While the eye-catching ultra-high-power (UHP) electrodes glowing from use in electric arc furnaces (EAFs) have always been core components of melt-shop operations, they have seldom been a focus of attention in the markets for steel products, for which they play a vital role in the upstream part of the process.
That changed last year when the steel industry awoke to a shortage of UHP graphite electrodes and their prices shot up as steelmakers scrambled to secure supplies. Some steel production was curtailed as steel producers sought to conserve dwindling electrode stocks.
Although UHP electrode prices have fallen from the panic-driven peaks of last year (reportedly $20,000-30,000 per tonne), they remain high by historical standards. So what combination of factors has led to the spotlight falling on UHP electrodes and what is the outlook for them now?
A Japanese company with international operations, said that global demand for the UHP electrodes in 2017 was 785,000 tonnes per year.
They estimates that current total global capacity for UHP graphite electrodes production ex-China is about 800,000 tonnes per year. The company estimates that UHP-quality graphite electrode production capacity in China is currently about 50,000 tonnes per year, although the country has greater capacity for producing lower quality graphite electrodes.
With a group capacity for UHP electrode production soon to be about 250,000 tonnes per year, Showa Denko supplies about 30% of the world market, said Takahashi. The company’s acquisition of SGL Group’s graphite electrode business last year helped it to reach that level.
How does he account for the shortage that appeared to catch many EAF-based steelmakers unaware last year? The answer stretches back to the period, several years ago, when world steel markets were generally weak and the demand for UHP graphite electrodes was correspondingly poor. “As a consequence, about 25% of the market was taken down,” Takahashi recalled, referring to a decline in global electrode production capacity.
When steel markets started to recover during late-2016 into early-2017 – in response to improving global economic conditions – demand for electrodes also picked up. This coincided with the Chinese government closing induction-furnace production of low-quality steel, a decline in net exports from China, and an impetus for more EAF-based steelmaking in the country and elsewhere, Takahashi explained.
He also pointed to the imbalance between EAF-based steelmaking outside China, which accounts for an average of 40%-plus of steel production, by contrast with just 9% in China itself – albeit a growing portion of that nation’s formidable output.
“Because the market for steel was so bad for a couple of years, steelmakers reduced their inventories of graphite electrodes and the supply chain was empty,” said Takahashi. “Consequently the panic button was hit [by steelmakers awakening to a supply shortage],” he recalled.
The electrode shortage was exacerbated by “very limited” supplies of needle coke, Takahashi added. “We need good needle coke for UHP electrode production,” he explained, but there are not many companies able to produce it and not many newcomers in its supply, he stressed. The supply-demand balance was not helped by increasing demand for needle coke for battery production too. And, according to some reports, certain needle coke production in China has been reduced as part of a national policy to reduce air pollution.
Takahashi claimed that SDK, have an advantage over other manufacturers in being able also to use pitch coke to produce UHP carbon electrodes. He also said that, as the world’s largest producer of electrodes and hence its status as a large consumer.
To illustrate the severity of the limited supply of needle coke,they estimated a global nameplate production capacity of 900,000 tpy for the important ingredient, and a 1:1 tonnage ratio between the quantity of the material consumed and the weight of graphite electrode produced. Contrast that with the company’s forecast for total global demand for UHP electrodes in 2018 of 820,000 tonnes per year for UHP graphite electrodes, 5% higher than in 2017. He also stressed that the actual utilization of needle coke production equipment is often below full capacity.
All told, “This is a challenging time for graphite electrode producers,” Takahashi summarized.
Despite the shortage of UHP electrodes, is there not growing capacity for electrode production in China?
Takahashi acknowledged announcements of capacity increases in China, but downplays their significance: “Most of the increase there is by Tier 2 players,” he said, adding that they either cannot make UHP electrodes or are inexperienced newcomers.
On the latter point, he explained that the quality of UHP electrodes depends not only on the availability of high-specification needle coke, but also technical expertise in each of the main process steps (see primer box) in making them, particularly baking, extrusion and graphitizing. “Newcomers are not so ready, so I’m not worried about new Chinese players,” said Takahashi.
China does have great potential for long-term growth in UHP graphite electrode demand as the country generates more steel scrap and the proportion of electric steelmaking in the country grows in tandem with national efforts to increase recycling. Takahashi noted a Chinese government target of 15% EAF steelmaking by 2020. While that may be an overly ambitious goal, Takahashi estimated that even if just 12% was achieved by then, an extra 50,000-60,000 tonnes per year of UHP graphite electrodes would be needed.
SDK has a majority share in a UHP graphite electrode producer in China, with a national Chinese steel company, which may be able to take advantage of the forecast growth in demand.
International UHP graphite electrode producers negotiate prices for their products directly with their diverse customer base. The products come in a variety of both standard and special dimensions, so their manufacturers hesitate to discuss specific prices publicly. Nevertheless,
He added that, more recently, prices in China, other parts of Asia, Europe and the USA have converged. He said that he understands that some other suppliers have long-term contracts at around $10,000 per tonne, but added that prices would probably be higher than that for bespoke products.
Post time: May-24-2021