Amid the trade war between two major economies U.S. and China over past one year, the former has once again created a stir last week by announcing an increase in tariffs on certain goods from 10% to 25%. This list of products with increased duties include graphite electrodes also. With this let us analyse if this increase in electrodes import duty by U.S. will impact the GE trade dynamics of other countries.
The majority of steel production in U.S. takes place via EAF route. In 2018 the country’s electric furnace capacity stood at 76 MnT and is expected to increase to 88 MnT by 2022, which means that country’s present graphite electrodes requirement is quite high and is set to increase in future also. U.S. has got the presence of one of the largest GE giant GrafTech International which has a total installed capacity of 230,000 tonnes in four plants located in U.S., Mexico and Europe.
Despite this U.S. is still dependent upon the GE imports to meet its requirements. This is because GrafTech’s U.S. plant with a capacity of 28,000 tonnes has been kept idle (with effect from the second quarter of 2016) as a part of the overall capacity reduction in the industry that began in early 2014.
According to U.S. customs data, in 2018 U.S. imported about 127,586 tonnes of graphite electrodes with highest imports coming from India (32%) followed by Mexico (22%), and Russia (14%). The percentage share of China in U.S. total GE imports stood at around 13%. Thus, although not major but China had a substantial share in country’s electrodes imports and now with tariffs surge, this share is likely to decline in 2019.
Opportunity for other GE exporting countries
This situation will provide an opportunity to the other GE exporting countries such as India, Russia, and Japan to cater to the U.S. EAF market electrodes requirement that was until met by the Chinese exporters. In fact, India’s share in U.S. GE imports has already registered a significant increase in y-o-y basis from 10% in 2017 to 32% in 2018. India’s exports to U.S. must have also increased as its GE supplies to one of the key markets, Iran completely stopped after the imposition of sanction on Iran by U.S. in August last year.
Likelihood of rise in Chinese GE exports to India
According to the market sources, China majorly exported HP grade electrodes to the U.S. market. Although U.S. share in China’s total GE exports in 2018 stood at around 7% which is not very high, with new tariff system in place China will divert its GE produce to other countries like India. This is because India has become a hot destination of lower grade (HP/RP) electrodes export for China after the anti-dumping duty on GE imports into India was removed in August last year. In 2018, China’s share in India’s total electrodes imports increased from 14% in 2017 to 56% in 2018.
Chances of change in price dynamics
As China already have excess GE supplies, amid the surge in taxes, China’s electrodes exporters will have two options, either to lower down their GE offers further and continue their export to the U.S. or interrupt the price dynamics of lower grade GE of other countries especially India with their increased supplies.
China’s weekly market update
The Chinese GE prices that have been falling almost over the last six months have turned stable. The current prices in China of UHP grade GE of size 450mm are heard to be in the range of RMB 26,000 – 28,000/MT (USD 3,800 – 4,100/MT) whereas that of size 600mm are in the range of RMB 48,000 – 53,000/MT (USD 7,000 – 7,700/MT). The price of HP grade electrodes of 400mm are in the range of RMB 22,000 – 24,000/MT (USD 3,200 – 3,520/MT).
After the winter heating season ends in March, comes the procurement season where steel mills in China scale up their steel production. Thus, during this period the GE prices in the country also surge. But this year, the domestic steel demand in China has turned to be quite tepid amid slow growth in automobile and infrastructure sector. Thus, at present, the steel mills in China are in wait and watch mode compelling the GE prices to turn stable.
In terms of raw materials, domestic needle coke prices also remained stable this week. The domestic needle coke price is heard to be in the range of RMB 20,000-25,000 per tonne (USD 2,950 – 3,660/MT) whereas the imported offers are heard to be in the range of USD 4,000-4,600/MT.
Leave a Reply