The recent fall in Graphite Electrode prices is majorly due to the drop in the China’s steel prices and tepid domestic steel demand during winters. However, this trend is unlikely to continue for long given a plethora of factors:
- the strict output curbs announced by China’s major Graphite Electrodes producing cities like Tangshan and Xuzhou;
- China’s promotion to EAFs for steel production;
- slow growth in Graphite Electrode capacities and small electrodes inventory; and
- the uptrend in UHP grade Graphite Electrode prices in other countries such as Japan and the US, which is used as a reference for deciding domestic prices in China.
Let us zero in on the factors influencing firm GE prices in detail below:
High-quality Needle Coke in Short Supply
The supply of good quality needle coke, which is a key raw material in the production of high-grade electrodes, is limited in China resulting in tight supply and high prices. Domestic needle coke prices have remained stable at RMB 2.8-3.4 million per tonne over the past few weeks. However, as far as needle coke supply in the ongoing year is concerned, it is far from certain whether the tight supply situation will change in the first half of 2019. This is because although the country has plans to add more needle coke capacity, a majority of the new plants are for pitch coke and face significant challenges in sourcing high quality coal tar pitch and producing at consistent quality levels.
Also, according to estimates, China’s needle coke supplies in 2019 – including both production and imports – are estimated at 728,000 tonne whereas demand – both from Graphite Electrode and the lithium battery segment – is expected to be around 817,000 tonne. This means that needle coke supply in China will witness a shortage of 89,000 tonne in 2019, which will ultimately affect Graphite Electrode output and support prices.
Tardy Pace of Capacity Addition
If past records are anything to go by, the capacity additions in 2018 have been less than expected. According to IC Carbon statistics, 19 companies had planned to produce 821,000 tonne of Graphite Electrodes but, as of November 2018, only five companies had completed the construction of their plants and were yet to start operations, which means that demand for Graphite Electrodes in China is still higher than supply.
China’s Strict Replacement Policy in Steel Sector
China’s decision to keep a lid on steel capacity in the country by way of the 1.25:1 steel replacement policy will force other countries to increase their steel production. This is because, according to the policy, for every 1 MnT of new steel capacity in China, 1.25 MnT of old polluting capacity needs to be closed down. This should drive higher steel production in other countries and, in turn, boost demand for Graphite Electrodes, as additional steel production is likely to come through the EAF route.
EAF Gaining Popularity
Going forward, GE prices are expected to remain buoyant mainly on account of new EAF capacities coming up in China. Electric steel’s share in total Chinese crude steel production is expected to increase to 20% by 2020, compared with 6% in 2016, 9% in 2017 and 12% in 2018. This, in turn, could increase EAF steel output to 120 MnT by 2020 compared to 52 MnT in 2016, thereby creating an additional demand of 240,000–300,000 tonne of Graphite Electrodes.
Moreover, Trade Wars among major economies of the World has resulted in a sharp drop in steel exports from China. This has forced other countries to increase their production capacities, which is mainly done via the EAF route, leading to higher demand for graphite electrodes
To know more about how the Graphite Electrode market will pan out in the days to come, book your seat at the ‘2nd Global Graphite Electrodes Conference, Bangkok’, from 27 to 29 August, 2019.