Inadequate Feedstock Prices and Sufficient Inventories Weigh Down the Global Silicone Oil Prices

Since the beginning of June 2023, Silicone Oil prices have decreased drastically across the global market, supported by weak feedstock prices. The stable to weak demand, sufficient inventories, and a decline in freight charges have weighed down the prices of Silicone Oil. Furthermore, the slowdown in Chinese economic recovery, speculation of recession across the European region, and continued rise in interest rates to combat inflation have further impacted consumer purchasing power.

Silicone Oil prices have declined sharply in the Chinese market. The cost pressure from feedstock Silicon metal was inadequate as their prices progressed downward in the given time frame. The inquiries from the construction sector were tepid in the domestic market. Market participants reported that construction in June dropped by 28.1%, indicating that the sector remains in crisis and continues to weigh on the country's economy as manufacturers suffer amid a lack of buyer confidence. In addition, China's manufacturing purchasing index increased slightly (i.e., 48.8 in May to 49.0 in June) but still below bar performance. As a result, prices of Silicone Oil were assessed at (SC-85%) 100 cst- 2400/MT with a month-on-month decrement of 11.8% on a FOB basis on 30th June 2023.

On the other side, prices of Silicone Oil have inched lower in the German market. The oversupply of feedstock Silicon metal has limited the positive development of Silicone Oil in the domestic market. The manufacturing activity in Europe's largest economy, Germany, showed a contraction in June, indicating a faster decline in both activity and new orders amid rising interest rates, customer uncertainty, and wider inflationary pressure. On the demand front, the procurements from the downstream construction sector remained pessimistic amidst a lack of investment and financial uncertainty. According to the latest data from the Hamburg Commercial Bank (HCOB), Germany's construction purchasing manager's index dropped from 43.9 to 41.4 in June. Despite the economic fears, the demand from the automotive sector has risen in the given time. In addition, according to the KBA motor transport authority, German new-vehicle registration increased by 25% in June, supported by strong demand for electric cars and an easing of the order backlog caused by the supply shortages and the Covid-19 pandemic, but it had not impacted the prices of Silicone Oil at a very broader level. In addition, the availability of finished stocks of Silicone Oil was sufficient, which promoted the downshift in the prices of Silicone Oil in the domestic market. Therefore, prices of Silicone Oil were settled at (SC-85%) 100 cst- 3520/MT on a FOB Hamburg basis during the last quarter of the second.

Despite the high demand from the downstream automotive and construction industry, Silicone Oil prices have decreased in the US market. The price decline was attributed to the ample material available at the US ports via the steady inflows of imports from the Asian market, which led to the supply-dominant market. The rates for shipping containers from East Asia and China to the US continue to fall. The Drewry World Container Index indicates that the average worldwide container rates have seen minor variations in recent months but have consistently stayed below $2000 per 40-foot equivalent unit (FEU) since February. However, in the US, June sales of new lights soared by more than 20% this month compared with 2022 as buyers continue to show resilience regardless of higher interest rates. Thus, prices of Silicone Oil were settled at (SC-85%) 100 cst- 3300/MT during the same time frame.

ChemAnalyst expected global Silicone Oil prices are likely to increase on account of improved demand from the downstream industry. The feedstock Silicone metal might increase, which may positively impact the production cost of Silicone Oil in the Q3 of 2023.