“Power rationing” has been a hot topic in China since September. The reason for the “power rationing” is the promotion of the goal of “carbon neutrality” and energy consumption control. In addition, since the beginning of this year, there are various chemical raw materials price news emerged one after another, among which graphite electrode, a very important material in the steel industry, has received little attention from the market this year, and the steel industry and carbon neutrality.
Industrial chain: mainly used in steel production
Graphite electrode is a kind of high temperature resistance graphite conductive material, graphite electrode can conduct current and power generation, so as to melt the waste iron in the blast furnace or other raw materials to produce steel and other metal products, mainly used in steel production. Graphite electrode is a kind of material with low resistivity and resistance to thermal gradient in electric arc furnace. The main characteristics of graphite electrode production are long production cycle (usually lasting three to five months), high power consumption and complex production process.
Industrial chain situation of graphite electrode:
Graphite electrode industry chain upstream raw materials mainly for petroleum coke, needle coke, the proportion of raw materials accounts for graphite electrode production cost is larger, accounts for more than 65%, due to China’s needle coke production technology and technology relative to Japan and other countries there is still a large gap, domestic needle coke quality is difficult to ensure, so China’s import dependence on high quality needle coke is still high, In 2018, the total supply of needle coke in China was 418,000 tons, of which 218,000 tons were imported, accounting for more than 50%. The main downstream application of graphite electrodes is in eAF steelmaking.
Graphite electrode is mainly used in iron and steel smelting. The development of graphite electrode industry in China is basically consistent with the modernization of Chinese iron and steel industry. China’s graphite electrode started in the 1950s. Warburg Securities has divided the development of graphite electrode in China into three stages:
1. Started development in 1995 — mass production in 2011;
2. The enterprise differentiation intensified in 2013 — the economy improved significantly in 2017;
3. 2018 is on a downward track — price wars are breaking out in 2019.
Supply and demand: electric furnace steel demand accounts for the majority
In terms of output and consumption, according to frost Sullivan’s analysis, the production of graphite electrodes in China decreased from 0.53 million tons in 2015 to 0.50 million tons in 2016, showing a downward trend. In 2020, the pandemic had a negative impact on manufacturers’ operations due to management restrictions on operating hours, workforce disruptions and changes in operating procedures.
As a result, China’s production of graphite electrodes has fallen sharply. It expects production to reach 1,142.6 kilotons in 2025, with a cagR of about 9.7% from 2020 to 2025, as operations resume and management’s policy support for eAF steel development.
So that’s output, and then consumption. Graphite electrode consumption in China began to increase from 2016, reaching 0.59 million tons in 2020, with a cagR of 10.3% from 2015 to 2020. Graphite electrode consumption is expected to reach 0.94 million tons in 2025. Below is the agency’s detailed forecast of graphite electrode production and consumption.
The output of graphite electrode is consistent with that of EAF steel. The growth of EAF steel output will drive the demand of graphite electrode in the future. China produced 127.4 million tons of eaf steel and 742,100 tons of graphite electrodes in 2019, according to the World Iron and Steel Association and the China Carbon Industry Association. The output and growth rate of graphite electrode in China are closely related to the output and growth rate of eAF steel in China.
In 2019 and 2020, the global total demand for eAF steel and non-EAF steel is 1.376,800 tons and 1.472,300 tons respectively. Warburg Securities forecasts that the global total demand will rise further in the next five years and reach about 2.104,400 tons in 2025. The demand for electric furnace steel accounts for the vast majority, which is estimated to reach 1,809,500 tons in 2025.
Compared with blast furnace steel making, electric furnace steel making has obvious advantages in carbon emissions. Compared with iron ore steel making, steel making with 1 ton of scrap steel can reduce 1.6 tons of carbon dioxide emissions and 3 tons of solid waste emissions. Brokerage research that electric furnace and blast furnace steel per ton of carbon emission ratio in 0.5:1.9 level. Brokerage researchers said, “the development of electric furnace steel must be the general trend.”
In May, the Ministry of Industry and Information Technology issued the Notice on the Implementation Measures of Capacity Replacement in the Iron and Steel Industry, which was officially implemented on June 1. The implementation measures for capacity replacement will significantly increase the proportion of steel replacement and expand key areas for air pollution prevention and control. Institutions believe that the new capacity replacement method will further reduce steel capacity, consolidate the steel industry to resolve excess capacity. At the same time, the implementation of the revised replacement method will accelerate the development of eAF, and the proportion of eAF steel will be steadily increased.
Graphite electrode is the main material of electric furnace, stimulated by the demand of electric furnace, its demand is expected to further increase, graphite electrode is affected by its price.
Large price fluctuations: cyclical characteristics
From 2014 to 2016, the global graphite electrode market declined due to weaker downstream demand, and graphite electrode prices remained low. In 2016 with graphite electrode manufacturers for line capacity off below manufacturing cost, social inventory to the low, 2017 policy end cancel DeTiaoGang intermediate frequency furnace, a large number of scrap iron into steel furnace, the graphite electrode industry in China in the second half of 2017 demand surges, due to increases in the demand for graphite electrode needle coke on raw materials prices rose sharply in 2017, In 2019, it reached us $3,769.9 per ton, up 5.7 times from 2016.
Post time: Oct-15-2021