The Ferro Silicon market has gone through some rapid price escalation over the last 12 months, but finally appears to be drawing breath. To understand what drives the price does not require any great insight. Ferro Silicon is produced from silica (usually a form of sand), coke, a source of iron (such as scrap or furnace metallics) and of course a lot of power. Larger electric arc furnaces are used to make higher Silicon content FeSi of about 15% and up. On the demand side most FeSi is used in the steel industry for a number of applications, including alloying in a wide range of iron based materials and deoxidizing, in addition to the production of magnesium from dolomite via the Pidgeon process (that’s the inventor not the bird!). Steel production has undergone huge growth these last few years and is still growing globally at a robust rate. So with rising input costs in the form of coke and energy prices, and rising demand from the steel sector it is no surprise FeSi prices have risen 50% in the last year.
Recently the market has paused for a number of reasons: stainless production is falling, several mills have announced cut backs, S Korea’s Posco the most recent, and western steel mills are offering more spot capacity suggesting order books are not quite so full. Japanese consumers have bought ahead of the planned closedown of many Chinese Ferro Alloys plants in the run up to the Beijing Olympics and so are largely out the market for the summer months. But our expectation is prices have further to rise. Driven by rising coke and power costs, a slower but still rising level of demand from the steel industry and a robust magnesium market the FeSi market looks like it will be in deficit if, as expected, many of the older or less efficient Chinese FeSi plants fail to re-open after the summer. China is the world’s largest producer by far but power costs are rising rapidly as government controls are withdrawn and electricity prices are rising. For FeSi it would seem the only way is up.