The sharp rise in Graphite Electrode prices was largely attributed to shutting down of Chinese Graphite Electode plants in 2017, resulting in a global shortage for the commodity. However, on the contrary official figures show exports of Graphite Electrodes from China in CY17 was 201,695 MT, which exceeded the exports in CY16 by around 58%.
With the myth being busted, the real supply squeeze of exports from China is likely to kickstart in 2018 and haunt the steelmakers around the world.
We forecast that Chinese Graphite Electrode consumption will rise rapidly on the growing importance of scrap in the country, and a push by the govt. to curb pollution has led to many companies to switch to EAF route of steel making.
China’s closure of inefficient induction furnaces and polluting blast furnaces is expected to be replaced by electric arc furnace. New policy measures announced in China, ensures zero growth in steel capacity by requiring steel capacity replacement to be kept in ratio – 1.25:1 or 1:1 (regional differentiation).
About 56 new EAF furnaces are coming up in by the end of current year with an aggregate capacity of ~60-70 MT. Thus Chinese production through EAF route is expected to rise from 5.2% (CY 2016) to about ~13%.
Why will Chinese Graphite Electrode Exports Dry Up in 2018?
In 2017, China produced around 520,000 MT Graphite Electrode, out of which 201,695 MT was exported and the rest utilized for domestic consumption. However, this ratio of domestic consumption versus exports will be a thing of the past as the quantum of export volume will shrink substantially in 2018 due the increasing Graphite Electrode domestic consumption in China, which is expected to reach a mammoth level of around 532,000 MT this year.
Chinese Steel Makers to intensify Graphite Electrode Purchase
Graphite Electrode purchase by Chinese steel Makers is expected to gain steam in 2018 on account of rising consumption in the country going ahead. Graphite Electrode Prices would likely stay at elevated levels on account of supply side factors, driven by changes to demand for Graphite Electrode from the Chinese Steel Industry.
According to Industry estimates, China’s EAF Output in 2017 was around 52MnT, Which is likely to increase to 82 MnT in 2018 and 120 MnT by 2020.
For Steel-making via the EAF route, there is no substitute for Graphite Electrodes. Global manufacturers who have high dependence on Electrode imports from China, need to prepare themselves for further supply tightness of Graphite Electrodes as China rapidly increases its EAF capacity and implements reforms aimed at culling polluting capacities.
Rising Generation of Scrap in China
Chinese Scrap Consumption to increase with closing down of sub-standard steel capacities after realizing the hazardous effects of CO2 emissions caused through the use of induction furnace, China is shifting towards the greater use or electric are furnace for steel production.
Official figures indicate that, China consumed around 90 million tonnes of steel scrap last year. According to industry estimates, this figure will rise to 150 million tonnes by 2020-as China pursues a 30% scrap ratio by 2025.
In addition, 40% custom duty is applied to Chinese scrap exports, owing to which Chinese scrap exports may discontinue and will use its scrap for the expanding EAF production.
In Conclusion:
At the time when supply tightness and high prices of Graphite Electrode are taking a toll on the steelmakers – the News of Chinese Graphite Electrode Consumption to rise exponentially is an object of grave concern to the global buyers of Graphite Electrodes.
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