Recently, the price of the main contract of industrial silicon has been consolidating in the range of 8,100 to 8,300 RMB per ton. The market focus is on the supply-demand mismatch caused by the release of incremental supply during the abundant water period and the persistently weak downstream demand. In the short term, high inventories cap the upside of prices, while cost floors limit the downside, making it difficult for industrial silicon prices to form a trending market.
Caution in Resumption of Silicon Smelters in Southwest China
Currently, the southwest region is in a high-water period, with seasonal incremental output gradually materializing, but weak prices have dampened the enthusiasm of enterprises for resuming production. Industrial silicon production capacity is concentrated in regions such as Xinjiang, Yunnan, and Sichuan. Leveraging the advantages of self-owned thermal power plants, leading enterprises in Xinjiang have low comprehensive costs, and even when the industry is at the break-even line, mainstream units can operate stably. Entering the third quarter, Yunnan and Sichuan enter a high-water period, and hydropower prices decline, theoretically providing the impetus for production resumption.
According to statistics, by late July, the spot price of industrial silicon remained around 9,000 RMB per ton. The persistently weak spot price has made most silicon smelters in the southwest region cautious about resuming production. Only a small number of furnace units with cost advantages have resumed production in an orderly manner, and the overall increase in operating rate has fallen short of market expectations. China has a huge scale of effective production capacity. Once the price rebounds above the break-even line, idle production capacity will resume rapidly, thereby limiting the upside of the price.
In the first half of the year, China's exports of industrial silicon saw a slight year-on-year increase, yet the export volume accounted for a small proportion of the country's total domestic output. Overseas purchases were mainly driven by rigid-demand restocking, lacking sustained incremental growth, and thus were not the core driver pushing up the price of industrial silicon. After October, the southwest region will enter a normal water period or even a dry water period, and the rise in electricity prices will boost local production costs. By then, high-cost production capacity will have a stronger willingness to take the initiative to cut output, which is expected to ease supply pressure in a phased manner. This also constitutes the medium-to-long-term trading logic.
Downstream enterprises mostly adopt a just-in-time procurement model
The demand for industrial silicon lacks a strong incremental growth, and downstream enterprises mostly adopt a just-in-time procurement model. Polysilicon is the largest consumption segment of industrial silicon, accounting for 50% of its total demand. Currently, polysilicon prices are under pressure, creating a negative feedback loop throughout the industrial chain from top to bottom. Although there is growth expectation for new photovoltaic installed capacity in the long term, the finished product inventories of modules and silicon wafers are relatively high in the short term. Polysilicon manufacturers have taken the initiative to cut production and reduce negative loads, and their raw material stockpiling is relatively cautious. Their procurement of industrial silicon tends to be on-demand, with no large-scale stockpiling activities in sight. Organic silicone is the second-largest consumption segment. The terminal real estate demand is weak; while the new energy vehicle and electronic material sectors bring some incremental demand, this is insufficient to offset the decline in traditional industries. The price of organic silicone DMC has weakened, squeezing industry profits, and some enterprises are operating at low loads, which weakens the consumption elasticity of industrial silicon. Aluminum alloy is the third-largest consumption segment, and its demand for industrial silicon is relatively stable. The lightweighting of automobiles provides long-term support, but monthly consumption volume fluctuates little, only forming a rigid support and failing to bring marginal growth. Comprehensive analysis shows that there is no motivation for concentrated restocking across all downstream segments of industrial silicon.
Inventories are relatively high compared with the same period in previous years
At present, the inventory of industrial silicon is relatively high compared with the same period in previous years. Traders have abundant supply, and under the influence of the sentiment of "buying up and not buying down", the downstream has a strong wait-and-see atmosphere, slowing down the circulation speed of spot goods. The destocking of inventory relies on two conditions: concentrated restocking by downstream users or active and substantial production reduction by factories. At present, neither condition has been met, and the high inventory situation will exist for a long time.
Costs support prices
Electricity is a major cost item in the production of industrial silicon, accounting for approximately 50% of the total cost. The cost of thermal power in Xinjiang is relatively stable. In the southwest region, electricity prices drop during the wet season, leading to a phased decline in the cost of industrial silicon, while the cost rises significantly during the dry season. At present, the price of industrial silicon is close to the cash cost of some enterprises, inefficient production capacity is likely to be phased out, and there is limited room for further price declines. However, before a noticeable improvement in demand, costs can only support prices and cannot drive their upward trend.
Overall, the industrial silicon market is currently in a weak state with sufficient supply elasticity, lack of incremental demand, high inventories, and costs supporting prices. It is expected that industrial silicon prices will maintain a weak and fluctuating trend in the later period, constrained by downstream procurement on demand from above and by the expectation of production cuts at inefficient capacity from below.
SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.
