Tokyo (Japan) - Japanese secondary aluminium smelters are in a hurry to purchase silicon metal used for producing diecasting material, trade and smelter sources said Wednesday.
Some smelters are pushing their silicon purchase plans ahead by as much as three months, on the back of tightening supply in China. A power shortage in China's Hunan and Guizhou provinces has forced a majority of silicon plants in the area to halt production this month, as ordered by the provincial governments, Japanese traders said. Traders said Chinese producers do not know when they will be able to restart operations.
Some smelters that source silicon metal on a spot basis are making enquiries for June shipments, said one west Japan trader. However, there is almost no trader who is able to guarantee shipments from China months ahead, in the absence of production activities.
A Tokyo-based trader added that bigger smelters that have quarterly purchase contracts were starting to plan for their material requirements after June. "Getting their materials three or four months ahead of consumption increases storage costs as well as interest rate payments, but smelters said they will bear them," the trader said.
An official at a smelter in western Japan,which consumes more than 1,000 mt/month of silicon, said his company planned to issue a buy tender for silicon metal for deliveries in April, May and June, in the week of February 18. "I am concerned that I may not get my requirement in this tender, as supply is tight," he said.
Traders said they were considering skipping some buy tenders scheduled this month, due to limited stocks they currently have. One trader said his stock was less than half of the quantity he would need for his usual businesses in the second quarter.
Spot trade with China had slowed this week due to Chinese Lunar New Year holidays. Just one trader reported a deal done at around $2,120/mt CIF Japan late last week, for material to be shipped to Japan within this month.
A second west Japan trader described the worst-case scenario as: production in China remaind mostly halted in March, Chinese utilities raise prices to discourage power consumption, and the Chinese government tightens measures against power-intensive sectors such as silicon metal producers, by raising taxes. "I see no chance for a more optimistic scenario. Production will restart one day but I don't believe the Chinese government is happy with increased silicon exports, so they may raise taxes again," the trader said.
Power costs in China usually rise in winter due to increased heating demand, leading to higher silicon metal prices and tighter spot supply. The power costs, however, have fallen and silicon production increased from May in the past years.
