Graphite electrode market finally starts to pick up this spring after nearly two sluggish years. Prices of graphite electrode products have been raised across the board, with HP products registering an increase of 3000 yuan/mt and UHP products 5000 yuan/mt. This round of price increase is contributed by multiple factors. Specifically,

★  Prices of raw materials have been soaring, with an increase of over 80% generally.

According to information compiled by ICC News, up to now, domestic low-sulphur petroleum coke prices have increased to 2000 yuan/mt from last November's November; coal pitch prices have risen to 3,300 yuan/mt from last October's less than 2,000 yuan/mt. Domestic needle coke prices have now risen to 5,800 yuan/mt from the previous 3,200 yuan/mt as well. The increase in cost in real terms is a fact beyond doubt.

★ Supply and demand was out of balance at the previous stage.

Amid prolonged recession of domestic steel market in recent years, graphite electrode industry also went through a downturn phase in which the industry saw businesses further concentrate, the superior become proper and the inferior fall. Some enterprises with less competitive strength were eventually eliminated. Bankruptcy and business reorganization frequently took place in the industry. This also suggests a decline in graphite electrode production capacity. The graphite electrode market has shifted from severe overcapacity at one point to reaching basic balance between supply and demand. In 2016, Shanxi, Hebei, Henan and other regions were made priorities in government inspections on environmental protection accountability. Graphite electrode manufacturing enterprises were forced to suspend production, which led to marked drop in market supply. The supply gap thereby emerges.

★  Efforts on environmental protection are intensifying.

Starting January 1, 2018, pollution discharge fees will be replaced by green taxes, which will triple the cost of waste discharge for enterprises. China's EAF steel percentage is expected to rise, which will boost demand for graphite electrodes.

★ Overseas graphite electrode production capacity is dwindling.

Not only did China's graphite electrode market took a severe hit in recent years, overseas graphite electrode enterprises were also confronted with harsh environment in operation and decline in production capacity. For instance, SGL Group shut down plants in Italy, Spain and Canada, and signed an sales agreement with Showa in November 2016. However, global steel output didn't show substantial drop in recent years. In 2016, global crude steel output is 1.6285 billion tons, up 0.8% from a year earlier. Across the globe, regions that registered growth in crude steel output include Europe, America and Africa; those recorded decline include CIS, the Middle East, Asia and Oceania. Overseas graphite electrode market will face supply shortages as well.

In this context, ICC News has reached out to and gathered information from major graphite electrode manufactures at home and abroad.

★ One manager from Fangda Carbon indicated current rise in electrode prices isn't enough to cover the increase in cost. Their graphite electrode shipments are going well with potential for growth going forward.

★ One manager from SGL Group said their graphite electrode shipments are very smooth, and they are running short of goods to fulfill orders at hand and won't be able to make deliveries for at least three months, especially for overseas customers.

★ According to the head of Showa Denko Sichuan Carbon, they haven’t encountered supply crunch yet as downstream demand for their UHP 600-700 type products are rather stable; although, as soaring raw materials prices driven up production cost, the company has announced to raise price by 15%-25% from April of 2017 so as to ensure continued and stable supply of high quality products to customers.

★ One graphite electrode manufacture of small- and medium-scale from Hebei introduced, even though price has been raised, the shipment of their main products, HP graphite electrodes, is mediocre, which, with the slack season playing a part in it, to some extent reflects the unwillingness towards the price rise of downstream sectors.

Right now, steel enterprises carry out electrode purchase contract mostly on a quarterly basis. In such situation, purchases went down differently at downstream steelmakers. Some saw only 2000 yuan/mt difference in price before the CNY and after it. Enterprises that had contract signed before the CNY are rather cool-headed in the face of recent price rise, while those that are making purchases right now clearly feel the pinch of higher price. One purchaser from a major domestic specialty steel enterprises expressed their concern over further rise in electrode price going forward on the already 20-30% increase. As government further reins in excessive and extensive capacity, places more emphasis on energy conservation, environmental protection and emission control, tightens regulation and restriction on rigid index, the proportion of EAF steel in China will increase gradually. Demand for graphite electrode by steelmakers is set to grow. At the same time, graphite electrode demand from yellow phosphorus, silicon metal enterprises will also show significant growth.

Given all these factors, the upward trend of graphite electrode price will be unstoppable in 2017.