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Silicon Metal's 300% Price Surge Throws Another Wrench In Global Supply Chains

Tyler Durden's Photo
by Tyler Durden
Monday, Oct 04, 2021 - 02:45 AM

Leading producers of silicon metal in China have been forced by the Chinese Communist Party (CCP) to reduce production by 90% below August levels from September through December amid a nationwide power crunch. Production declines may spark tighter supplies in the metal, threatening everything from computer chips to solar panels to medical implants to concrete to glass to automobile parts, furthermore throwing another wrench in chaotic global supply chains.

Bloomberg data shows silicon metal prices have jumped more than 350% since the beginning of July. This comes as power supply disruptions have become more intense over the last couple of months as CCP curbs power to energy-intensive industries because lower than the expected output at power plants has strained the country's grid. 

The ripple effects are alarming for chemical manufacturers who convert silicon metal into silicone-based products. "If you have silicon supply constraints, then you've got a problem," Keith Wildie, head of trading at aluminum alloy-maker Romco Metals, told Bloomberg. "There is still some supply out there, but it's trading at a clearing price that is obviously very high."

This week, more than half of China's provinces experienced their worst power-supply disruptions in more than a decade. There's a confluence of factors for CCP's clampdown on energy-intensive industries, such as carbon emission targets set by the central government, thermal coal supply constraints, and lower than expected output by power plants.

The Yunnan province in southwestern China is the second-largest producer, accounting for more than 20% of the country's output, has experienced power curbs in recent months. Sichuan is third at 13% is also facing power disruptions. The top producer, Xinjiang, has yet to face significant power issues. 

Along with higher prices for aluminum, copper, and crude, the silicon shortage is feeding into a squeeze that may continue to worsen the great computer chip shortage

The damaging effects of China shuttering factories because of power constraints are raising bets that rising inflation and slumping growth have already sparked global stagflation forces.

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