What is the core reason for the price change of ferrosilicon?

1. Overview

Ferrosilicon is an iron-silicon alloy made of blue carbon, iron oxide scale and silica as raw materials and smelted in an electric furnace. Ferrosilicon is mainly used as a deoxidizer and alloying agent in steelmaking. The production of ferrosilicon requires a lot of electricity, so the cost of electricity occupies a relatively high proportion in the production cost of ferrosilicon, and the power consumption per ton of ferrosilicon is about 8000 kWh.

China is the world's largest producer of ferrosilicon, with a ferrosilicon output of 5.83 million tons in 2021. Among them, 70% is used in the steel industry, 20% is used in metal magnesium smelting, and 5% is used for export. Inner Mongolia, Qinghai, and Shaanxi are the main producing areas of ferrosilicon in my country, accounting for more than 70% of the output. Ferrosilicon is a typical high-pollution, high-energy-consuming and resource-intensive industry. It is a key industry that has eliminated outdated production capacity in recent years. However, since my country's steel production accounts for more than 50% of the world's steel production, steel production is still at a high level. Therefore, the demand for ferrosilicon is still high. Relatively strong.

2. Price Influencers

(1) Macroeconomic situation

The downstream of ferrosilicon is mainly the steel industry and the metal magnesium smelting industry, the most important downstream of the steel industry is the real estate industry and the automobile industry, and the most important downstream of the metal magnesium is the automobile industry. Therefore, the macroeconomic trend will inevitably have an impact on end-demand industries such as real estate and automobiles, which will then have an impact on the price of ferrosilicon. For example, in the fourth quarter of 2018, with the gradual fermentation of trade disputes, pessimistic expectations for the future macro economy have led to a large drop in the price of ferrosilicon in the short term.

(2) own cost

The main cost of ferrosilicon is the cost of electricity, which accounts for about 60%, and the price of electricity is generally relatively stable, so ferrosilicon has a relatively clear and solid cost support. The reduction will push the price back up to the cost line. In addition, although the cost of raw materials in the cost of ferrosilicon accounts for a small proportion, it fluctuates greatly. Therefore, when the price of raw materials such as blue carbon increases, the price of ferrosilicon generally also increases.

(3) Profits of the downstream steel industry

Most of the demand for ferrosilicon comes from the downstream iron and steel industry, and iron and steel enterprises occupy a dominant position in the ferrosilicon market. The main pricing basis for ferrosilicon is the monthly bidding price of iron and steel enterprises. However, due to excess capacity and a large number of enterprises, the ferrosilicon industry often Forced to accept prices locked in by steel companies. Therefore, the profit of the steel industry directly affects the willingness to bid for ferrosilicon, which in turn affects the price of ferrosilicon. When the terminal demand is strong, the steel price is running high, and the profit of the steel industry is relatively large, the steel mills are also willing to increase the purchase price of ferrosilicon.

(4) Periodic changes in demand

The pricing mechanism of ferrosilicon and the seasonal factors of downstream steel production will affect the demand for ferrosilicon and lead to periodic fluctuations in the price of ferrosilicon. In terms of pricing mechanism, due to the implementation of centralized procurement by iron and steel enterprises at specific times of the month, the demand during non-purchasing periods will decline, and prices will fall due to short-term fluctuations. In addition, the production seasonality of steel mills will also lead to fluctuations in demand. For example, during the Spring Festival, steel mills generally choose to concentrate on replenishing storage to increase the demand for ferrosilicon in the short term and push up the price of ferrosilicon.

(5) Import and export situation

my country is a net exporter of ferrosilicon, and the import and export of ferrosilicon will also affect the price of ferrosilicon. For example, the escalation of the Russian-Ukrainian war led to the transfer of some overseas ferrosilicon orders to China, and the increase in export demand led to a continuous rise in domestic ferrosilicon prices.

In addition, changes in import and export policies will also affect the import and export situation and thus affect the demand for ferrosilicon, resulting in price changes.