Silicon metal and ferrosilicon are very similar with regard to production process and the geography of world output, but are very different in terms of their applications. Silicon metal is used in the manufacture of aluminium alloys, silicones, semiconductors and, increasingly, in photovoltaic solar applications. In contrast, over 85% of ferrosilicon is consumed in the production of iron and steel.
Prices for both silicon metal and ferrosilicon reached their most recent peak at the beginning of 2018, then went into a sharp decline for almost two years. Prices in most regions finally bottomed out in the latter months of 2019, and have recently started to move up again. The modest price recovery since late-2019 has thus far been fuelled by tight supply rather than improved consumption growth, in the case of both silicon metal and ferrosilicon. Numerous capacity has been idled, both in China and elsewhere. Demand growth for both commodities was decidedly below par in 2019 and weakened as the year progressed.
For how long will idled capacity remain offline, and for how long will consumption growth remain subdued? These are key questions in of themselves, and to a certain extent will also determine the potential for continued price recovery. That said, beyond the short term, prices for both silicon metal and ferrosilicon both tend to be primarily cost-driven.
World production of both silicon metal and ferrosilicon is dominated by China; in 2019, China accounted for 70% of world silicon metal production, and for 66% of global ferrosilicon output. However, Chinese production of these products is following a different trajectory. Chinese ferrosilicon production has been subject to increasingly stringent government controls on overcapacity and emissions, whilst the country’s silicon metal capacity and output has been permitted to increase substantially. The extent to which this will remain the case over the coming decade will be of key importance to the market outlook.
Over the past decade, consumption growth for silicon metal has diverged significantly from that for ferrosilicon. The reason for this lies in the different end-use sectors which drive demand for these alloys. Global silicon metal consumption grew 6.5%py between 2010 and 2019, supported by strong growth in all of its main end-use sectors, especially solar, in spite of the slowdown in demand growth in 2019. Consumption in solar applications more than tripled between 2010 and 2019.
In contrast, global ferrosilicon consumption was 7% higher in 2010 than it was in 2019, despite the fact that world crude steel output grew by 30% over the same period. The main reasons for this decline in ferrosilicon consumption have been a trend towards using less ferrosilicon per tonne of crude steel in China, and very slow growth in world output of iron castings.