Breaking down the UHP graphite electrode market
London (Metall Bulletin) -- 31 Jul 2018
Shortages last year of the ultra-high-performance graphite electrodes used by EAF-based steelmakers and some non-ferrous metal producers rapidly pushed up their price; Metal Bulletin asks Hidehito Takahashi, managing corporate officer of Showa Denko K.K. and general manager of the Carbon Division, about the market’s global dynamics and future.
While the eye-catching ultra-high-power (UHP) electrodes glowing from use in electric arc furnaces (EAFs) have always been core components of melt-shop operations, they have seldom been a focus of attention in the markets for steel products, for which they play a vital role in the upstream part of the process.
That changed last year when the steel industry awoke to a shortage of UHP graphite electrodes and their prices shot up while steelmakers scrambled to secure supplies. Some steel production was curtailed as steel producers sought to conserve dwindling electrode stocks.
Although UHP electrode prices have fallen from the panic-driven peaks of last year (reportedly $20,000-30,000 per tonne), they remain high by historical standards. So what combination of factors has led to the spotlight falling on UHP electrodes and what is the outlook for them now?
A Japanese company with international operations, Showa Denko – a wide-ranging chemicals business – claims to be the world’s largest supplier of UHP graphite electrodes. Based in Showa Denko’s Tokyo headquarters, Hidehito Takahashi, managing corporate officer of Showa Denko K.K. (SDK) and general manager of the Carbon Division, said that global demand for UHP electrodes in 2017 was 785,000 tonnes per year.
SDK estimates that current total global capacity for UHP graphite electrode production ex-China is about 800,000 tpy. The company estimates that UHP-quality graphite electrode production capacity in China is currently about 50,000 tpy, although the country has a greater capacity for producing lower quality graphite electrodes.
With a group capacity for UHP electrode production soon to be about 250,000 tpy, Showa Denko supplies about 30% of the world market, Takahashi said. The company’s acquisition of SGL Group’s graphite electrode business last year helped it to reach that level.
How does he account for the shortage that appeared to catch many EAF-based steelmakers unaware last year? The answer stretches back to the period several years ago, when world steel markets were generally weak and the demand for UHP graphite electrodes was correspondingly poor.
“As a consequence, about 25% of the market was taken down,” Takahashi recalled, referring to a decline in global electrode 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 an impetus for more EAF-based steelmaking in the country and elsewhere, Takahashi explained.
He also pointed to the imbalance between EAF-based steelmaking outside China, which accounts for an average of 40%-plus of steel production, by contrast with just 9% in China itself – albeit a growing portion of that nation’s formidable output.
“Because the market for steel was so bad for a couple of years, steelmakers reduced their inventories of graphite electrodes and the supply chain was empty,” Takahashi said. “Consequently the panic button was hit [by steelmakers awakening to a supply shortage].”
The electrode shortage was exacerbated by “very limited” supplies of needle coke, Takahashi added. “We need good needle coke for UHP electrode production,” he explained, but there are not many companies able to produce it and not many newcomers in its supply. The supply-demand balance was not helped by increasing demand for needle coke for battery production too and, according to some reports, certain needle coke production in China has been reduced as part of a national policy to limit air pollution.
Takahashi claimed that SDK, and competitor Tokai Carbon, have an advantage over other manufacturers in being able also to use pitch coke to produce UHP carbon electrodes. He also said that, as the world’s largest producer of electrodes and hence its status as a large consumer, Showa Denko has a good relationship with needle coke suppliers.
To illustrate the severity of the limited supply of needle coke, he estimated a global nameplate production capacity of 900,000 tpy for the important ingredient, and a 1:1 tonnage ratio between the quantity of the material consumed and the weight of graphite electrode produced. Contrast that with SDK’s forecast for total global demand for UHP electrodes at 820,000 tpy in 2018, 5% higher than in 2017. Takahashi stressed that the actual utilization of needle coke production equipment is often below full capacity.
“This is a challenging time for graphite electrode producers,” Takahashi said.
Outlook
Despite the shortage of UHP electrodes, is there not growing capacity for electrode production in China?
Takahashi acknowledged announcements of capacity increases in China, but downplays their significance. “Most of the increases there are by Tier 2 players,” he said, adding that they either cannot make UHP electrodes or are inexperienced newcomers.
On the latter point, he explained that 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.
“Newcomers are not so ready, so I’m not worried about new Chinese players,” Takahashi said.
China does have great potential for long-term growth in UHP graphite electrode demand because the country generates more steel scrap and the proportion of electric steelmaking in the country grows in tandem with national efforts to increase recycling. Takahashi noted a Chinese government target of 15% EAF steelmaking by 2020. While that may be an overly ambitious goal, Takahashi estimated that even if just 12% was achieved by then, an extra 50,000-60,000 tpy of UHP graphite electrodes would be needed.
SDK has a majority share in a UHP graphite electrode producer in China, with a national Chinese steel company, which may be able to take advantage of the forecast growth in demand. Another option for SDK would be to serve the Chinese market from its plant in Malaysia.
International UHP graphite electrode producers negotiate prices for their products directly with their diverse customer base. The products come in a variety of both standard and special dimensions, so their manufacturers hesitate to discuss specific prices publicly. Nevertheless, Takahashi confirmed that he had heard reports of “crazy prices” in China last year in the range of $20,000-30,000 per tonne at the peak of the steelmaker scramble to obtain supplies.
More recently, prices in China, other parts of Asia, Europe and the USA have converged, Takahashi said, adding that he understands that some other suppliers have long-term contracts at around $10,000 per tonne, but that prices would probably be higher for bespoke products.
For its large customers, SDK normally enters into one-year supply agreements with half-yearly price reviews. The company wants to give comfort to high-volume clients about this continuity of supply, Takahashi said.
SDK is continuing to integrate SGL Carbon operations with its own, but it has no plans to expand capacity beyond a project at its US plant, which is adding an extra 30,000 tpy of capacity to increase total capacity to 75,000 tpy. Takahashi explained that the US expansion was originally planned several years ago with a view to supply South America and Europe from the plant, but with the acquisition of SGL Group’s graphite electrode business and demand growing in the US it will mainly serve the Americas for now.
Integration progresses
Takahashi said that the integration programme with SGL Carbon provides an opportunity for its staff and SDK’s to learn from each other. He said that bringing together the core competences of the two companies – notably the cost efficiency of the former and the product-quality expertise of the latter – is helping to deliver “products with best value-in-use: a quality and price combination.” He stressed the high importance of consistent UHP electrode performance.
Monitoring key performance indicators at each plant and comparing them with those at sister works in the group is helping to benchmark their relative positions. For example, he noted that the number of people needed to produce a tonne of UHP graphite electrode can range from two to 20. Energy and labor costs are also being monitored and compared.
Fundamental quality parameters for the electrodes produced are a low coefficient of thermal expansion, a high flexural strength and low electrical resistance. SDK offers technical service and advice to steel producers through its ECO PRO® programme. It started in the United States and is being rolled out globally with oversight by one global technical service leader based in South Carolina, Takahashi explained.
In addition to the electrodes, the programme covers other aspects of the EAF process. SDK reports that successful co-operation undertaken so far has: increased productivity and reduced operational costs; improved power and process profiles; lowered energy consumption; optimized carbon/oxygen injection and chemical energy consumed.
Most electrode producers follow a similar six-stage production process, but their competence and equipment efficiency vary, Takahashi noted. While the potential benefits of an industry 4.0 approach to monitoring plant performance and the use of artificial intelligence are in Takahashi’s sights, he admits that they are at the early stages of evaluation at SDK. “The graphite electrode industry is very conservative,” he observed. “It’s something they have been doing for 80-90 years,” he added.
As for most large international suppliers of technology and equipment, beyond its work to leverage advantage from the integration of SGL Carbon, SDK’s focus is on being a very good partner with the steel industry and to foster long-term relationships with its clients. “We want to deliver products to customers when and where they want them and at a fair price,” he concluded.