According to an analysis by the consulting firm CRU, the recent sharp increases in graphite electrode prices are due to supply-side factors, rather than being driven by changes to demand from the Chinese steel industry. CRU consultant Dawn Brooks pointed out that, if the graphite electrode prices increase tenfold on year-on-year basis, this could add up to $80/mt to the cost of electric arc furnace-based (EAF) steel production.
Brooks stated that nearly 300,000 mt of graphite electrode manufacturing capacity was shut down in China since the second half of 2016 due to environmental concerns, mainly in northern China, with 20 percent graphite electrode production restrictions in the provinces of Henan and Shandong.
The CRU consultant went on to say that since “graphite electrodes are an essential input material with no available substitute, the story over the next few months will be one of whether EAF producers can manage to source sufficient electrodes to allow EAF production to continue unaffected rather than a story of slightly higher prices for producers”.
Although new capacity in China is likely to be EAF-based due to environmental restrictions, these fundamental changes to demand will be slow enough that electrode manufacturers will be able to keep pace and it is unlikely that the current price increases will be long lasting, according to CRU.