Silicon metal producers under cost pressure amid soaring raw material prices
----Interview with Bao Guanghua Marketing Director Yunnan Yongchang Silicon Co., Ltd.
Asian Metal: Hi, Mr. Bao. First of all, could you please give a brief introduction to your company's main businesses?
Mr. Bao: Our primary business is the production of silicon metal lump, most of which is chemical grade. Meanwhile, we process some silicon metal powder of different grades based on orders.
Asian Metal: May we know your company’s operating rate?
Mr. Bao: We maintain a high operating rate throughout the year with seven furnaces in operation currently.
Asian Metal: Prices for chemical grade silicon metal of the same grade vary greatly in the current market and what’s the reason you think?
Mr. Bao: First of all, there are strict standards for impurities of chemical grade silicon metal. Taken aluminum as an example, the content of aluminum should be controlled within a narrow range. Some producers aren’t qualified to produce the chemical grade material and their products could rarely meet the “421” standards, so their selling prices are generally lower than those from professional ones. However, those unqualified producers couldn’t guarantee the product quality and supply stability.
Asian Metal: Could you please introduce the supply and demand of the chemical grade silicon metal market?
Mr. Bao: As far as we know, the operating rate of chemical grade silicon metal users is relatively high now. The micro-economic situation and recent environmental inspection exerted little influence on the downstream market. According to producers, the supply of high-quality chemical grade silicon metal remains in shortage. The majority of domestic downstream consumers are large enterprises which mainly sign long-term contracts with regular suppliers to guarantee the product quality and supply stability. Therefore, the price fluctuation has little impact on downstream consumers’ purchasing volume.
Asian Metal: What challenges are the silicon metal producers facing currently amid stern environmental inspections in China?
Mr. Bao: First, prices for raw materials, such as cleaned coal, pet coke and electrodes, rose sharply due to environmental inspections; second, smelters need to upgrade their smelting equipment to meet environmental protection standards by investing a large sum of money. The new policy has been gradually introduced. It is said that silicon metal enterprises whose desulfurization equipment fail to meet the standards would be required to shut down by 2018. In this case, production costs of producers would gradually increase.
Asian Metal: How much did the production cost of silicon metal increase amid soaring raw material prices?
Mr. Bao: As far as I learn, cleaned coal prices increased by RMB1,000/t (USD152/t) compared with the same period last year, but the demand for the material from silicon metal producers is different. Carbon electrodes prices increased by more than RMB20,000/t (USD3,033/t) from around RMB10,000/t (USD1,516/t) last year to nearly RMB30,000/t (USD4,549/t) this year with the growth rate during August and September higher than before. The unit consumption of electrode is almost the same, so the price hike in electrodes pushed production costs up by RMB1,200-1,500/t (USD182-227/t). Pet coke prices increased by RMB800-1,000/t (USD121-152/t) compared with the same period last year and charcoal prices increased by over RMB1,500/t (USD227/t) for those producers in Yunnan who use charcoal. In summary, owing to higher raw material prices, the production costs of silicon metal increased by around RMB3,000/t (USD455/t) irrespective of the power costs. The latest electricity price released in September was RMB0.08/kwh (USD0.01/kwh) higher than the same period last year, which pushed production costs up by RMB1,000-2,000/t (USD151-302/t). As a result, the consolidated production cost was RMB4,000/t (USD606/t) higher than the same period last year. Although different companies saw different production costs as they made purchases at different times, the production costs showed an upward trend on the whole.
Asian Metal: Silicon metal prices increased rapidly from early July and then started to fall back during late August and early September, and how do you think of the market outlook?
Mr. Bao: Taking all factors into consideration, I think silicon metal prices would stop dropping further and gradually stabilize. The output of silicon metal would decrease resulted from higher electricity costs during the dry season. Moreover, many producers would suspend production ahead of schedule this year owing to roaring prices and tight supply of raw materials. However, the downstream demand would keep stable. As a result, silicon metal prices might even increase sharply. Of course, we could not rule out the possibility that prices might fluctuate.
Asia Metal: Thank you for accepting our interview and wish your company a promising future!
