【2023 Non-ferrous Metal Market Outlook】Industrial Silicon: Booming Supply and Demand in 2023, with Periodic Contradictions Throughout the Whole Year
Looking back at 2022, the price trend of industrial silicon can be divided into four phases. In the first quarter, Sichuan and Yunnan entered the dry season, keeping the nationwide operating rate at a relatively low level. Industrial silicon went through a cyclical inventory reduction. Meanwhile, newly commissioned capacity of downstream organosilicon and polysilicon ramping up brought incremental demand, pushing prices higher.
In the second quarter, the spread of the epidemic across regions dampened downstream consumption of silicon products. Silicon producers maintained roughly normal operation, resulting in a supply surplus amid weak demand, and prices came under downward pressure.
In the third quarter, supply was disrupted by epidemic restrictions and power rationing in southwest China. Although downstream demand saw no notable improvement, holders of silicon goods deliberately propped up prices, sending prices fluctuating higher.
In the fourth quarter, downstream demand remained sluggish. In particular, more organosilicon monomer manufacturers fell into losses and cut operating rates. Silicon prices returned to fundamental trends and kept declining.
From the supply side, China’s total output of industrial silicon reached 3.5 million tons in 2022, an increase of 590,000 tons or 20% compared with 2021; a total of 625,000 tons of new domestic industrial silicon capacity was completed in 2022, yet most capacity was finished in the second half of the year, and new capacity was put into production later due to the pandemic with limited actual output release, so the sharp output growth in 2022 was mainly driven by the higher operating rate of existing capacity. 2023 is expected to see rapid expansion of industrial silicon capacity, with about 1.27 million tons of new industrial silicon capacity to be commissioned. Polysilicon and organosilicon enterprises have extended upstream to industrial silicon to guarantee stable raw material supply, forming an obvious trend of industrial chain integration. New capacity is mostly built in Xinjiang, Inner Mongolia, Gansu and other northern regions where industrial silicon capacity is rising fast, and industrial silicon supply is expected to maintain a year-on-year growth rate of 15%-20% in 2023.
From the demand side, domestic downstream consumption of silicon (including 97-grade silicon and recycled silicon) reached 2.93 million tons in 2022, while annual exports stood at 650,000 tons, a year-on-year decrease of 126,800 tons or 16%. The total volume of domestic consumption plus exports hit 3.58 million tons, representing a 14% year-on-year increase. Statistics show that in 2022, organosilicon, polysilicon, aluminum alloy and exports accounted for 30%, 27%, 18% and 18% of total consumption respectively. It is projected that polysilicon will become the largest downstream consumer in 2023, accounting for roughly 40% of total demand. Affected by macroeconomic conditions, the year-on-year consumption growth of organosilicon will be around 6%. As the automotive and construction end markets stabilize, growth in aluminum alloy consumption of industrial silicon will slow down, with an expected year-on-year growth rate of only 2% to 3%.
Among them, polysilicon is divided into two major categories: electronic grade and solar grade. Solar-grade polysilicon used in photovoltaic power generation accounts for approximately 95% of the total. Driven by the "Dual Carbon" goals, the new energy industry is embracing a period of development opportunities. Meanwhile, lured by high profits in the polysilicon sector, the industry has entered a phase of rapid capacity expansion. Statistics indicate that China added 547,000 tons of new polysilicon capacity in 2022, and total capacity is expected to rise to 2.45 million tons in 2023, representing a year-on-year growth rate of 106%. The silicon consumption for photovoltaic applications in 2023 will increase by nearly 800,000 tons compared with 2022, a growth rate close to 80%.
In terms of inventories, major production areas of industrial silicon are located in Northwest and Southwest China, while major consumption regions are concentrated in East and South China. In the first half of 2022, downstream consumption of silicon raw materials was restrained, yet producers in key supply areas kept high operating rates. The oversupply amid sluggish demand slowed the overall destocking of industrial silicon. As of July 8, 2022, the social inventory at Tianjin Port, Huangpu Port and Kunming totaled 88,000 tons, surging 266.7% year-on-year. In the second half of the year, cargo throughput at the two main export ports (Tianjin Port and Huangpu Port) was far lower than that in 2021, and weak overseas demand led to a sharp drop in industrial silicon exports. Social inventories kept rising in the two weeks after the 2023 Spring Festival; by February 3, the combined social inventory across the three locations reached 127,000 tons, up 49.4% year-on-year. In addition, more than 300,000 tons of supply remained unsold in 2022. Apart from visible social inventories, a considerable amount of hidden stocks were held by silicon manufacturers, downstream factories and traders. In 2023, the expected growth in downstream silicon consumption will outpace supply growth, and the earlier surplus supply will be gradually absorbed. Inventory accumulation will slow down and only see a moderate increase throughout the year.
Overall, industrial silicon will witness growth in both supply and demand in 2023; judging from the commissioning plan of new capacity, there may be a time mismatch, namely that the new polysilicon capacity downstream will be put into operation slightly earlier than industrial silicon capacity. In terms of supply by specification, most new silicon capacity is distributed in northern China, and restricted by the quality of silica raw materials, such capacity mainly produces low-grade silicon, while major production areas of high-grade silicon are mostly in the south with low operating rates in the first half of the year, which may cause a supply mismatch among different specifications. From the cost perspective, electricity accounts for about 30%-40% of total costs, and industrial production costs are expected to stay high from January to April and November to December due to high power costs in Southwest China. However, in view of the strong supply situation, we should not be overly pessimistic about the whole year of 2023, and silicon prices are still expected to rise between March and May.
The research team of Xinhua Index Industrial Raw Materials Market Research Center holds the view that new industrial silicon capacity will keep expanding rapidly in 2023. Meanwhile, the development of clean energy will continue to boost downstream demand for polysilicon, which serves as the major driving force for the growth of industrial silicon consumption. It is expected that the industrial silicon market will see vigorous growth in both supply and demand throughout 2023, while periodic supply-demand contradictions will persist all year round.
Key risks affecting silicon prices that need continuous monitoring include slower-than-expected inventory destocking, earlier-than-planned commissioning of new silicon capacity, lower-than-expected operating rates of polysilicon producers, and ample power supply in Sichuan and Yunnan between May and July.
Source: Xinhua Finance
