China: Ferro silicon prices surge on rigid demand, reduced output

Various provinces in China have tightened energy volume and intensity control-the "dual controls". From textiles, chemicals, cement to steel, many industries are facing the pressure of power and production curbs. In the context of the tightening "dual control" policy, the "electricity restriction" and "production restriction" in various regions have been taken to new levels, and the bullish commodity market after the Mid-Autumn Festival has been completely ignited.

On 23 Sept'21, the main ferro silicon futures contract closed at the upper limit reporting 14,444 yuan/tonne, up 11.01% daily; while the main silico manganese futures contract expanded more than 10%, both of which set a new record since listing.

ZCE issued a risk warning regarding this: There are many uncertain factors affecting the ferro silicon and silico manganese markets of late, and the prices are fluctuating greatly. All member units are requested to strengthen investor education and risk prevention, and remind investors to participate rationally and be regulation-compliant in futures trading.

It is worth noting that commodity prices have continued to skyrocket recently. Since 5 Aug'21, ferro silicon futures have risen 64.85%, silico manganese has risen 49.29%, thermal coal has risen 53.88%, and coking coal is up 47.26%.

Faced with the sharp increase in the price of ferro silicon, a spot trader said that business this year is tricky, as frequent policies have caused prices to rise too fast. Many factories have postponed delivery or scrapped orders, discouraging traders. According to the latest quotation, the price of 75% ferro silicon on 22 Sept'21 was 20,000 yuan/t ($3,093/t), an increase of 45.03%; the price of 72% ferro silicon on the 23rd was 15,759 yuan/t ($2,437/t), an increase of 34.3%.

"Firstly, it is based on industrial policies. Starting from June this year, policies in Ningxia, Shaanxi, and Guangxi have been frequently rolled out, coupled with the power limit in Inner Mongolia, which has severely affected the supply side of ferro silicon and silico manganese. From production restrictions from Ningxia to the total stoppage in Fugu, Shaanxi province, the total output of ferro silicon affected is about 150,000 t, accounting for about 30% of the national total."

According to industry insiders, all production was suspended in Guangxi, affecting the output of silico-manganese by 130,000 tons. Besides, the power cut in Inner Mongolia has forced local silico-manganese producers to maintain a substantial reduction in capacity, leading to slashed output. Hence, the prices of ferro silicon and silico manganese continued to rise, both on futures and in spot markets; the impact of steel mills' production cuts is overshadowed by the ferro silicon output cut, so the price is still at a new high.

Although it is true that many steel mills are reducing output, they are still demanding more volume and did not complain about the price hike as can be seen from the ferro silicon tenders, so that market participants feel that the demand for ferro silicon is sound while the supply side has changed substantially and has set the transaction logic.