Without this stuff the desktop computer revolution couldn't have happened. Besides enabling ever faster, more powerful computer chips and smaller, lighter electronic devices, silicon and silicone materials help produce more efficient solar panels and wind turbines. They're vital to a vast array of construction materials, health aids, cosmetics and other products found all around us. The key ingredient, silica, is also all around us-but not in the sufficiently pure form valued by industry.
Silica, or silicon dioxide SiO2, is commonly found in quartz or quartzite. In purities above 99% it's the primary ore used to make silicon metal, a lightweight material with characteristics in common with aluminum. Silicon metal can be further refined to poly silicone, used in the solar and electronics industries. That requires the exceptionally high-grade silicon of 99.9999999%, if not better.
Such purity doesn't come easily, but it's made simpler by using high-grade silica in the first place. Otherwise the smelting process can be complicated by chemically similar metals such as magnesium, boron and aluminum. When smelted into silicon metal, silica gets mixed with a carbon product and heated until molten to remove the oxygen. Further refining produces a grade suited for silicon metal's many uses. About three tonnes of silica are needed to make one tonne of silicon metal. According to a U.S. Geological Survey estimate, 2012 world silicon metal production came to 7.6 million tons.
While purity is important to all metals, it's especially crucial to poly silicone. The exponential function of Moore's Law, which in 1965 predicted that the number of transistors on a computer chip would double every two years, was made possible by poly silicone's purity.
Higher purity has overcome problems with solar energy, which had been plagued by large, inefficient panels. Solar's resurgence, in which the industry sustains itself without heavy subsidies, can be attributed partly to higher-quality poly silicone producing more watts per gram.
Poly silicone currently fetches about $20 a kilo, a price that reflects reduced demand as Europe drops solar subsidies. But many renewable energy analysts predict a return to the $35-to-$40 range this year. The U.S. now drives the world market with demand from utilities and residential construction. Demand also comes from large companies such as Walmart, Apple, Microsoft and Google, as they enter the renewable energy markets. Long-term financing comes from institutional investors who note that solar electricity now costs about the same or less than traditional sources.
But reliable supply and demand numbers are difficult to determine. Most of the industry is dominated by conglomerates that don't publish detailed financial statements on their silicone business. In 2008, however, poly silicone prices peaked at over $450.
Solar stocks, meanwhile, proved to be some of last year's best-performing investments. Currently the seventh-best performing ETF in the U.S. is the Guggenheim Solar ETF NYE:TAN, up 128.26% for 2013. The Photovoltaik Global 30 Index, which represents the world's 30 largest solar companies, went up 125.27% in the last 12 months.
The only public pure silica-to-silicone company is Globe Specialty Metals (NASDAQ:GSM). It's a major supplier to North America's largest silicon company, Dow Corning, whose website provides an excellent source of info on the many uses of silicon metal products. Other large players include Wacker Chemie AG, Elkem Silicon Materials and Shin-Etsu Chemical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.