300% rise in silicon causes another price shock around the world

A metal made from the second most abundant element on Earth has become scarce, threatening everything from car parts to computer chips and creating another hurdle for the global economy.

The silicon metal shortage, triggered by a drop in production in China, sent prices up 300% in less than two months. It is the latest in a series of disruptions, from harassed supply chains to the energy crisis, which are creating a destructive mix for businesses and consumers.

The worsening of the situation forced some companies to declare a case of force majeure. Norwegian chemicals maker Elkem said on Friday that several other companies making silicone products had suspended some sales due to the shortage.

The silicon issue also shows how the global energy crisis is impacting economies in multiple ways. The sharp reduction in production in China, by far the world’s largest producer of silicon, is the result of efforts to reduce energy consumption.

For many industries, it is impossible to avoid spinoffs.

Silicon, which makes up 28% of the earth’s crust by weight, is one of the most diverse building blocks of humanity. It is used in everything from computer chips and concrete to glass and auto parts. It can be purified into an ultra-conductive material that helps convert sunlight into electricity in solar panels. And that’s the raw material of silicone – a water and heat resistant compound widely used in medical implants, caulking, deodorants, oven mitts and more.

Despite its natural abundance in raw forms such as sand and clay, warnings have been issued in recent years that increasing industrial demand could create unlikely shortages of raw materials like gravel. Now, with the reduction in production of high purity silicon metal by China, the unlikely fragility of the silicon supply chain is exposed to an alarming degree.

The consequences are also particularly alarming for automakers, where silicon is alloyed with aluminum to make engine blocks and other parts. Besides silicon, they are also facing an increase in magnesium, another alloying ingredient that encountered production problems during the electricity crisis in China.

“If you have silicon supply constraints, then you have a problem,” Keith Wildie, head of trade at aluminum alloy maker Romco Metals, said by phone from London. “There is still supply out there, but it is trading at a clearing price which is obviously very high.”

Silicon metal is made by heating common sand and coke in a furnace. For most of this century, its price has hovered between 8,000 and 17,000 yuan ($ 1,200 to $ 2,600) per tonne. Then, producers in Yunnan province were ordered to cut production by 90% from August levels from September to December due to electricity restrictions. Prices have since climbed to 67,300 yuan.

Yunnan is the second Chinese producer, accounting for more than 20% of production. Sichuan, which also faces power cuts, is third at around 13%. The main producer, Xinjiang, has not yet had major electricity problems.

Along with rising prices for petroleum and metals such as aluminum and copper, the silicon shortage is fueling pressure that has already built up in supply chains, from producers and shippers to trucking companies and retailers. retailers. Their choice is either to absorb it and take the affected margin, or to pass the cost on to customers.

Either way, the dual damaging effect on inflation and growth has raised concerns about the forces of stagflation taking hold globally.

The shortage is already boiling in the solar industry, where a refined and uncluttered form is used in photovoltaic panels.

The price of solar-grade polysilicon jumped 13% on Wednesday, the highest since 2011, following supply cuts. It has increased by more than 400% since early June 2020.

“This is yet another excuse for polysilicon makers to raise the price, and the solar module pricing environment is very nervous right now,” said Jenny Chase, head of global solar research at BloombergNEF.

However, the impact on the price of solar panels is likely to be limited. Polysilicon makers are enjoying high margins this year, which puts them in a position to absorb higher commodity prices than other industries, BloombergNEF analysts said Thursday in a report.

Lasting shortage

Silicon also plays a key role in aluminum alloys, acting as a softening agent. It makes the metal less brittle when producers shape it into different products needed for everything from automobiles to household appliances.

“We’ve been through this before,” Buddy Stemple, managing director of Constellium Rolled Products and president of the US Aluminum Association, said at an industry conference in Washington. “I hope he’s very focused on supply chain disruptions that can come back in a satisfactory time frame to get things done.”

Prices are expected to remain high around current levels until next summer, until more production comes online in the second half of the year, said Yang Xiaoting, senior analyst of the Shanghai metals market. . Demand is increasing in sectors such as solar power and electronic equipment.

“Even if there was no reduction in power consumption, there would be a shortage of industrial silicon,” she said.

Maxwell Adler, Brian Eckhouse and Joe Deaux of Bloomberg contributed to this report.

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