On the evening of April 12, the Guangzhou Futures Exchange announced amendments to the "Detailed Rules for Silicon Metal Futures and Options Trading." These amendments enhance the delivery quality standards for silicon metal and adjust the premiums and discounts for alternative delivery products. The updated rules will apply starting with the Si2412 contract. Contracts Si2411 and earlier will adhere to the original rules.
Following these amendments, the focus of pricing in the silicon metal futures market could increasingly shift from the previous 421# silicon to the 553# silicon.
Before the changes, the benchmark delivery product for silicon metal futures was defined primarily by the content of iron, aluminum, and calcium, allowing a wide variety of deliverable items. This, coupled with a high premium of 2,000 yuan/mt for alternative delivery products compared to the spot market, made it more profitable to selling 421# silicon metal as a futures contract delivery product. Consequently, the volume of registered warehouse receipts increased to over 240,000 mt. The main demand for 421# silicon comes from the silicone industry, which often has specific requirements for trace elements like titanium. However, due to the high premiums associated with 421# silicon, the downstream market's interest in buying 421# delivery product was low, leading to poor liquidity of warehouse receipt goods flowing to downstream sectors. Previously, many warehouse receipts also found their way to users such as those in grinding mills and polysilicon producers.
Following the rule changes, the primary locations for deliverable silicon metal resources are now in Xinjiang, Northeast China, Fujian, and Hunan, with a notably higher volume in the north compared to the south, shifting delivery resources from southern to northern regions. Additionally, the strict criteria for trace elements like phosphorus, boron, carbon, and titanium in the 421# silicon alternative delivery product mean that not many resources fully meet these delivery requirements. With the reduced premium of 800 yuan/mt less appealing to producers, there is a shift towards selling 553# delivery products, which are more aligned with the needs of downstream polysilicon and PV enterprises.
In Yunnan, silicon producers primarily rely on silica from Zhaotong, with additional supplies from Baoshan and nearby areas. Zhaotong silica typically have high titanium content, and most do not meet the 421# silicon delivery requirements under current production conditions. Conversely, in Sichuan, producers mainly source their silica from Hubei. Here, the majority of the 421# silicon meets the delivery standard with a titanium content of ≤0.05%, and some even achieve as low as 0.04%.
In Fujian, silicon producers mostly use silica from Jiangxi, and their products generally comply with the new regulations. However, high production costs in Fujian result in significantly higher spot prices for silicon metal compared to other regions. In Xinjiang, producers primarily rely on local silica, with additional supplies from surrounding areas. The high-quality silica resources in Xinjiang are concentrated in the Altay region, with some from major factories and parts of Ili meeting the benchmark delivery standards. Silicon producers in the Northeast primarily utilize silica from Liaoning and local charcoal as a reducing agent, effectively controlling the trace elements in their products.
As of April 15, the Guangzhou Futures Exchange reported a total of 49,783 lots of silicon metal futures warehouse receipts, equivalent to 249,000 mt. The majority of these receipts are for 421# silicon, most of which do not comply with the newly revised standards for alternative delivery products, especially regarding titanium content.
By the end of November, there will be a significant cancellation of warehouse receipts, meaning current 421# silicon receipts cannot be regenerated into new ones. This portion of 421# silicon will either enter the spot market or be downgraded and re-registered as benchmark delivery products, provided they meet the standards for phosphorus, boron, and carbon, and are produced within the 90 days prior to the end of November.
Given the stringent trace element standards, only a small proportion of the current warehouse receipts can potentially be downgraded to benchmark delivery products. Consequently, most existing receipts are likely to be utilized by downstream polysilicon and grinding milling enterprises. With the spot-futures arbitrage window not yet open and poor liquidity of the warehouse receipts, there is a bearish influence on near-term silicon metal futures contracts. Additionally, there is an anticipation that these warehouse receipts will be introduced into the spot market at lower prices, prompting a bearish outlook on near-term silicon prices from downstream industries.
For the SI2412 contract and those following, the specifications for benchmark delivery products are stringent, requiring a minimum silicon content of 98.7%, with iron content not exceeding 0.50%, aluminum content not exceeding 0.50%, calcium content not exceeding 0.30%, phosphorus content not exceeding 0.008%, boron content not exceeding 0.005%, and carbon content not exceeding 0.04%. Meeting these delivery requirements with current silicon production methods is challenging. Given the strict specifications for benchmark delivery products, a quality premium over standard 553# silicon is justified.
The trace element content in silicon, including phosphorus, boron, titanium, and carbon, is heavily influenced by the quality of raw materials such as silica and coal. As a result, demand for high-quality ore and coal is expected to rise. The new regulations will start with the SI2412 contract, while the existing rules will remain in effect for the SI2411 contract and earlier. These updates aim to address the issue of poor liquidity in warehouse receipts and enhance the effectiveness of futures instruments for both upstream and downstream enterprises.
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