Iceland’s PCC BakkiSilicon to shut down silicon production on weak prices

PCC BakkiSilicon will stop producing silicon at its smelter in Húsavík on the northern coast of Iceland this week due to the current soft market prices, a senior company official told Fastmarkets on Tuesday July 28.

The firm, a subsidiary of German holding company PCC SE, had already shut one of its two furnaces in April. Each furnace has capacity for 16,000 tonnes per year of silicon metal, with the plant making both 4-4-1 and 5-53 grade silicon metal.

Global production of silicon metal was estimated at around 3.1 million tonnes in 2019, according to data from the US Geological Survey.

PCC SE owns an 86.5% share in PCC BakkiSilicon, while domestic pension funds and national banker Íslandsbanki own the remaining 13.5% through investment company Bakkastakk.

“The plant will cease all silicon production this week for an indefinite period,” chief executive officer Rúnar Sigurpálsson told Fastmarkets.

“The reason for the shutdown is weak market prices in both Europe and the United States, which will have to increase considerably before our production is restarted,” he said.

He declined to specify the level to which silicon market prices would have to rise before PCC BakkiSilicon would decide to restart production.

Around 80% of PCC BakkiSilicon’s metal output was sold in Europe, with delivery contracts to customers in Germany, while the rest was sold into North America via a deal with CCMA, a US metal and alloy raw materials trader.

Low prices put profitability into question
European spot prices for silicon metal assessed by Fastmarkets have been dropping steadily since March, with European countries imposing lockdowns to contain the spread of the Covid-19 pandemic.

Heavy industry was consequently affected because end-user demand in sectors such as aerospace, automotive manufacture and construction slumped when economic activity fell, taking metals consumption down with it.

Fastmarkets’ assessment of the spot-market price for silicon grade 5-5-3, 98.5% Si min, in-whs Rotterdam, was €1,520-1,600 ($1,783-1,876) per tonne on July 24, down by 17% from a year-to-date high of €1,870-1,920 per tonne on February 28.

The corresponding assessment of the spot price for silicon grade 4-4-1, 99% Si min, in-whs Rotterdam, was €1,550-1,650 per tonne on Friday, down by 18% from a year-to-date high of €1,925-1,980 per tonne on March 6.

According to market sources, PCC BakkiSilicon’s decision was symptomatic of the deteriorating conditions which were forcing producers to leave the market, putting into question the profitability of the metal at current levels.

“[The production cut from BakkiSilicon] could be well be significant,” a European trader said. “A few producers are feeling the pain at these prices, and I think we will see supply cuts forcing a bit more tightness.”

New anti-dumping case in US
The global direction of the silicon metal market will be also determined by the results of a new anti-dumping case brought by the two dominant silicon metal producers in the United States, against silicon producers in Bosnia & Herzegovina, Iceland, Malaysia and Kazakhstan.

The US market has also been in decline. The price assessment for silicon, ddp US, was $0.91-0.96 per lb on July 23, down from a year-to-date high of $0.93-0.98 per lb in May. The market has been falling steadily from a multi-year high of $1.43-1.45 per lb reached in May 2018.

“The US anti-dumping case is something we are paying close attention to, because it will affect a significant part of our sales in the event of any restart to production,” Sigurpálsson said.

Market participants were awaiting the final decision in this case before taking big positions.

“[Any market trend] will depend on geography, especially with the dumping case in the US,” the European trader said. “If the US producers are successful, there could be a surplus of material looking for a home in Europe.”

High energy prices do not help
PCC BakkiSilicon has also been struggling with high energy prices in the North Atlantic island nation, something that is threatening the viability of Rio Tinto Iceland, which Sigurpálsson reckons consumes 15-16% of the island’s energy each year.

The country’s minister of finance and economic affairs, Bjarni Benediktsson, said on Friday that the decision to idle PCC BakkiSilicon was a major blow to the national economy, adding that the position of companies in energy-intensive industries in Iceland was a general worry at present.

Silicon production is energy-intensive, and energy costs typically rise in line with consumption in winter.

Silicon has a high resistance to heat, and about 40% of silicon metal produced is used as a strengthener and alloying agent in the production of aluminium. The metal is also used as a semi-conductor in electronic equipment and in the chemicals sector.

The German parent company had recently provided PCC BakkiSilicon with around $40 million in the form of a shareholder loan to increase cash liquidity at the plant and secure its operating basis.

Construction of PCC BakkiSilicon started in 2015, with a planned total investment of around €265 million ($311 million). This was mostly funded by a loan from KfW IPEX-Bank, while around one-quarter of the capital requirement was provided by Icelandic pension funds and Islandsbanki, according to the PCC SE website.

The Icelandic government also supported the silicon metal project, providing financial assistance as well as long-term tax concessions.

In 2013, the Icelandic parliament passed several laws to allow the development of the Bakki industrial park in which the plant was built. Power contracts were also in place for all the plant’s production requirements.

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