China has become a net importer of graphite electrodes after shuttering 30% of its capacity, according to a note from investment bank Jefferies after meetings with producer Graphite India.
This is a marked shift. In recent years producers outside of China had whittled down their own production of smaller electrodes, primarily used in ladle furnaces, as they could not compete with Chinese producers -- European mills consume around 226,000 mt of electrodes each year, with more than 60% of the ladle furnace melters coming from China.
Graphite India's management believes the tightness currently seen in the market -- caused by lower Chinese exports, tight needle coke supply and strong demand -- could persist for at least two years, Jefferies said in the note Thursday.
The tightness has driven spot prices to as high as $30,000/mt, and been a cause of concern for mills; some producers have had to air freight electrodes to their plants in recent months to continue production, and in some cases steelmaking output has been impacted.
Graphite India started the 2018 financial year with higher needle coke stocks and has been able to operate at 95%.
However, the company is forecasting 75%-80% utilization in the 2019 financial year because of concerns over needle coke supply.
"The Indian coke used for manufacturing the low grade of electrodes is also seeing a constrained supply, but not as constrained as needle coke," Jefferies said.
Around 10% of global needle coke production is now being diverted to the burgeoning lithium-ion battery sector, a structural market change that will continue.
With a tighter needle coke supply situation, and growing demand, pricing could move to quarterly from semi-annual, Jefferies said in the note citing Graphite India management.
This chimes with what other electrode producers have told S&P Global Platts.
Consequently, some are also looking to move their contracts to quarterly, from annually in the past.
Graphite India has renegotiated a "fair amount" of its contracts to incorporate the increase in the raw material cost, the note added.
The company is mulling formula driven prices, with an electrode base price and a "surge" if needle coke costs increase above estimated levels.
