Exploring the Factors Behind Volatility in the Silicon Market

The high volatility of silicon metal prices impacted multiple end-use industries over 2021–22. Prices spiked multi-fold in 2021 compared with 2020, but declined by 60–70% in 4Q22, primarily driven by supply-demand dynamics and varying cost of production. 

Prices of silicon metal, the key raw material for semiconductor, solar, silicone and aluminium alloy industries, have been highly volatile in the past couple of years. During 2021–22, prices of silicon metal surged by 3–4x compared with 2020, majorly driven by limited supply and increased demand. As the production of silicon metal is an energy-intensive process, the energy rationing in China and surging energy costs in Europe had a negative impact on global supplies. Furthermore, rising demand of silicon metal for multiple applications, including solar cells, contributed to the price rise. However, prices started declining from 4Q22 and reduced substantially by 60–70% in the past two quarters owing to improved supply and weak demand, but partially offset by demand from the solar industry.

Scenario over 2021–22

Prices of metallurgical grade silicon increased by 3x to USD6,000–9,000/MT (metric tonne) in 2022 from USD2,000–3,000/MT in 2021. This escalation was majorly attributed to the increase in supply deficit to more than 1 million MT, impacted by the electricity regulations imposed in China (leading silicon metal producing and exporting country across the globe) and high energy cost in Europe. Moreover, a double-digit growth in demand over this period was contributed by silicone, semiconductor, solar cell, and lithium-ion rechargeable battery industries, which fuelled price hikes.

Prices of silicon metal grew robustly in 2021-22, primarily impacting end-use industries such as aluminium alloy, silicone, solar, and semiconductor.

Major Price Drivers

Restricted Supply

Annual production of metallurgical grade silicon metal across the globe was ~3 million MT as of 2020-21, with China accounting for the majority share at ~80%, followed by Europe and the Americas. In 2021, Chinese provincial authorities implemented carbon emission reduction measures by imposing energy consumption controls on plants dependent on fossil fuels, such as coal. As a result, manufacturing plants primarily dependent on coal reduced production output by 80–90%. Limited supply, environmental inspections, and production cuts in the Chinese provinces of Yunnan, Sichuan, and Xinjiang reduced the total supply of silicon metal by end-2021.

Due to the ongoing energy crisis in Europe, energy has been diverted toward households and critical item industries, resulting in curtailed production and shutdown of facilities across the silicon metal industry. For instance, Norway-based silicon metal manufacturer Elkem cut production due to the potential power crisis in Brazil, where the company has manufacturing facilities.

Higher cost of energy resulted in operating costs rising 20–30% to USD2,000–2,200/MT in 2021-22 from USD1,500–1,800/MT in 2020. Electricity contributes 40% to the total production cost. Hence, the price rise impacted major production areas in China and Europe, resulting in high utilities cost. In addition, prices of petroleum coke in China grew 30–35% to USD482/MT in 2021.

Increase in Demand from Various Industries

Annual demand for silicon metal was 3.5–3.75 million MT as of 2021-22, with ~45% of total demand from aluminium alloy, ~35% from silicone, ~15% from solar panel, and ~5% from semiconductor industry. However, demand for silicon metal from the solar panel industry is expected to increase by 10–15% in 2023 vis-à-vis other industries, as silicon-based solar cells feature high efficiency, low cost, and extended lifetime. Surging demand for renewable sources of energy worldwide would further fuel demand for silicon metal. For instance, the US solar industry aims to supply 30% of domestic energy by 2030.

Rise in demand and restricted supply increased the deficit of silicon metal across the globe to ~1 million MT.

Impact on End-use Industries

Due to the rise in prices of silicon metal, end-use companies raised the prices of end-products. For instance, Wacker Chemie AG, a leading silicone manufacturer, increased the prices of end-products (fluids, emulsions, resins, elastomers, sealants, silanes, silane-terminated polymers, and pyrogenic silica) by 20─30% from mid-2021. Shin-Etsu increased prices of silicones by 10% from May 2022. In addition, many end-use companies are collaborating with silicon manufacturers to secure long-term supply to mitigate supply challenges. However, the scenario changed during 2022–23 due to the decline in prices of silicon metal.

Scenario over 2022–23

Prices of silicon metal sharply declined from end-2022. Prices reduced by 60–70% over 4Q22–1Q23, averaging at USD2,000–3,000/MT across the globe. The considerable price drop was primarily attributed to sluggish market demand and reduced cost of production.

Major Price Inhibitors

Weak Demand

Market demand for silicon metal was low, with only a few purchase requests received. Downstream industries were also constantly changing their production rhythms due to lower demand and limited raw material supply. In China, although demand increased after factories resumed production post the removal of pandemic-led restrictions, silicon metal prices remained on the lower end of the scale. 

Reduced Cost of Production

Reduced prices of raw materials, such as coke, and stable energy prices helped cut production costs, which further contributed to the decline in prices of silicon metal. 

Increase in Supply

Suppliers are planning to increase the production capacity for silicon metal worldwide. Globally, 0.5–1 million MT of capacity is expected to come online by 2025, of which China is forecast to contribute over 50%, followed by Europe, the US, and others. 

Planned capacity expansion during 2022–23: 

• UK-based Ferroglobe restarted the second furnace at its Selma facility in Alabama, the US, with total annual production capacity of 22,000 MT.
• Chinese polysilicon producer Daqo New Energy plans to add 180,000–220,000MT/year of polysilicon capacity by end-2023.
• TBEA Co plans to increase output of polysilicon to 240,000–250,000 MT in 2023 from 110,000–120,000 MT in 2022. 

Planned capacity expansion by 2025:

• GCL Technology, a major producer of raw materials for solar panels in China, in collaboration with TCL, plans to set up a production base in Hohhot, Inner Mongolia, to manufacture 10,000 MT of polysilicon and 100,000 MT of granular silicon in the next few years.
• Wacker Chemie AG is planning to expand production capacity in Norway, scheduled for completion by 2025.
• UAE-based Emirates Global Aluminium (EGA) announced the commencement of a project to manufacture silicon metal in the UAE. Currently, the UAE has no domestic silicon metal production capacity and EGA is one of the largest importers of this material with ~60,000 MT of annual demand.

Conclusion

Prices of silicon metal were highly volatile in the past two years, rising by 3–4x over 2021–22, but sharply declining from end-2022. The supply-demand dynamics of various end-use industries is majorly impacting the prices of silicon metal globally. Furthermore, the increase in the production capacity of silicon metal by 0.5–1 million MT in the next couple of years will limit any rise in prices. Prices are expected to average at USD2,000–3,000 /MT across the globe over 2023–24.