Silicon prices could rise in 1Q despite oversupply

Global silicon prices have the potential to increase in the first quarter of 2020 despite supply-demand fundamentals remaining weak, as China's dry season leads to production cuts and price hikes, enabling European producers to keep lifting their offers as well.

Argus last assessed prices for 5-5-3 grade silicon metal in a range of 11,000-11,200 yuan/tonne dat Chinese ports on 5 December. This was down from Yn11,500-11,700/t a year earlier owing to weaker demand from the automotive sector, but up from Yn10,300-10,500/t in mid-October.

If seasonal norms prevail, Chinese prices have potential to keep rising until the end of the dry season in March, as lower hydropower output drives up electricity costs, encouraging many Chinese silicon plants to cut production (see chart).

The market is now caught in a paradox, with prices rising despite subdued demand from the automotive sector and a widespread perception that the silicon metal market is oversupplied, particularly in Europe. Customs data released late last week confirmed a 26.1pc year on year drop in China's silicon metal exports in October to 51,341t, because of lower buying interest from aluminium alloy producers, which are themselves facing weaker demand for their products from the automotive sector. But China continuing to export silicon is in itself indicative of the abundance of supply in the market.

Oversupply is particularly severe in Europe, despite European producer Ferroglobe's wave of output cuts, with market participants saying the latest regional price rise is partly owing to the fact that European suppliers stopped offering material for prompt delivery in November, potentially to create spot price support rather than as a result of production cuts. They have continued to offer 5-5-3 grade silicon metal at over €1,700/t for January-February delivery delivered duty paid (ddp), which compares with Argus' latest assessment of prompt ddp Europe prices in a range of €1,650-1,700/t.

Europe's automotive sector remains under pressure despite regional sales rising in October, with German production of passenger cars down by 9pc from a year earlier at 3.98mn in January-October, according to European automobile manufacturers association ACEA.

China-EU price spread wavers

Further Chinese price gains will create scope for European sellers to hike their prices without enabling Chinese material to price into Europe comfortably. October trade data indicate a drop in Chinese silicon exports to Europe, after narrower price spreads in the third quarter encouraged European buyers to stick with regional suppliers. But those spreads have shifted lately, leading to expectations of rising competition for European market share.

Chinese 5-5-3 grade silicon metal is seen offered into Europe for January-February delivery at the equivalent of €1,745/t ddp at present, including the EU's 22pc anti-dumping duty. This is roughly equivalent to some offers from European producers for the same delivery period. Buyers will be taking other factors into consideration when weighing up offers, such as relationships with suppliers and any quality concerns, but the prospect of such close competition means European suppliers are currently facing a price ceiling unless Chinese prices increase further.

By Ellie Saklatvala

Monthly China hydro output vs silicon prices GWh vs Yn/t