The past two years have been a rollercoaster ride in the silicon metal and ferrosilicon markets, as with many other metals. Market conditions were weak through 2019 as surplus supply overhung the market ahead of the world facing the first lockdowns to combat the COVID-19 pandemic. As with some of the other production-cost-bast steel alloy markets, COVID-19 had a limited impact on prices as the industry was close to its floor. Nevertheless, the low price and weakening demand saw production cutbacks for two consecutive years in both the metal and alloy industry.
London; UK, May 17, 2021 (GLOBE NEWSWIRE) --By the end of 2020, two years of production cutbacks ensured that stock levels were low. At the same time, the recovery of demand from the initial impacts of COVID-19 began to gather momentum, and production costs moved back up, partly due to the spike in coal prices at the end of the year. It was the perfect storm to cause a substantial increase in spot prices for silicon products. Energy coal prices are a key cost driver, both via their direct impact on reductant costs and their indirect impact on electricity prices; futures prices for energy coal suggest that prices are likely to remain elevated for some time above their 2019-20 low point.
While the supply of silicon metal and ferrosilicon is interlinked via available capacity, their demand sectors are mutually exclusive. The three main uses for silicon metal are the production of aluminium alloys and as a raw material for the manufacturing of silicones and polysilicon, while for ferrosilicon these are steel, iron castings, and magnesium. In each case, the top-three applications account for 99% of global silicon metal or ferrosilicon demand, respectively.
The last decade has seen diverging fortunes for the silicon market. Ferrosilicon has contracted slightly since its peak in 2011, despite the growth in steel markets. The main explanation for this contradiction is that there has been a significant reduction in ferrosilicon use per tonne of crude steel produced, especially in China. Silicon metal, on the other hand, has seen growth in all three of its major applications, especially from healthy growth in the solar sector.
Over the next decade, Roskill forecasts the growth to continue to sit with silicon metal, though some subtle differences underpin each market. For silicon metal, aluminium will remain the largest end-use sector for silicon metal but its dominance of overall silicon metal consumption will continue to diminish, as this industry is heavily weighted towards automotive applications, and trends in this sector are expected to negatively impact the growth of silicon metal consumption. The solar industry is forecast to continue to underpin healthy growth for silicon metal, with silicon adoption in lithium-ion batteries offering a potential market upside with exposure to the electric vehicles sector.
Back to ferrosilicon, the potential for further reduction in unit consumption in China's steel industry is approaching its limit, which should enable ferrosilicon consumption to begin to grow again this decade. Though relatively modest, Roskill's forecast global ferrosilicon consumption to finally exceed the peak 2011 level by the second half of the 2020s.
