. The futures price moved lower throughout the week and closed at 8,175 yuan per ton, down 120 yuan per ton from the previous week. In the spot market, the quotation of 553# industrial silicon in Tianjin stood at 8,750–8,850 yuan per ton, a week-on-week drop of 100 yuan per ton. The sustained decline in futures prices has widened losses for domestic silicon producers, driving strong price-support willingness at the production end and highlighting obvious divergence between spot and futures prices.

Structural conflicts and game dynamics across the industrial silicon industrial chain have intensified, with a clear market divergence between upstream and midstream sectors. Most silicon producers are facing cash flow losses, and some have launched maintenance and passive production cuts, bringing about marginal supply reduction. However, the scale of current production cuts is limited, exerting weak impact on the overall supply pattern and failing to form a directional driving force for market trends. Producers generally hold price-support and sales-restraining attitudes and are reluctant to cut prices to boost transactions. Factory inventories continue to accumulate, leaving potential supply pressure in the market.

Different from the upstream situation, the midstream circulation sector has witnessed continuous social inventory destocking for consecutive weeks. At the low futures price level, spot-futures traders have increased trading activity and continued to liquidate inventories. The shrinking tradable spot supply has steadily strengthened the basis, making spot prices far more resilient than futures prices.

On the demand side, downstream enterprises mainly adopt rigid-demand purchasing strategies and tend to procure goods at low prices. In terms of segmented demand, polysilicon production capacity in Sichuan and Inner Mongolia will keep ramping up in August, bringing noticeable output growth and providing phased support for industrial silicon demand. Silicone enterprises will hold an industry meeting in early August, with market participants closely watching the meeting’s outcomes and their impacts on DMC prices and operating rates. Affected by the high-temperature off-season, the aluminum-silicon alloy industry suffers from insufficient end orders and low operating rates, and demand improvement is expected to emerge in the mid-to-late August and September peak season.

Overall, the market presents prominent structural contradictions: upstream producers support prices amid losses with rising factory inventories, midstream traders destock continuously and push up the basis, while downstream purchasers insist on low-price procurement. The multi-dimensional market game has weakened overall trading liquidity. Costs form a solid bottom support for spot prices, while high factory inventories and sluggish off-season demand cap upward price momentum. Industrial silicon prices will maintain weak consolidation with lingering long-short disputes in the short term. Sustained market downturns may trigger further active production cuts on the supply side.