Europe's silicon spot market is expected to remain sluggish through the first quarter of 2023, however, regional supply is tight, meaning any uptick in demand could leave consumers and traders in a pinch.
Through the latter part of 2022, Europe's silicon market has been characterised by very thin spot trade, underpinned by weak demand from the aluminium sector. In conjunction with unpredictable developments in China, European buyers have sought to limit market exposure and have avoided building high inventories. However, some market participants warn that this approach could come back to bite in Europe if demand picks up next year.
Silicon spot prices have hardly moved since late October, with just €50/t on 4-4-1 grade, as end-users have operated from contracted volumes and not needed to make additional spot bookings. As such, spot sales have been sparse and the European market has largely sat in a stalemate.
Those consumers that are making occasional bookings to replenish stocks are taking a cautious approach, reluctant to build up excess inventory, several suppliers told Argus.
Hanging over the market is the darkening economic outlook and multiple headwinds hitting Europe's manufacturing and construction industries. These challenges have weighed heavily on primary aluminium premiums which have fallen by more than 40pc since the end of September. However, aluminium alloy prices have risen in the past month because of higher-than-expected first-quarter demand from the automotive industry, and tight supply of scrap feedstocks after Asian buyers increased their purchases.
Argus' assessment for DIN 226 alloy stood at €2,300-2,400/t delivered to consumer works Europe on 8 December, up by 6.8pc from mid-November.
That said, some European silicon suppliers are not confident that automotive demand will prop up the aluminium industry, nor will it roll over into any significant demand boost for silicon.
"If demand picks up, the situation could change very quickly," one trader told Argus, but added that this is "probably just wishful thinking".
Supply-side fundamentals
The potential consequences of a supply squeeze on a China-oriented metals market should not be underestimated, particularly if combined with lower domestic supply in Europe owing to energy and macroeconomic pressures.
"China seems to be doing a bit of sell-off […] but nothing major," one trader said, as a result of lacklustre domestic demand. Prices for 5-5-3-grade metal were assessed down at $2,650-2,700/t fob China on 15 December, down 8pc from $2,870-2,920/t fob at the start of the fourth quarter.
Production of the metal in the country totalled 267,500t in November, down by 8.2pc from October and by 11.3pc from a year earlier, according to the China Nonferrous Metals Industry Association.
In Europe, one producer said the impact of production cuts is yet to be felt by the aluminium and chemical industries, therefore anticipating some upward price support in the first quarter.
"In Norway, we have currently reduced production at two out of 12 furnaces in Norway (one at Rana and one at Thamshavn) on a short-term basis owing to the high power prices," a spokesperson for Elkem told Argus. "This is a commercial decision we have made — with Elkem's long-term power contracts, we are able to sell this power to the market at very attractive rates."
The spokesperson added that Elkem generally continued to produce at full capacity in the fourth quarter, with short-term reductions at certain sites for maintenance reasons not "significantly" impacting total production.
Nevertheless, with European producers largely focusing on production of 2-2-0-2, 3-3-0-3 and 4-4-1 grades, and 5-5-3 stocks seemingly "tight on the ground", some intermediaries have voiced concerns that Europe may be left in "some danger", particularly on the metallurgical front.
