All eyes are on the fast-changing dynamics of the Graphite Electrode market in China, not least because of its global implications in shaping prices and demand.The phenomenal rise in China’s Graphite Electrode prices over the past one year was largely attributable to the shutting down of Chinese Graphite Electrode plants resulting in global shortage of the commodity.
China is making rigorous efforts to replace polluting induction and blast furnaces with electric furnaces. New policy measures announced in early 2018 ensure zero growth in steel capacity by requiring steel capacity replacement to be kept in a ratio of 1.25:1 or 1:1 (regional differentiation).
The percentage of EAFs in the country’s total steel production has increased from 6% in 2016 to 9% in 2017 and again to 12% in 2018. The objective is to achieve a target of 20% by 2020.
This perceptible policy thrust in promoting EAFs coupled with rising Graphite Electrode prices have motivated Chinese Graphite Electrode manufacturers to increase their production and rev up capacities.
Will China Be Saddled With Graphite Electrode Overcapacity?
In 2017, China had an effective Graphite Electrode capacity of 900,000 tonne and a production capacity of 630,000 tonne (including exports and non-member enterprises). Last year, it produced almost 700,000 tonne of Graphite Electrode (including exports and non-member enterprises).
Statistics maintained by the China Carbon Industry Association (CCIA) reveal that by December 2018, the newly-added Graphite Electrode capacity in China was 600,000 tonne (including new processes which are already under construction or are being designed to start construction soon). From Jan to Aug’18, Graphite Electrode output in China was 416,392 tonne, up 14.18% on a Y-o-Y basis.
According to a top CCIA official, China’s carbon industry, which includes various products such as Graphite Electrodes, is set to be bogged down by severe overcapacity from the second-half of 2020, after producers scramble to expand their capacities amid spiralling demand and high profit margins.
At an industry conference held recently, CCIA’s General Secretary Sun Qing said: “Extravagant profits over the last one and a half years have lured companies that were shut down in bleak years to resume operations and even expand capacity whereas some of those companies that didn’t have carbon capacity are planning to launch new production lines.”
Qing added that China is expected to have Graphite Electrode capacity totalling 1.5 MnT by 2020, up 67% against 2017. With the increase in electric furnace steel, the demand for Graphite Electrodes will simultaneously rise, but the current utilization rate of Graphite Electrodes is only 53.33%.
By 2020, production and sales of Graphite Electrodes in the country will not exceed 800,000 tonne (including exports and non-member enterprises) which will be less than the total capacity of 1.5 MnT, thus resulting in overcapacity.
Could Graphite Electrode Capacity Addition Be Stemmed?
Unlike China’s steel and coal industries whose capacity is strictly controlled by the central government, carbon producers do not need to acquire approvals from authorities to add new capacity as long as they are able to meet environmental standards.
Since the latter half of 2017, China’s aggressive environmental protection measures have tightened supplies of low-quality carbon products and have led to the promotion of EAFs in steel production that emit less toxic air compared to blast or induction furnaces.
In order to rein in overcapacity, Qing mentioned that the country would accord importance to emission levels as part of environmental protection measures. In addition, it would be vigilant about addition of low-quality redundant capacities, focus on producing high quality products, lay emphasis on co-ordination between demand-supply and take measures to avoid aggressive competition by following self-discipline.
Cog in the Wheel: Good Quality Needle Coke in Short Supply
The only area of concern for China’s Graphite Electrode producers will be the tight supply of high quality key raw material, Needle Coke that is required to produce ultra-high power (UHP) Graphite Electrodes.
In an interview, Qing has highlighted that as China depends upon imports of good quality Needle Coke for the production of UHP grade Graphite Electrodes, the country’s carbon industry should prioritize research activities, scientific and technological innovation and co-operation of upstream and downstream units to improve the quality of supply chain.
Join SteelMint for ‘International Graphite Electrodes & Needle Coke Roadshow’ in China
Given the production and capacity estimates of Graphite Electrodes in China and export restrictions to Iran due to US sanctions, it is likely that China may flood the global market with its Graphite Electrodes in the coming couple of years. To find out the ground reality, hit the road with SteelMint to gather a more holistic view of the Graphite Electrode and Needle Coke plants in China at the ‘International Graphite Electrodes & Needle Coke Roadshow – China’, to be held from 8 to 12 April, 2019.