The bull rally in prices of graphite electrodes may continue in 2018 and might even hit new highs. According to industry experts, increases in graphite electrode (contract) prices in the early part of 2018 are more than 300% Y-o-Y from the average cost in 2017. A Graphite Electrode producer from India revealed,“The price was around USD 2,500 per tonne in early 2017 and now we see spot prices of $23,000-26,000 per tonne.”
Export Tariff – Meaning and Implications
In the Union Budget 2018-19, Indian Govt has introduced 20% export tariff on Graphite Electrodes, which means the government can impose the duty to the extent of 20% if it deems fit. However, export duty on graphite electrodes continues to be zero.
Moreover, in an oligopolistic market, even if a duty is imposed, it will likely be passed on to the end-users without affecting the margins of the producer. As it has been witnessed in 2017, prices of Graphite Electrode was not demand-driven, but on the back of soaring raw material cost and curtailed supply – whereby, it was not the price of Graphite Electrode that was the major concern for the steel producers, but the availability of the Electrode.
Export Duty Not Good For Indian Buyers
Graphite India and HEG account for close to 25% of the world production, and if the situation arises of Graphite Electrode prices rising by 20% – it will be easily absorbed by the global market.
Hence, we believe Indian buyers will end up paying more, in line with international prices if any duty is ever imposed.
No Substitute For Graphite Electrodes
The share of Electric Arc Furnace (EAF) steel production is set to rise further in the global steel production spree. The EAF route is being increasingly implemented, mainly to avoid atmospheric pollution entailed in the Blast Furnace method. Approximately 2 kg of graphite electrode is used to produce one tonne of steel, and there is no substitute for Graphite Electrode.
Graphite Electrode Prices to Remain Firm in 2018
The global demand and supply gap for Graphite Electrodes is set to widen substantially in the coming days as the consumption will increase amid supply tightness.
And without any new capacity additions for neither Needle Coke nor the electrodes in the near future, the demand and supply gap will in fact widen further to exert further upward momentum to the electrode prices.
We expect rising demand to lift graphite electrode prices, but rising prices for needle coke, the key raw material making up 50-60% of total cost, is likely to play a greater role in increasing graphite electrode prices.
Needle Coke prices have also been in the ascent, rising to about USD 3,200/MT from USD 450/MT, in 2017. Needle coke demand is expected to follow a sharp upward trajectory, partly due to higher demand from graphite electrode industry, but also from the lithium-ion battery.
Moreover, with electric vehicles coming in vogue, demand for Lithium-ion battery, and hence Needle Coke is expected to be significant and imminent.
SteelMint’s View
During 2017, the Chinese government had cut steel production on pollution concerns, thus lowering supply to the global markets. Steel exports from China sank by 31% on year-on-year basis—the lowest in the last four years. This prompted the global steel makers to ramp up their production.
China’s fight against pollution will lead to a decline in exports of steel and graphite electrodes from China in 2018 and a rise in steel production in the EU and the US, where the EAF route is the preferred route of steelmaking as it is more environment friendly. Hence, high Graphite Electrode prices are here to stay.
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