On 9 Mar’18, the U.S. government announced import tariffs of 25% on steel imports from all the countries with an exception to Canada, Mexico, and Australia. Now this move by the U.S. is likely to not only impact the in-house demand for steel products but also its key raw materials such as iron ore, coal, and scrap.
With the import restrictions in place, the steel mills in the country will have to raise their steel production in order to meet the country’s domestic demand that was earlier covered by imports.
The increased demand for steel in U.S. will require more of steel production via EAF route and the subsequent surge in demand of graphite electrode which is a key input for EAF.
Why increase in U.S. steel production via EAF and not the blast furnace route?
US blast furnace capacity restarts on the back of Section 232 are unlikely, Credit Suisse said earlier this month. “North American coke batteries are probably running close to full production right now,” a market source said. “Other than ramping up existing batteries I do not see any other coke production coming back in the US/Canada.”
US Steel, AK Steel and ArcelorMittal operate blast furnaces in the US, which contributed to less than 30% of US domestic crude steel production over 2017 at the lowest point last year.
Over the past decade, the natural gas boom in the country coincided with changes in the U.S. steel industry and with the boom in shale drilling, more of that U.S. electricity is generated by natural gas, which can also be used directly by steel factories. Subsequently, steel companies switched about two-thirds of U.S. production away from blast furnaces to electric arc furnaces (that use scrap as their main input) where scrap is melted using electricity.
According to AISI (American Iron and Steel Institute) data, in 2017 U.S. steel production was 82 MnT out of which 68 MnT came from EAF and 32 MnT from blast furnaces.
U.S. procurement of Graphite Electrode
U.S. is highly dependent upon imports to meet its current GE requirement. According to U.S. customs, country’s GE imports in 2017 stood at 75,160 tonnes out of which 16% of its requirement was met through imports from Japan. Now with the surge in country’s steel demand via EAF route the GE imports from Japan are likely to increase giving further scope to Japan’s GE manufacturers.
What is currently happening in global Graphite electrode market?
Japan has highest GE production in the world and controls 53% of the world’s total GE capacity followed by Russia, India, and China.
The Chinese government has announced steel capacity cuts for five years starting from 2016, in an effort to curb steel oversupply and control the pollution levels in the country. This led to the closure of polluting induction furnaces and installation of more EAFs that are less polluting.
Now the increased usage of EAF in China coupled with the closure of polluting graphite plants led to increased demand and prices of the graphite electrode.
The price of electrodes has increased over five times since beginning last year – from USD 2,000 a ton, to USD 10,000 a ton on average, with spot prices exceeding even USD 35,000 a ton in some circumstances.
Along with increasing prices of GE, another big concern is the availability of needle coke – a key raw material required for GE manufacturing. No new capacity in needle coke plant has not come up since 1977, as it requires huge investment. Subsequently, Needle coke prices also went up by 10 to 20 times in 2017. The price surge is not only due to rising demand from electrode makers, but also because there is rising demand for needle coke from the Li-Ion battery, which is growing rapidly.
Current world capacities of GE is around 730, 000 tons that can satisfy about 400 MnT of EAF produced steel, around 26% of current world production. This is the world electrode capacity right now. At 100% utilization. If more EAF mills come online, capacities need to increase but they will take one or two years, apparently, to build in new electrode plants.
The future outlook for Graphite Electrode market
It is not clear where the U.S. steel mills will get the requisite GE, to make the replacement tonnes of steel and aluminium. Moreover, the scarcity in supply of Graphite Electrode is not going to go away because of the severe dearth of Needle Coke in the market lending further support to firm graphite electrode prices especially benefiting the Japanese GE suppliers that have the highest share in its production.
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