Silicon's 300% surge presents extra hurdle for global economy

A metal made from the second-most abundant element on earth has become scarce, threatening everything from car parts to computer chips and throwing up another hurdle for the world economy.

The shortage in silicon metal, sparked by a production cut in China, has sent prices up 300 per cent in less than two months.

It is the latest in a litany of disruptions, from snarled supply chains to a power crunch, that is creating a destructive mix for companies and consumers.

The silicon issue also captures how the global energy crisis is cascading through economies in multiple ways.

The slashing of output in China, the world's biggest silicon producer, is the result of efforts to reduce power consumption. For many industries, it is impossible to avoid the fallout.

Silicon, which makes up 28 per cent of the earth's crust by weight, is one of mankind's most diverse building blocks.

It is used in everything from computer chips and concrete to glass and car parts.

It can be purified into the ultra-conductive material that helps convert sunlight into electricity in solar panels. And it is the raw material for silicone - a water-and heat-resistant compound used widely in medical implants, caulk, deodorants, oven mitts and more.

The knock-on consequences are particularly alarming for carmakers, where silicon is alloyed with aluminium to make engine blocks and other parts, as well as chemical manufacturers who turn it into silicone-based products.

"There is still some supply out there, but it's trading at a clearing price that is obviously very high," said Mr Keith Wildie, head of trading at aluminium alloy-maker Romco Metals.

Silicon metal is made by heating common sand and coke in a furnace.

For most of this century, its price has ranged between 8,000 yuan and 17,000 yuan a tonne. Then producers in Yunnan province were ordered to cut production by 90 per cent below August levels from last month through December amid electricity curbs spurred by low hydropower resources and energy-efficiency goals. Prices have since shot up as high as 67,300 yuan.

Along with higher prices for oil and metals such as aluminium and copper, the silicon shortage is feeding a squeeze that has already taken hold across supply chains. Their choice is to either suck it up and take the margin hit, or pass the cost on to customers.

Either way, the damaging twin effect on inflation and growth has raised concern about stagflation forces taking hold globally.

The shortage is already bubbling up in the solar industry.

Using caustic chemicals and intense heat, silicon metal can be refined and purified into polysilicon, the main ingredient in photovoltaic panels.

The price of solar-grade polysilicon jumped 13 per cent to US$32.62 per kg on Wednesday, the highest since 2011. The price is up more than 400 per cent since the start of June last year.

Silicon also plays a key role in aluminium alloys, acting as a softening agent. It makes the metal less brittle when shaped into different products needed in everything from cars to appliances.

Prices are expected to remain around current levels through next summer, until more production comes online in the second half of the year, Shanghai Metals Market senior analyst Yang Xiaoting said in an interview.

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A version of this article appeared in the print edition of The Straits Times on October 02, 2021, with the headline 'Silicon's 300% surge presents extra hurdle for global economy'. Subscribe