Fangda Carbon New Material Co. Ltd (hereby referred as Fangda Carbon) was founded in 1965 and is headquartered in China’s Lanzhou city of Gansu province. The company’s product profile has three major categories of products that includes Graphite Electrodes, Carbon bricks for blast furnace and New Carbon materials. Amongst the three products, graphite electrode takes up the highest proportion, which is more than 90%. Graphite electrodes are also the biggest profits earner for the company in past two years.
The graphite electrode is a consumable material which is used in the steel smelting process. Its objective is achieved after steel scrap becomes molten steel through conduction of electricity by graphite electrode through which heat is generated. The demand and profitability of companies manufacturing graphite electrodes has become very high especially over past two years mainly due to deepening of China’s supply-side structural reforms which led to the closure of polluting induction furnaces that were producing low quality steel. The government simultaneously promoted replacement of induction furnaces with electric arc furnaces in which GE is used as the key raw material.
Fangda Carbon’s current GE capacity is 190,000 tonnes per year (tpy), needle coke capacity is 60,000 tpy, petroleum coke capacity is 144,000 tpy and carbon-based new material capacity 10,000 tpy. The company has four plants in Lanzhou, Fushan city, Hefei city and Chengdu in China.
In 2017, Fangda Carbon produced 178,000 tonnes of carbon products, including graphite electrode 157,000 tonnes, achieving a total operating income of RMB 8.35 billion, an increase of 248.62% year-on-year and net profit of RMB 3.62 billion, an increase of 5267.65% year-on-year. The profits realized in 2017 were equivalent to the total profits of the company over past 50 years.
Mr. Dang Xijiang, the president of Fangda Carbon believes that in the next three years, capacity of electric furnace steelmaking in China will increase by 90 MnT, and graphite electrode demand will increase by 200,000 tonnes. He quoted that“Wherever there will be requirement for graphite electrodes in the world, there will be product from Fangda Carbon.” Following are the excerpts of the interview with him.
1) What are the advantages of electric furnace steelmaking? What is the situation of electric furnace steelmaking in China?
Blast furnace steelmaking needs iron ore consumption whereas electric steelmaking uses steel scrap for steel manufacturing. With the adjustment of China’s national industrial policies, especially the deepening of supply-side structural reforms, the proportion of electric steelmaking is expected to increase in the coming years ahead. As far as we know the proportion of electric furnace steelmaking in China is less than 10% of crude steel output, while that in developed countries it is more than 40%.
The amount of steel scrap available in developed countries is sufficient to form a mature recycling industry. However, in case of China scrap availability is still inadequate. As per the customs data, it is about 200 MnT whereas country’s annual crude steel output is about 800 MnT, making blast furnaces more preferred route for steel manufacturing. But in future, the availability of scrap is expected to increase which will create conditions conducive for the development of electric steelmaking. Our estimation is that domestic electric steelmaking in China may increase by 30 MnT every coming year ahead.
Electric furnace steelmaking is clean and environmentally friendly, which is now becoming the preferred trend of the steel industry given the high-level of pollution blast furnace route of steelmaking causes.This preference to electric steelmaking is generating more demand for graphite electrodes, which brings in very good opportunities for our company.
China’s electric furnace steelmaking capacities are upgrading to 90,000-100,000 or above, and electric furnaces with small capacities are likely to be inevitably phased out. Large electric furnaces require large-size graphite electrodes, and large-size graphite electrodes of ultra-high-power (UHP) can only be produced by large companies such as Fangda Carbon. As the number of small companies diminishes from the market, Fangda Carbon will embrace more opportunities for development.
We believe that the prospects of graphite electrodes market in both short and long run is stable and good. In the next three years, electric steelmaking in China is likely to maintain an increment of 30 MnT per year, and will become stable after touching 90 MnT three years later. As per our forecasts, the demand for graphite electrodes in the next three years will increase by 200,000 tonnes and by that time, the proportion of China’s electric steelmaking may increase from current level of 10% to 20%.
2) Graphite electrode production is at the forefront of the steel industry these days and Fangda Carbon has joined hands with Baowu Group to further enhance graphite production capacity. Can you elaborate it?
Fangda Carbon is working with Baowu Group to rebuild another “Fangda Carbon”. We will cooperate in the construction of a 100,000 tonnes ultra-high-power graphite electrode production line in Honggu, Gansu province. The equipment and facilities of this new plant are world-class with high degree of automation. We have planned to invest RMB2.7 billion, and Baosteel Chemical will have stake of 51% whereas Fangda Carbon will have 49% share in the new plant which will be operational in June 2020.
At present, Baowu Group – a leading Chinese steel manufacturer uses about 10,000 tonnes of graphite electrodes per year. With the adjustment in its product structure, the demand for graphite electrodes will increase, but it will not exceed 15,000 tonnes. The rest of the production from new capacity will be released to the market, with majority being exported in the overseas market.
3) What’s the competitive advantage of Fangda Carbon in the industry?
The advantages are mainly reflected in five aspects. The first one is the equipment advantage. Fangda Carbon has introduced a large number of European, American and Japanese production and processing equipments, especially the 40MN vertical-horizontal hydraulic press imported from Japan, 20000KVA DC graphitization furnace and the largest circular baking furnace, all of which are advanced in the world.
The second is the production capacity. In 66.7 hectare plant of Haishiwan Town, Lanzhou city, the annual production of Fangda Carbon’s graphite electrode plus the blast furnace carbon bricks in a single factory is the largest in the world. The ‘economies of scale’ advantage is enough to withstand and resolve various changes in the market.
The third advantage is on product structure. More than 65% of the graphite electrodes produced by Fangda Carbon’s headquarters are ultra-high power, which is also the main driver of Fangda Carbon’s rapid development amid high demand for UHP grade GE in the market.
The fourth is management and technological advantage. After more than 50 years of development, Fangda Carbon has been rigorous in its work style and its fine management requirements have been passed down. Technological innovation, refined management, and cost control are all done with much attention to details.
The fifth is the advantage of the system and mechanism. Fangda Carbon’s advanced enterprise management concept and the flexible mechanism of private enterprises, efficient decision-making and rapid response have greatly enhanced the company’s ability to adapt to the market competition.
With the deepening of structural reforms on the supply side, the demand for high-quality graphite electrodes in steel smelting is increasing. Fangda Carbon is well prepared in the fields of equipment, production capacity, products, technology and mechanism, and can effectively adapt to the market adjustments and changes, bringing better development opportunities for the company.
4) Everyone is concerned whether the ongoing China-U.S. trade war will have an impact on the Fangda Carbon’s GE exports?
We have prepared ourselves in advance for this and also the proportion of our graphite electrodes supply to U.S. is not very high, thus resulting in little effect on us. The world’s largest steel manufacturer, ArcelorMittal Group is headquartered in Europe and Fangda Carbon and Arcelor Mittal have established a very good cooperative relationship for more than ten years. Arcelor Mittal now has more than 60 steel mills with an annual production of steel around 130 MnT, majority of which uses EAFs that requires graphite electrodes. Fangda Carbon has established long-term and stable supply relations with many large steel enterprises both at home and abroad.
5) Fangda Carbon’s graphite electrode enjoys a very good reputation in the overseas market and there are a number of strategic customers. Please talk about the future development of the company in overseas markets.
Fangda Carbon mainly exports high-end ultra-high-power products, and we have basically achieved full coverage in the global market. Wherever there is a graphite electrode need in the world, there is a product from Fangda. The export accounts for 40% of our total production. We have been the No.1 exporter in Gansu Province for six consecutive years.
6) In addition to the production of graphite electrodes, does the company plan to extend the upstream and downstream industries of graphite electrodes?
We do have the plan in this regard, but the goal at this stage is to continuously improve the quality of graphite electrode and the product structure in line with the adjustment of the national industrial policy and the demand for development of high-quality steel industry. Also the company will focus on developing three existing categories of graphite electrodes, blast furnace carbon bricks and new carbon materials in the future.
In terms of new carbon materials, the company will put more efforts in the production of carbon products for nuclear power. At present, China’s nuclear power accounts for only about 4% of total domestic power generation, which is a big gap between the world’s average of 10%, leaving much room for improvement in the future. It is estimated that a 600,000-kilowatt nuclear power plant will bring about an output value of RMB 1 billion for the company.
Previously, reactor used carbon components were mainly imported from Japan, and there was no such technical capability in the country. However, through research and development, Fangda carbon achieved technological breakthroughs. More importantly, at present, only Fangda Carbon has obtained the license for the manufacture of nuclear graphite and internal components for carbon pile. With qualification, technology, products and a promising market, it will not only improve the profits of the company, but also contribute to the development of new energy industry for the country.
7) Fangda Carbon really has the potential to stand out in the world. Is there still a competitor in the market?
Fangda Carbon is a domestic first-class carbon enterprise. But in the carbon industry, American and Japanese companies are the role model for Fangda Carbon. We hope that with one or two years of efforts, Fangda Carbon will become the world’s front runner in the carbon industry. This is also our aspiration since we already have very good production base, talent pool, and first-class equipment. We believe that this will come true one day.