European silicon metal prices rose sharply this week as some consumers returned, but market participants are warning that the latest gains might not be sustainable as regional demand still faces multiple headwinds and is only likely to recover at a gradual pace as lockdown measures ease.
Prices for 5-5-3 grade metal in Europe were assessed at €1,700-1,780/t delivered duty paid (ddp) yesterday, up from €1,600-1,720/t on 23 April. Chemical grade 4-4-1 prices were also up, at €1,775-1,850/t ddp compared with €1,690-1,800/t ddp on 23 April.
Several traders returned to the market to restock in anticipation of a rise in enquiries. One trader was offered €1,725/t in Rotterdam, while the lowest offer another trader received was €1,760/t ddp for multiple loads. A third trader offered 4-4-1 grade stock at €1,850/t ddp.
European producers have been operating at limited capacity since the end of 2019 and inventories across the market were already tight before the Covid-19 crisis, keeping prices fairly firm. Prices for 5-5-3 grade metal were assessed at €1,720-1,820/t ddp on 30 January, before the global escalation of lockdown measures.
Buyers in the aluminium alloy sector have been tentative about returning to the market in case lockdown measures are reintroduced. Some producers in Italy and Spain restarted production last week and bought small amounts of material. Demand is expected to increase when the automotive producers in Europe return, but market participants are cautious because indicators in the sector show a quick recovery is unlikely.
Automotive market cause for concern
The state of the automotive industry — a key consumer of silicon metal — remains a major cause for concern among silicon traders and producers.
Some of Europe's largest original equipment manufacturers (OEMs) are starting to return to production, but sales figures are low and the economic damage caused by Covid-19 could continue to weigh on them in the coming months.
"Who's buying any cars or is going to in the next few months? We don't see demand recovering to pre-virus levels for a long time," a silicon trader said.
While prices may increase in the immediate aftermath of lockdowns because of low inventories, market participants expect delivery volumes to be reduced and demand from carmakers to be subdued.
Car sales were down by 55.1pc on the year to 567,308 in March, according to the European Automotive Manufacturers Association (ACEA), and are widely expected to have been worse in April. Commercial vehicle sales were down by 47.3pc from March 2019 at 225,980 units. European sales are forecast to fall by 13.6pc in 2020, according to IHS Markit.
As of 20 April, the ACEA estimated that over 2mn vehicles were not being produced because of shutdowns at carmakers. It is unclear exactly what impact this is having on various production schedules or inventories, but aluminium producers are warning of a difficult year.
Primary aluminium producer Norsk Hydro this week warned of a sharp fall in demand in the second quarter of 2020, adding that it no longer expects to hit its cost reduction targets. Primary aluminium producers do not consume silicon as alloy producers do, but demand for primary aluminium is regarded as a key indicator of overall demand for metals from the automotive sector.
Demand from overseas is also expected to fall. In the US, car sales are expected to fall by 15.5pc in 2020 and demand in mainland China is expected to fall by 10pc, according to IHS Markit research.
