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

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(Bloomberg) – A metal made from the second most abundant element on Earth has become scarce, threatening everything from auto 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 a power crisis, that are creating a destructive mix for businesses and consumers.

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

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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 ultraconductive 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.

The consequences are particularly alarming for automakers, where silicon is alloyed with aluminum to make engine blocks and other parts, as well as for manufacturers of chemicals that turn metal into silicone products.

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“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.”

Summer peak

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 reduce their output by 90% from August levels from September to December due to power restrictions spurred by scarce hydropower resources and targets for power generation. energetic efficiency. Prices have since climbed to 67,300 yuan.

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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.

Solar costs

The shortage is already bubbling up in the solar industry. Using caustic chemicals and intense heat, silicon metal can be refined and purified into polysilicon, the main ingredient in photovoltaic panels.

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The price of solar-grade polysilicon jumped 13% to $ 32.62 per kilogram on Wednesday, the highest since 2011, following supply cuts. The material is up more than 400% since early June 2020, soaring solar demand has pushed processing plants to full capacity.

“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 better than other industries, BloombergNEF analysts said Thursday in a report.

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Lasting shortage

Silicon also plays a key role in aluminum alloys, acting as a softening agent. This 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, CEO of Constellium Rolled Products and Chairman of the Board 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 amount of time to get things done. “

Prices are expected to remain high around current levels until next summer, until more production goes live in the second half of the year, Yang Xiaoting, senior analyst at Shanghai Metals Market, said in an interview. 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.

© 2021 Bloomberg LP

Bloomberg.com

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In-depth reporting on The Logic’s innovation economy, presented in partnership with the Financial Post.

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