London (Fastmarkets) -- 16 Sept 2019
Prices for market electrodes have hit bottom and the market is now waiting for the trigger for prices to rise again, GES Europe analyst Benjamin Sarkoezy tells Fastmarkets in an overview of the current market.
The graphite electrode market is approaching a crunch point after months of heavy falls, according to producer and graphite consultant GES.
Graphite electrodes are used in both electric-arc furnaces (EAFs) and ladle furnaces for the production of steel, ferroalloys and cast iron (see below).
"We are in a delicate situation on the supply side of the market. Inspired by high electrode prices in 2017 until the middle or end of 2018, producers increased their capacities and new entrants came into the market in China and in the West," Benjamin Sarkoezy, an analyst with the European company, said in a recent interview with Fastmarkets.
To fund their developments, many producers amassed debt or took on private investors. Meanwhile, electrode production capacity and stocks increased and the market softened significantly in response to the ramping-up of output.
"There has been a 60% fall in the price of electrodes since winter [2018-19] and 20% in the past two months," Sarkoezy said, "and the price of petroleum coke [pet coke] has risen to the point that some electrodes producers are now struggling to cover their costs for raw materials."
Pet coke is a key raw material in graphite electrode manufacture and represents one of the main costs in production.
"In the short term, all the producers are still selling, but we are convinced that the next step is for some to cut down and then stop their output," Sarkoezy said.
This would echo the situation in 2016 when tighter Chinese environmental inspections led some producers to cut back their production. This tightening of supply sparked a crisis when prices spiked. (See pricing section below.)
"This time, the market could be moved by either the introduction of new environmental policies in China or by the trade war between China and the United States," Sarkoezy said. "We are looking to see what will be the external force that triggers prices to rise again."
Competition for materials, tepid demand
Producers of graphite electrodes must compete to secure supplies of pet coke, which helps to define the costs for electrodes producers, along with electricity.
"Future technologies, such as anode and solar panel producers, consume much of the [same] raw material [as is] required for graphite electrodes, such as petroleum coke," Sarkoezy said. "There is great rivalry for material between them and electrodes producers. As a result, we expect the price of pet coke to remain high or even to increase."
At the same time, GES expects only a modest increase in global demand.
Demand for electrodes is expected to increase in China and India in the near future, but to fall in Western economies.
"Overall, we expect a slight net increase in the near future for graphite electrodes," Sarkoezy said.
In the short term, therefore, pressure will remain on producers to be profitable with the current low electrode prices. But despite the low prices, it is unlikely that consumers will build inventories and spark a meaningful increase in demand.
"The current situation is a good time for spot buyers of electrodes, but most buyers have enough stock [to meet their needs] until next year so cannot make use of the situation," Sarkoezy said.
Current electrode prices
GES believes that prices have bottomed out and will be stable before they start to rise again in 2020.
At their peak in 2016, graphite electrode prices for different grades of materials peaked at $20,000 per tonne. Current prices are shown below:
- Electrode size: Small diameter, less than 400mm
- Electrode price: $2,000-2,300 per tonne fob China
- Electrode size: Large diameter, more than 400mm
- Electrode price: $2,500-3,000 per tonne
- Ultra High Power (UHP) electrodes
- Electrode size: Around 450mm
- Electrode price: $3,100-3,500 per tonne
- Electrode size: Around 600mm
- Electrode price: $8,000 per tonne
- High Power (HP) Grade and Super High Power (SHP) (GES invention)
- Electrode size: diameter 400mm max
- Electrode price: $2,500-3,000 per tonne
(Prices correct on September 13, 2019, and were produced by GES using data from manufacturers and from tenders.)
The largest producers fall into two groups, either inside or outside China, Sarkoezy said.
There are 35-40 official graphite electrode producers in China, and at least 30 more new entrants to the market in the past two years which make other refractory products as well as electrodes.
The two biggest producers in China, Fangda Group and Sinosteel Jilin Carbon, were also the first when they began production in the mid 1990s.
About 70% of Chinese production is consumed domestically and 30% is exported.
The major producers outside China include GrafTech in the US. GrafTech is the only graphite electrode producer in the world that has its own petroleum coke production, so does not need to compete for raw material pet coke against battery and solar producers.
HEG (capacity of 80,000 tonnes of UHP per year) and Graphite India (98,000 tonnes per year capacity of electrodes) are the biggest producers in India.
Tokai Carbon (38,000 tpy capacity in Japan, 96,000 tpy globally) and SEC Carbon make graphite electrodes in Japan.
And since SGL Group sold its graphite electrode business to Japan’s Showa Denko in 2017, production in Germany has moved to Russia, where electricity costs are lower. It is highly energy-intensive to convert carbon into graphite in the production of electrodes so lower prices can drive the location of plants.
China is by far the lowest cost producer, followed by India.
The biggest consumers of graphite electrodes are electric-arc furnaces (EAFs), followed by ladle furnaces, Sarkoezy explained.
EAFs smelt steel scrap while ladle furnaces are used to raise the carbon content of steel.
Graphite electrodes are indispensable in EAF steelmaking, which is often a more efficient and cheaper alternative to blast-furnace steelmaking, but this is dependent on energy costs.
EAF steelmaking involves using recycled steel scrap and emits much less CO2 than a blast furnace, making it the more environmentally favorable choice for producing steel.
EAFs need electrodes of large diameter and high quality, otherwise they break when conducting electric current.
In contrast, ladle furnaces usually operate with an electrode diameter of less than 300mm.
By country, the biggest consumer by far is China, with at least 60% of the market.
Chinese consumers only use imported material when they need electrodes bigger than 800mm in diameter, and often source from Japan
About 80% of Indian production is consumed domestically.
Changes in the graphite electrodes market can be roughly linked to movements in the crude steel market.
While the size of the markets in China and India have significantly increased in volume year-on-year so far in 2019, they have shrunk slightly in the US and Europe.