Silicon metal demand growth is set to outpace ferrosilicon demand growth owing to energy transition.

The silicon demand split

The silicon industry is divided into ferrosilicon and silicon metal markets with effectively no overlap in demand, but the supply is closely related to available furnace capacity able to switch between the production of either product.

Ferrosilicon is primarily consumed in steel, iron castings and magnesium, together accounting for 99% of global demand. Silicon metal also has three main end-use sectors, namely aluminium, silicones and polysilicon, also together accounting for 99% of world silicon metal demand. 

Despite the unique demand markets for silicon metal and ferrosilicon, prices of these products tend to move broadly in step with each other over time. The fairly stable long-term price ratio reinforces how both products have a fairly similar manufacturing process and are often produced by the same companies.

Divergence over energy transition

Over the outlook period, it is anticipated that demand growth for silicon metal will continue to outpace that of ferrosilicon, as has occurred over the previous decade. Since 2022, silicon metal accounts for over 40% of total silicon demand and by the 2040s will be approaching similar demand levels to ferrosilicon.

The reason is that the growth outlook for steel is markedly lower than that for all the main consuming sectors for silicon metal.  Project Blue believes that China’s steel production has peaked and that it has plateaued, causing ferrosilicon demand from steel to slow significantly compared to historical trends.

In contrast, all the main end-use sectors for silicon metal will benefit from the energy transition. The strongest percentage growth in silicon metal demand over the past two decades has come from the polysilicon sector.  Polysilicon is an intermediate product for the production of both semiconductors and solar cells.  Polysilicon accounted for only 3% of silicon metal demand at the start of the millennium, almost all of it used in semiconductors.  Today, 85% of polysilicon is consumed in solar cells.  The rapid growth of solar installations has enlarged polysilicon’s share of silicon metal demand to 23%, as of 2022.

Energy-intensive to produce yet a critical part of the energy transition

Silicon metal and ferrosilicon are among the most electricity-intensive ferroalloys to produce. With global energy issues coming to the forefront in 2022/3, how will the supply chain evolve?

While China faced its own electricity challenges last year due to high coal prices, Russia’s invasion of Ukraine has caused a severe spike in European electricity prices, causing an indirect impact on the silicon market in that region. Production costs have soared in Europe and steel and alloy plants have been put on care and maintenance in its wake.

Silicon remains a key part of energy transition technologies, but its high-energy consumption requirements will be challenged by net-zero policy targets. In both metal and alloy markets, China dominates global production to a greater extent than world consumption, consequently, China remains a substantial net exporter of both silicon metal and ferrosilicon, exposing the supply chain to turbulent geopolitical developments.