European silicon prices have surged to 15-year highs on sharp output cuts in China and record high regional gas prices, forcing multiple large consumers to approach the market after cancelled deliveries.
Prices were last assessed at €4,100-4,300/t ($4,810-5,050/t) ddp Rotterdam for 5-5-3 grade metal and €4,200-4,400/t ddp Rotterdam for 4-4-1 grade on 16 September, up by more than €1,500/t since late August. The steep jump is largely underpinned by China's Yunnan province imposing energy consumption controls for September-December, aimed at reducing its silicon output by 90pc from August levels. Producers estimate that Yunnan's output totalled 60,000-70,000t in August.
With Chinese supply curbed and rising sharply in price, many aluminium producers who are reliant on Chinese silicon are approaching alternative suppliers — squeezing an already tight European market. One silicon producer in Europe has received an enquiry for 1,600t of 3-3-0-3 grade and 720t of 4-4-1 grade silicon metal to be delivered in the fourth quarter from an aluminium producer that would usually fill up much of its quota from China. Another European trader recently sold 50t of 4-4-1 grade silicon metal at €4,450/t fca southern Europe to an undisclosed customer, underscoring how high prices are pushing.
Market participants expect several consumers — including large primary and secondary aluminium producers and chemical silicone producers — to approach the market for material in the fourth quarter, and not only seeking silicon metal.
Some traders have been forced to default on contracts, and various sources have bemoaned the current market structure. "The way large companies did their purchasing of silicon was unsustainable, pushing all the risk on to traders," a southern European silicon trader said. "Some traders cannot absorb these rises, they will go bankrupt. We will have to negotiate protection clauses this year in light of this situation."
"Anyone buying from China or with contracts in China is essentially in force majeure now," a trader in northwest Europe said. "Our stocks are very limited so we're reluctant to offer anything large. Chemical producers will be knocking on doors for the rest of the year. I know there have been price renegotiations and customers have had to accept them."
Chinese silicon prices effectively provide a "ceiling" for European prices, with imports from China historically filling any shortfalls in European supply. But with fob China prices having risen so sharply — last assessed at $5,120-5,150/t fob — and European anti-dumping measures also in place, it is uneconomical for Europe to import more Chinese material and regional supply is likely to remain tight.
Gas prices pressure European producers
A secondary price pressure has emerged in recent weeks, with European gas prices surging to record highs. Europe's largest silicon producer Ferroglobe has this month idled a furnace at one of its plants in Spain in part because of rising energy costs, compounding the overall tightness of the silicon market.
Meanwhile, secondary aluminium producers' input costs are now rising to a point where some may need to adjust their operations. "Smelters are getting very nervous about gas prices in Europe for silicon and themselves," one aluminium trader in central Europe said. "Along with a squeeze on extrusion scrap, costs are getting to a point where they might have to consider their output."
Most aluminium producers in Europe may need to accept some limits on output in the coming months if input costs do not stabilise. Some market participants have called for a political response to Chinese supply issues.
"The EU and US governments need to consider some options," a secondary aluminium producer said. "I believe this is a commercial war. It's a political issue and we are not responding in the proper way."
Potential measures available to the EU could include reconsidering anti-dumping duties on Chinese silicon metal.
