There is irony in silicon scarcity — the raw material is the second most abundant element on earth. But few are laughing. A quadrupling of prices ripples through a multitude of consumables. Electronics and cars all rely on silicon for parts or alloys.
Blame geopolitics, causing power shortages and sanctions. Making silicon metal is energy-intensive, requiring quartz, which contains silicon, and coal. Furnaces reach temperatures of up to 2,000C and require 10 to 12MWh of energy, according to the Norwegian University of Science and Technology. That would keep the lights and heating on for half a million German residents a day.
China is the biggest producer, responsible for two-thirds of silicon materials in 2019. But recent coal shortages left the country desperately rationing power, by far the bulk of which comes from this fossil fuel.
But even before furnaces began cooling down, international supply of silicon was under stress. In June the US slapped a withhold release order on silica-based products made by Hoshine Silicon Industry in Xinjiang, preventing entry into the US. The province, which leads Chinese production, has attracted international ire for its persecution of Uyghurs.
The biggest corporate casualties to date include solar panel module manufacturers such as Canadian Solar, whose shares have fallen by more than a tenth in the past month. Silicon manufacturers such as Norway’s Elkem ASA could suffer, forcing it to issue force majeure letters to customers on certain materials.
Their shareholders can take heart from tentative moves to ease China’s coal shortage. Beijing has ordered miners to boost production. It has begun unloading a small number of Australian shipments. A new coal terminal will open across the border in Mongolia. Expect further steps if Beijing accelerates pump-priming to reverse slowing growth.
But the surge in silicon prices illustrates fragility in the supply chain and hefty reliance on a single country, neither of which bode well. The long period of flat silicon prices has ended.
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