Amid the increased graphite electrodes supplies from China and subsequent fallin global GE prices, Japan’s key electrodes manufacturer, Showa Denko has decided to improve its Carbon division’s production facilities in Europe with a planned investment of 5 billion yen.
The company has in total seven production sites located in Japan, Europe, U.S. and rest of Asia with the largest share in world’s production capacity of UHP grade electrodes. Showa Denko has launched a medium term plan this year‘TOP 2021’ and under this plan, it plans to achieve the synergy effect of business integration while ensuring stable supply and optimizing supply cost at respective graphite electrode production sites.
In line with its aim of business integration, it is essential for SDK to establish a global system for supplying graphite electrodes with the same high quality. Thus, the company has decided to improve facilities at its three production sites in Europe, in Germany, Spain and Austria, for the purpose of improving quality and stabilizing production. These sites are controlled by SDK’s consolidated subsidiary SHOWA DENKO CARBON Holding GmbH, which is based in Germany. The construction work and quality improvement efforts are scheduled to begin in 2019 for completion in 2020. This upgradation work is anticipated to reduce SDK’s total production capacity by around 5% during this period. The company aims to achieve its target of being best in terms of quality for its customers and keep on improving the profitability of electrodes business.
Recently the company’s top management have expressed their opinion that despite the increased supplies from China, the bullish conditions will continue in case of the UHP grade large size electrodes market.
SDK anticipates surge in large-diameter GE demand
The graphite electrodes can be majorly divided into two. These are large-diameter graphite electrodes, which are used for melting scrap steel to create electric furnace steel, and small-diameter graphite electrodes, which are used to maintain the molten state of iron that has been melted in a blast furnace or electric furnace. The production of large diameter GE requires both technological expertise and high-quality raw materials (needle coke) and Showa Denko is amongst the few three companies globally that manufactures good quality large-diameter GE.
Now, as per the company’s top management, with the growing EAF facility around the world especially in North America and East Asia amid environmental concerns to reduce pollution, the demand for large-diameter electrodes will continue to rise whereas their supply will remain tight which is set to support the GE prices.
Company undeterred by current fall in GE prices
In its own earnings forecast for calendar 2019, Showa Denko has projected that its inorganics segment – which includes graphite electrodes – will generate 148 billion yen in operating profit (USD 1.36 billion), up by 11.8% year-on-year. Figures from the first quarter show that the company’s graphite electrode sales stayed at largely the same level as that seen last year.
While another Japanese GE major, Tokai Carbon has made a downward revision in its earnings forecast for second half of 2019 based on the current market situation, Showa Denko didn’t change its existing prediction of continued high sale prices for graphite electrodes, expecting the average price here for 2019 to be around five times that seen in 2017. The company’s GE price contracts with Japanese and other East-Asian customers for Apr-Jun quarter have been finalised at prices 5-10% more against corresponding quarter of last year.
Apart from this, the capacity additions in China’s GE sector are majorly going to be focused on small diameter GEs resulting which no major impact on the demand-supply balance of large-diameter is expected. The strong growth prospects of North American steel sector the general expectation is that demand for graphite electrodes will be steady in the medium term.