Too many ifs for the PCC silicon smelter in Iceland to restart

According to Runar Sig­ur­pals­son, CEO of the beleagured PCC silicon metal plant at Bakki, North Iceland which switched off its machinery and suspended operations last summer, the intention is to restart it in the spring. But there are still many “ifs”.

One of the main concerns is the American market. Two American producers of silicon metal, Globe Specialty Metals and Mississippi Silicon, complained that the entry price of the metal from Iceland, Bosnia, Montenegro and Kazakhstan was lower than the normal expected value – 54-85% lower, depending on the country. This is known as dumping, which is when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter’s domestic market. The situation has been ongoing in the USA for three years and other countries, such as Thailand and Brazil, have also been subject to anti-dumping penalties.

The two US companies filed a complaint last year, asking for customs duties to be imposed on silicon metal imported from the four countries. The preliminary ruling from the Department of Commerce was not favourable to PCC, but the final ruling is expected in February.

Customs duties continue to be imposed in the USA on silicon metal imports from Russia.

When operations stopped in the summer, PCC gave the excuse that various repairs had to be done and demand had dropped due to the COVID pandemic. Although the majority of the employees were laid off at the time, some have obviously been hired again (or new employees hired) as various repairs have been ongoing recently at Bakki. Discussions have also been ongoing between PCC and suppliers: as Sigurpalsson said recently in a Facebook post (in Icelandic): “It’s clear that for the smelter to be considered competitive, good cooperation with suppliers is a key factor.” He says that lower production costs are essential if the company is to be competitive.

I still suspect that the smelter will not reopen. At the time the smelter turned off its furnace – only one was operating for the last months of operation, not two – PCC were dealing with various technical problems but blamed the situation on the world market due to COVID as the reason for suspending operations.

Silicon metal is mainly used for the production of aluminium alloys for the car industry. This also applies to aluminium from PCC. But as is also the case with aluminium, there is overproduction of silicon metal in China. Just as aluminium companies are in difficulties because of oversupply, the same could well be true of PCC.

It is clear that COVID will not disappear in the next few months. And the reason for suspending was before the two American silicon metal companies petitioned over pricing.

There are still too many “ifs”.

Update, January 21: PCC Bakki have just released their annual report for 2019. They lost $US 10.4 million: income was $3.5 million, operating expenses $12 million. They say they don’t know when the cash flow will become positive again, but they intend to restart sometime in the first half of this year. In my opinion, that’s yet another “if”.

Update February 2: PCC have started advertising again for workers, in the hope that they will be able to restart in spring, “with lower production costs and a better market conditions”. Let’s wait and see.