Silicon price rises boost European producers

Sustained global silicon price rises have given European producers a boost after a bruising 2020. But market participants are closely monitoring a global semiconductor shortage in case it curbs automotive manufacturing enough to reduce silicon demand.

European silicon prices have risen sharply since hovering near three-year lows in early October, with 5-5-3 grade silicon metal last assessed at €2,075-2,150/t ddp on 11 February, up from a 2020 low of €1,550-1,600/t on 1 October. Prices for 4-4-1 chemical grade metal have climbed to €2,150-2,250/t ddp from €1,570-1,650/t over the same period.

Registering the more favourable environment, Europe's largest producer Ferroglobe's share price has risen to $3.24 today from $0.65 on 1 October. The firm cited rising Chinese prices as the main reason for the extra headroom in the EU market, lifting the so-called Chinese cap on the EU market. Fob China prices for 5-5-3 metal were at $1,930-1,950/t fob today, up from $1,560-1,590/t fob on 1 October because of increased demand from the country's automotive sector.

The recovery of the EU and US automotive markets should sustain demand for its silicon products in the coming months, coupled with a reduction in European consumers' reliance on high-priced Chinese silicon, Ferroglobe said. Inventories appeared light before Covid-19 and a return to pre-pandemic demand should require some restocking, further supporting prices, the company added.

Norway's Elkem, the other large silicon producer in Europe, has also enjoyed the benefits of rising silicon prices. It expects to restart some idled production in Europe to meet demand in the coming months, noting "historically low" stocks in Europe in its fourth-quarter results on 10 February. Elkem sold a record 147,000t of silicon products in the fourth quarter of 2020, up from 118,000t a year earlier, indicating a sharp recovery despite uncertainty in some regions.

"Elkem is entering 2021 from a robust position, continuing to improve specialisation and operational excellence as a basis for further growth. The market sentiment is positive, but macroeconomic uncertainty persists," chief executive Michael Koenig said.

Recovery threatened by chip shortage

A global recovery in silicon prices could be derailed by semiconductor shortages, with a growing number of carmakers reducing production since late 2020 as the extent of the deficit became clearer.

General Motors plans to close three of its US plants in March because of the shortage and other manufacturers have warned that they might do the same if shortages persist. In Europe, Audi furloughed 10,000 staff last week in response to the shortage and expects to produce around 10,000 fewer vehicles in the first quarter.

"As a result of the Covid-19 pandemic and the ensuing sales slump in the automotive industry, leading semiconductor manufacturers had reassigned their production capacities to other customer sectors such as consumer electronics," Volkswagen, which owns Audi, said last week. "However, automobile markets have now recovered significantly and the industry, including Volkswagen Group, faces a shortage of the electronic components required."

The semiconductor shortage could be a medium to long-term challenge as the complexity of the supply chain means that it takes some time to ramp up supply, potentially exerting downward pressure on silicon metal prices if automotive manufacturing is significantly reduced for a sustained period.

By Thomas Kavanagh