Silicon price forecast after spectacular rally
Silicon is one of the most profuse natural elements on Earth and is used in an increasing number of products from autos and computers to solar panels.
It is not a widely covered commodity by either analysts or investors, particularly in comparison with others such as copper or aluminum. But an almost quadrupling of prices since September has made the headlines and sparked greater interest in its investment potential.
The market run may not have run its course, so let’s examine the potential factors leading to the current high prices of silicon.
Manufactured Silicon is made from the reaction of silica sand and carbon materials, such as coke, in high-temperature furnaces – an energy-intensive process entailing lengthy permit and financing procedures to open or restart plant capacity. It is used to make aluminum alloys for the auto industry, in silicones for products including semiconductors, and a purified form called polysilicon is used for photovoltaic or solar panels.
Businesses ranging from carmakers to computer hardware companies will often try to secure supplies via traders from silicon producers, which are mostly in China but also in the US and Europe.
China accounts for about two-thirds of silicon production, with Russia, the US and Europe also producing the metal but in much smaller quantities.
Silicon price prediction depends on Chinese production
Silicon is not the only commodity to have hit highs in the last couple of months after global dependency on China was further exposed after it rationed power consumption because of coal shortages. Before this in June, the US announced it would stop imports of silica-based products made by a Chinese company in Xinjiang because of forced labour issues.
Other commodities hit by China’s power crunch include aluminium, steel and copper, and their prices have also risen. These metals, along with silicon, can be trickier for new investors to follow because they involve more variables including government and company policies compared with, for example, gold, which reacts to headline inflationary news.
The silicon price trend is bound to China and its imposition of power rationing in September, which sparked an attendant order to silicon producers in Yunnan province to cut production by 90% below August levels in the months of September to December to save energy.
The global silicon metal market is estimated at roughly three million tonnes against around 2.5 million tonnes in 2015. Wood Mackenzie expects a deficit of 92,000 tonnes this year compared with a shortfall of 41,000 tonnes last year. It also expects solar energy to account for 19% or 658,000 tonnes of total demand this year compared with 598,000 tonnes in 2020.
Silicon price forecast: Evaluating key levels
Silicon price news is often in short supply, making silicon price analysis somewhat challenging.
Prices for export-quality Chinese silicon have gone as high as $9,800 (£7,092) per tonne from around $2,000 a tonne during much of the past two decades, while in Europe they were even lower.
Chinese domestic prices for high-quality 5-5-3 grade metal were assessed by Argus at CNY55,000-55,500 per tonne delivered to ports, up sharply by CNY22,000 on 16 September and the highest since Argus launched this assessment in November 2006. Export prices were assessed at $8,500-$8,550 per tonne, up from $5,120-$5,150 over the same period.
European silicon prices have also risen sharply. Argus assessed prices at €4,100-€4,300 per tonne for 5-5-3 grade metal and €4,200-€4,400 for 4-4-1 grade on 16 September, up by more than €1,500 since late August.
The market could receive a liquidity boost with a new futures contract. At a meeting of China’s Nonferrous Metals Industry Association on 23-24 September, participants discussed introducing a futures contract for 5-5-3 and 4-2-1 grade silicon metals on the Guangzhou Futures Exchange.
Note that past performance does not guarantee future results.
What’s next for the silicon price forecast?
When deciding whether to invest in silicon, investors must consider whether the market has already priced in the Chinese production curb or whether silicon has room to rise, for example, on the back of production cuts in Europe because of energy issues there.
Eurometaux, Europe’s non-ferrous metals industry association, has already warned the European Commission in an open letter that it may have to move operations away from Europe because of rising power prices. Electricity costs make up to 40% of the production costs for primary non-ferrous metals while one-third of Europe’s aluminium smelters, for example, have closed in the last 15 years.
“Producers of aluminium, copper, nickel, zinc, and silicon are right at the frontline of those industries impacted by Europe’s high electricity prices, as non-ferrous metals are more electricity-intensive to produce than any other material and priced globally as commodities,” said the letter.
“Installations are already curtailing their production as a short-term measure, and we are concerned that the risk of relocation is very real if high prices become systemic – continuing the carbon and investment leakage in our sector.”
The outlook for high silicon prices appears robust because Chinese production is not expected to ramp up again until the middle of next year and a global shortfall has been forecast.
Furthermore, silicon can be grouped with so-called ‘green’ metals such as copper and lithium that are needed for decarbonisation as the world attempts to cut greenhouse gases and arrest climate change.
“The more we decarbonise under the present model, the more we ‘metallise’ the economy,” wrote Ole Hansen, head of commodity strategy at Saxo Bank, in his latest quarterly outlook note.
“The supply chains, meanwhile, are inelastic due to a lack of support for permitting, board approval and a lack of capital flowing into the ‘dirty’ production side of the equation due to ESG [environmental, social and governance] priorities.”
But if China can ease its coal shortage with miners boosting production among other planned energy measures, then silicon production cuts could be reversed, the shortfall reduced, and silicon prices cut.
FAQs
Is silicon a good investment?
Silicon may have been seen as an esoteric commodity given its lack of high volumes compared with gold, for example. Silicon is necessary for a number of industries, some of which are growing, such as computing, electronics and solar power.
The decision to invest in silicon must be based on your own analysis and evaluation. You should consider the commodity’s price and fundamentals and always conduct your own research before making any investment or trading decision.
Will silicon prices rise?
At present, the silicon price trend is tied to power rationing in China and its order to silicon producers in Yunnan province to cut production by 90% below August levels in the months of September to December to save energy. Production in China is not expected to ramp up until the middle of next year so the price of silicon might see further gains.
Will silicon prices fall?
Silicon prices could fall and markets go against you, given that multi-year records have already been broken. If China reverses its energy-saving policy, then silicon production could go back to more normal levels and the price rally could end.