The UHP grade graphite electrodes (GE) has been key component of electric-arc furnace (EAF) route of steel manufacturing but did not receive much attention until last year when the Chinese industry announced closure of polluting induction furnaces and shifted its focus towards increasing the share of EAFs for steel manufacturing.
How GE shortage was created last year?
According to industry experts, the answer for this dates back to several years ago when world steel markets were generally weak and the demand for UHP graphite electrodes was correspondingly poor. As a result of this about 25% of the GE market was taken down resulting in decline in global graphite electrodes production capacity.
When steel markets started to recover during late 2016 into early 2017 in response to improving global economic conditions – demand for electrodes also picked up. This coincided with the Chinese government closing induction-furnace production of low-quality steel, a decline in net exports from China and boost to increase the share of EAF-based steelmaking from current levels of 9% to 15% by 2020.
The demand for graphite electrodes was so poor couple of years ago, that steelmakers didn’t have much GE inventories resulting in its shortage in the supply chain and when suddenly GE demand shot up, the panic button was hit.
This GE shortage was aggravated with limited supplies of its key raw material, needle coke. The needle coke market is oligopolistic in nature with very few players in the market and entry of newcomers in the sector is quite difficult due to long lead time in setting up of the plant. Also, there is demand-supply mismatch of needle coke for graphite electrode industry due to its increased demand from lithium-ion batteries industry and reduction in certain needle coke production in China has been reduced as part of a national policy to limit air pollution.
The GE shortage leads to dramatic increase in its prices
This increased demand for UHP grade graphite electrodes in China resulted in dramatic surge in its global prices up to USD 20,000 – 30,000/MT last year. This year although the prices have fallen from panic-driven peaks, they still remain higher than the historical standards. As UHP grade graphite electrodes are least polluting component of EAFs.
As per the estimates of Japan’s GE major Showa Denko, the global demand for graphite electrodes in 2017 was about 785,000 tonnes. China’s total graphite electrodes production capacity at present is about 800,000 tonnes per year (tpy) whereas UHP grade capacity is only 50,000 tpy which means that although China is world’s largest GE producing nation, the country has greater capacity of producing lower quality graphite electrodes.
The outlook of UHP-grade graphite electrodes prices
There are news in the market that China is immediately coming up with the new GE capacities to meet its rising demand. However, as per the industry experts, most of the increase in China’s GE capacity are by tier 2 players and that they either cannot make UHP electrodes or are inexperienced newcomers.
Also the quality of UHP electrodes depends not only on the availability of high-specification needle coke, but also technical expertise in each of the main process steps in making them, particularly baking, extrusion and graphitizing.
China does have great potential for long-term growth in UHP graphite electrode demand because Chinese government has set its target of 15% EAF steel making by 2020, and if we take a conservative view that the country achieves at least 12% of EAF steel making capacity, an extra 50,000-60,000 tpy of UHP graphite electrodes would be needed.
As there is limited UHP grade GE capacities in China, this additional demand will benefit graphite electrodes major Showa Denko (with GE capacity of 225,000 tonnes) that has a majority share in a UHP graphite electrode producer in China, with a national Chinese steel company. Other GE suppliers such as HEG Ltd and Graphite India are also likely to benefit from this situation.
However, in the long run, China’s GE major Fangda Carbon (with a GE capacity of 190,000 tonnes) is coming up with its own UHP grade GE plant of 100,000 tonnes of capacity in association with Baowu Group and a capacity addition of 50,000 tonnes of UHP grade GE under the management of its subsidiary Meishan Fangda Rongguang Carbon Company (Meishan Fangda). These two new capacities will be operational by 2020 and with this the demand-supply imbalance is likely to improve post 2020. Amid this, although the GE prices in China won’t match the peak levels of 2017, these are likely to remain higher than the historical prices.
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