How Far Can Ferro Silicon Go

How far can ferro silicon go in the context of energy conservation and carbon reduction?
1. Ferro silicon industry chain and cost structure

The upstream raw materials of ferro silicon mainly include coke (blue carbon) and silica, and the power consumption is very high. It takes 8,000 kWh of electricity to produce one ton of ferrosilicon, and the power consumption accounts for more than 53% of the cost. The main downstream of ferro silicon includes magnesium metal plants, foundries, steel mills and exports, with an annual consumption of about 5 million tons. The main production areas of ferro silicon are concentrated in the five northwestern provinces, Inner Mongolia and Gansu are the main production areas, and the Ordos Group in Inner Mongolia accounts for the largest proportion, exceeding 30%. 

2. Policy impact and market reaction

The state has issued an action plan for energy conservation and carbon reduction, reasonably controlled the scale of the semi-coke industry, curbed the blind launch of high-energy-consuming and high-emission projects, and cancelled the electricity price discounts for high-energy-consuming industries, which may lead to an increase in ferro silicon electricity charges and increased costs. In 2021, due to the impact of energy consumption policies, the price of ferro silicon industry once rose to 17,000 yuan/ton. The current market interpretation of the policy may lead to similar expectations of price increases.

3. Recent market performance and price trends

In the first quarter of this year, the price of ferro silicon continued to fall, and fell below the cost line by the end of March and early April. It began to rebound in mid-April due to production cuts, and the current price is about 7,000-7,100 yuan/ton. The current profit of ferro silicon has improved compared with the same period last year. In early April, it has stepped out of the loss area, and the current profit per ton is about 1,000 yuan. Ferro silicon inventory is at a low level, and the spot supply is tight, resulting in a high spot price.

4. Future Outlook and Risk Warning

The future price trend of ferro silicon is mainly affected by electricity prices, coal prices and policies. The market is optimistic about the favorable policy interpretation, but the fundamental demand growth is limited, and investment risks need to be paid attention to. In the short term, ferro silicon production may be limited due to policy regulation, but in the long run, if profits remain high, some zombie production capacity may resume production.

Export volume is not expected to increase significantly. Due to the 25% high tariff, the annual export volume may be below 400,000 tons.

5. Other related information

The cost of ferro silicon accounts for a very small proportion of crude steel, but it accounts for a large proportion of the cost of magnesium metal. The demand for magnesium metal has a greater impact on the price of ferro silicon. Leading enterprises such as Ordos rarely participate in the futures market, mainly supplying steel mills and physical trade. Ningxia and other provinces have a higher proportion of futures participation. Through the above points, we can see the market dynamics and possible future trends of the ferro silicon industry under the background of energy-saving and carbon reduction policies. Investors need to pay attention to policy changes and their impact on costs and prices.