Weak Supply and Demand Drag Silicon Metal Futures Down Over 2%; Some Silicon Companies Are Still Expected to Undergo Maintenance. How Will the Market Perform in January?

SMM, December 31: On the last trading day of 2024, the main contract of silicon metal futures continued to decline after opening. By the close of the daytime session, the main contract of silicon metal futures had dropped by 2.01%, closing at 10,985 yuan/mt, leading the decline among domestic metals. The weak fundamentals of silicon metal were the main reason for the continuous decline in its futures prices.

In the spot market, according to SMM spot quotations, above-standard #553 silicon metal (east China) fell by 100 yuan/mt on the last trading day of the year, with spot prices at 11,200-11,300 yuan/mt and an average price of 11,250 yuan/mt, marking a three-year low.

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Fundamentally, according to the SMM survey, the current silicon metal market is in a state of weak supply and demand.

Supply side:

In Sichuan, due to high electricity prices during the current dry season and the sluggish silicon metal market, SMM's surveyed silicon enterprises in Sichuan further reduced production. Currently, only a few silicon enterprises in Sichuan remain operational, with operating rates dropping to historical lows. As of December 27, the weekly operating rate of SMM's surveyed silicon metal enterprises in Sichuan was 12.82%. Meanwhile, the weekly operating rates of surveyed enterprises in Yunnan and Xinjiang were also at low levels compared to the same period in recent years. SMM expects production to continue decreasing from December to January 2025.

Inventory:

Since the beginning of 2024, with the continuous increase in silicon metal production and the oversupply in the market, silicon metal inventory has continued to rise. As of December 27, China's weekly social inventory of silicon metal had reached approximately 538,000 mt, hitting a three-year high.

Demand side:

For polysilicon, as the industry is also in an oversupply situation, there were previous reports of production cuts by polysilicon enterprises. Although market sentiment for polysilicon has recently improved significantly, the decline in December production is already confirmed. SMM estimates that domestic polysilicon production in December was approximately 93,000 mt, down 19.8% MoM from November, reducing demand for silicon metal. Additionally, some polysilicon enterprises plan minor production cuts in January 2025, and demand for silicon metal in January is expected to remain weak.

For silicone, monomer plant operating rates slightly declined last week, with central China monomer enterprises reducing loads recently. Silicone DMC prices rose slightly during the week, but purchasing of silicon metal remained cautious. Regarding January production schedules, SMM expects that with the impact of reduced operating rates among downstream enterprises and increased willingness for line maintenance during the Chinese New Year, January operating rates may slightly decline, and monthly production may also decrease slightly. However, no large-scale shutdowns are currently planned, so production is expected to remain at high levels.

For aluminum alloy, operating rates of aluminum alloy enterprises were basically stable last week. This week, aluminum prices fluctuated rangebound, with secondary aluminum alloy prices rising quickly but falling more slowly. Recent purchases of silicon metal have been on an as-needed basis.

Overall, year-end demand for silicon metal from downstream buyers was insufficient, with stockpiling sentiment among buyers remaining subdued. Some end-user enterprises indicated that pre-holiday stockpiling was largely completed, while year-end inventory pressure on manufacturers gradually increased. Some silicon enterprises in south-west China have recently suspended quotations and shipments. Overall, demand for silicon metal remained weak, with few market orders and transactions. Some silicon enterprises reported expectations for maintenance and production cuts next month, with operating rates in the silicon metal industry expected to weaken further in January 2025. Against the backdrop of weak supply and demand, silicon metal prices are expected to fluctuate downward in the short term.

Institutional Comments

Zhongcai Futures stated that, fundamentally, silicon plants in south-west China continued to cut production, while some silicon plants in Xinjiang resumed production, with the number of new furnaces gradually increasing. However, as production cuts in Sichuan were more significant, supply continued to contract marginally. Most silicon plants in Xinjiang maintained hedging orders until the end of December, with a few extending into January. Small plants may consider shutting down furnaces after fulfilling orders if the futures market does not provide hedging opportunities. On the demand side, some production capacity of leading polysilicon enterprises in south-west China was shut down or reduced, with December polysilicon production expected to decline further to 90,000 mt. For silicone, operating loads at some monomer enterprises decreased, leading to a slight decline in operating rates. For aluminum alloy, demand for secondary aluminum alloy increased as year-end automobile sales surged, but operating rates slightly declined due to insufficient raw material supply. Overall, while supply contracted marginally, demand for polysilicon also weakened. The fundamentals of silicon metal showed no significant improvement, with high inventory and warehouse warrants continuing to weigh on the futures market. In the short term, silicon metal prices are expected to fluctuate downward, with attention on the cash cost line of small plants in Xinjiang.

Guotou Futures commented that the market remained sluggish, with some silicon enterprises in south-west China suspending quotations. Downstream polysilicon production cuts in December were effective, with production expected to decline further in January next year. Silicone monomer plant operating rates declined during the week, and purchasing of silicon metal remained cautious. With weak downstream demand and high silicon metal inventory levels, the futures market fell below the average cost in northern regions. Prices are expected to stabilize at the bottom in the short term, with the downward trend continuing.

Guoxin Futures noted that on the supply side, enterprises in south-west China continued to cut production, while some enterprises in north-west China shut down furnaces due to losses, resulting in little change in weekly production. On the demand side, polysilicon prices rebounded from low levels, downstream wafer destocking was moderate, and the PV industry chain remained largely stable with minor fluctuations, keeping demand for silicon metal at low levels. Silicone DMC prices rebounded from low levels, but enterprises continued to face significant losses, with production slightly increasing. Silicon metal remained in a state of weak supply and demand with high inventory levels. After the New Year holiday, large enterprises are expected to resume production, and futures and spot prices are likely to continue declining in the short term, with prices remaining under pressure.