At the beginning of the week, the price of industrial silicon futures underwent a noticeable decline, primarily influenced by fluctuations in market demand. However, in a surprising turn of events on November 29, despite widespread expectations that industrial silicon prices would continue their downward trajectory, these futures rallied impressively. By the close of trading that day, the primary contract for industrial silicon, SI2501, surged by 3.55%, reaching 12,430 yuan per ton.
The volatility in industrial silicon futures this week can be attributed to various market disturbances. According to Wang Yanqing, an analyst at CITIC Futures, an abrupt dip at the week’s start was largely due to news concerning a production cut in downstream polysilicon manufacturing, igniting concerns over demand.
Adding to this complexity, Wang Yu from Jinyuan Futures indicated that macroeconomic factors were at play, particularly the announcement of a 25% tariff on products exported to Canada and Mexico. The market anticipated that a similar tariff on exports to China would hamper photovoltaic (PV) product exports, potentially impacting the end consumption of industrial silicon. Nevertheless, on November 26, the government of Shihezi City issued a notice to initiate a level I (orange) emergency response for severe pollution, leading to renewed expectations of supply constraints and fueling further price volatility. Moreover, on November 29, reports emerged that significant manufacturers were poised to shut down 30 smelting furnaces in the Shanshan production area, resulting in a dramatic rebound in prices that compensated for earlier losses.
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Li Xiangying from Guosen Futures echoed this sentiment by noting that the price fluctuations seen throughout the week stemmed from developments on both the supply and demand sides. The decline in industrial silicon futures early in the week was linked to a weak spot market; higher polysilicon production targeted for December indicated a substantial downturn in industry activity, leading to a rapid decline in industrial silicon demand. At the same time, silicon producers had seen a slowdown in their output reduction rates, highlighting a short-term scenario of oversupply.
Conversely, some industry experts viewed the initial price drop as exaggerated based on fundamental market conditions, suggesting that the Friday increase in prices was more aligned with typical market behavior. Data from Baichuan Yufu indicated that as of November 28, the number of operational furnaces for metallic silicon in China had increased to 318, with an overall operating rate of 42.17%. According to Ji Yuanfei from Guangfa Futures, the slight increase in supply was principally attributed to minor output escalations from enterprises in Xinjiang and Yunnan. Although prices in the downstream PV industry chain have seen a slight upturn amidst production adjustments, the polysilicon market continues to face downward pressure. Despite a projected sharp decline in silicon raw material production for November, substantial cutbacks in the production of silicon wafers are anticipated to keep pressures on polysilicon pricing.
Another pivotal factor is that this week marks a significant period for warehouse receipt cancellations, transferring old receipts into physical inventory. Although there is still a significant overhang of stock—social inventory, for instance, rose to 514,000 tons, with the registered warehouse receipts falling to 45,000 tons due to recent concentrated cancellations. According to SMM data, there remains a balance of 357,000 tons in social delivery warehouses, which includes portions that haven’t yet been registered as warehouse receipts. It is projected that the initiation of new warehouse receipt registrations next week will lead to a rapid resurgence in numbers. Additionally, this week's industrial silicon factory inventory climbed to 190,000 tons, up by 2,000 tons from the week prior.
The critical question now is whether the price rebound in industrial silicon can be sustained. Li Xiangying remains cautious, recognizing that while reduction in output by larger firms creates a favorable upward momentum, the subdued demand from downstream sectors may lead to reluctance from companies to accept higher material prices, consequently limiting the upward potential for industrial silicon prices. However, with many enterprises in southwestern China expected to temporarily cease operations by December, along with potential reductions in output due to environmental concerns in northwestern regions, adjustments on the supply side could provide a buffer against price declines.
The situation in the Shanshan region is particularly noteworthy, where furnace shutdowns will affect nearly 50% of production capacity. If these reductions persist for a significant duration, industry observers speculate that it could spur a broader effort to reduce inventory levels. Wang Yu suggests that while the southwestern region may experience substantial production cuts, the timely replenishment of supplies from northwestern producers maintains a generally adequate supply level. Coupled with persistent high industry inventory levels and increasing reductions in downstream polysilicon manufacturing, the supply-demand dynamic for industrial silicon remains loose.
In the short term, the anticipated production cuts could exacerbate price volatility in the industrial silicon sector, although whether inventories will find a turning point must be evaluated in light of the actual implementation of these production reductions. Wang Yanqing emphasizes that while there are promising signs from large-scale production cutbacks, the rapid decline in downstream polysilicon demand complicates the outlook. Assessing the currently defined reduction scale indicates that support for industrial silicon prices remains limited. Although large firms reducing output has marginally benefitted market sentiment, it does not shift the overall supply-demand landscape towards scarcity. Moving forward, price movements in industrial silicon are anticipated to hinge primarily on supply developments, urging close observation of production trends among northwestern industrial silicon enterprises.
- 2024-06-14
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