1. the development of steel industry drives the growth of global demand for graphite electrodes
1.1 brief introduction of graphite electrode
Graphite electrode is a kind of graphite conductive material which is resistant to high temperature. It is a kind of high temperature resistant graphite conductive material, which is made by calcining raw materials, crushing grinding powder, batching, mixing, forming, baking, impregnating, graphitization and mechanical processing, which is called artificial graphite electrode (graphite electrode) to distinguish from the use of heaven However, graphite is a natural graphite electrode prepared from raw materials. Graphite electrodes can conduct current and generate electricity, thus melting scrap iron or other raw materials in blast furnace 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 arc furnace. The main characteristics of graphite electrode production are long production cycle (usually lasting for three to five months), large power consumption and complex production process.
The raw materials upstream of the graphite electrode industry chain are mainly petroleum coke and needle coke, and the raw materials account for a large proportion of the production cost of graphite electrode, accounting for more than 65%, because there is still a big gap between China’s needle coke production technology and technology compared with the United States and Japan, the quality of domestic needle coke is difficult to guarantee, so China still has a high dependence on high-quality needle coke import. In 2018, the total supply of needle coke market in China is 418000 tons, and the import of needle coke in China reaches 218000 tons, accounting for more than 50%; the main downstream application of graphite electrode is Electric arc furnace steelmaking.
The common classification of graphite electrode is based on the physical and chemical properties of the finished products. Under this classification standard, graphite electrode can be divided into ordinary power graphite electrode, high power graphite electrode and ultra-high power graphite electrode. The graphite electrodes with different power are different in raw materials, electrode resistivity, elastic modulus, flexural strength, coefficient of thermal expansion, allowable current density and application fields.
1.2. Review of the development history of graphite electrode in China
Graphite electrode is mainly used in iron and steel smelting. The development of China’s graphite electrode industry is basically consistent with the modernization process of China’s iron and steel industry. Graphite electrode in China started in the 1950s, and has experienced three stages since its birth
The graphite electrode market is expected to reverse in 2021. In the first half of 2020, affected by the epidemic situation, domestic demand dropped sharply, foreign orders delayed, and a large number of sources of goods impacted the domestic market. In February 2020, the price of graphite electrode rose for a short time, but soon the price war intensified. It is expected that with the recovery of domestic and foreign markets and the growth of electric furnace smelting under the domestic carbon neutral policy, the graphite electrode market is expected to reverse. Since 2020, with the price of graphite electrode falling and tending to be stable, the domestic demand for graphite electrode for EAF steelmaking is steadily increasing, and the export volume of ultra-high power graphite electrode is gradually increasing, the market concentration of China’s graphite electrode industry will steadily increase, and the industry will gradually mature.
2. the supply and demand pattern of graphite electrode is expected to reverse
2.1. the global price fluctuation of graphite electrode is relatively large
From 2014 to 2016, due to the weakening of downstream demand, the global graphite electrode market declined, and the price of graphite electrode remained low. As the main raw material of graphite electrode, the needle coke price fell to $562.2 per ton in 2016. As China is a net importer of needle coke, China’s demand has a great impact on the price of needle coke outside China. With the graphite electrode manufacturers’ capacity falling below the manufacturing cost line in 2016, the social inventory reached the low point. In 2017, the policy end cancelled the intermediate frequency furnace of Di Tiao steel, and a large amount of scrap iron flowed into the furnace of steel plant, which resulted in the sudden increase of demand for graphite electrode industry in China in the second half of 2017. The increase in demand for graphite electrode caused the needle coke price to rise sharply in 2017, and reached US $3769.9 per ton in 2019 , up 5.7 times compared with 2016.
In recent years, the domestic policy side has been supporting and guiding the short process steelmaking of EAF instead of converter steel, which has promoted the increase of demand for graphite electrode in China’s steel industry. Since 2017, the global EAF steel market has recovered, leading to a shortage of global graphite electrode supply. Demand for graphite electrodes outside China rose sharply in 2017 and the price reached its highest level. Since then, due to excessive investment, production and purchase, the market has too many stock, and the average price of graphite electrode has plummeted in 2019. In 2019, the price of uhhp graphite electrode was stable at US $8824.0 per ton, but it remained higher than the historical price before 2016.
In the first half of 2020, COVID-19 led to a further decline in the average selling price of graphite electrodes, and the domestic needle coke price dropped from 8000 yuan / ton to 4500 yuan / ton at the end of August, or 43.75%. The production cost of needle coke in China is 5000-6000 yuan / ton, and most manufacturers are below the balance point of profit and loss. With the economic recovery, the production and marketing of graphite electrodes in China have improved since August, the starting rate of electric furnace steel has been maintained at 65%, the enthusiasm of steel plants to purchase graphite electrodes has risen, and the list of inquiry for export market has gradually increased. The price of graphite electrode has also been rising since September 2020. The price of graphite electrode has generally increased by 500-1500 yuan / ton, and the export price has increased substantially.
Since 2021, affected by the epidemic situation in Hebei Province, most graphite electrode plants have been shut down and transportation vehicles are strictly controlled, and the local graphite electrodes cannot be traded normally. The price of ordinary and high-power products in the domestic graphite electrode market is up. The mainstream price of uhp450mm specification with 30% needle coke content in the market is 15-15500 yuan / ton, and the mainstream price of uhp600mm specification is 185-19500 yuan / ton, up from 500-2000 yuan / ton. The rising price of raw materials also supports the price of graphite electrode. At present, the price of needle coke in domestic coal series is about 7000 yuan, oil series is about 7800, and import price is about 1500 US dollars. According to Bachuan information, some mainstream manufacturers have ordered the source of goods in February. Due to the centralized maintenance of major raw material suppliers at home and abroad in April, it is expected that 2021 graphite electrode will still have room for rise in the first half of the year. However, with the increase of cost, the demand end of downstream electric furnace smelting will be weak, and the price of graphite electrode in the second half of the year is expected to remain stable.
2.2. the growth space of domestic high quality and ultra high power graphite electrode is large
The output of graphite electrodes in overseas is reduced, and the production capacity is mainly ultrahigh power graphite electrodes. From 2014 to 2019, the global graphite electrode production (except China) has decreased from 800000 tons to 710000 tons, with a composite annual growth rate of – 2.4%. Due to the demolition of low-capacity plants, long-term environmental rectification and reconstruction, the capacity and output outside China continue to decrease, and the gap between output and consumption is filled by graphite electrodes exported by China. From the product structure, the output of ultra-high power graphite electrodes overseas accounts for about 90% of the total output of all graphite electrodes (except China). High quality and ultra-high power graphite electrode is mainly used in the production of stainless steel and special steel. The manufacturer requires high physical and chemical indexes such as density, resistivity and ash content of such electrodes.
The output of graphite electrode in China has continued to rise, and the manufacturing capacity of high quality and ultra high power graphite electrode is limited. The output of graphite electrode in China decreased from 570000 tons in 2014 to 500000 tons in 2016. China’s output has rebounded since 2017 and reached 800000 tons in 2019. Compared with the global graphite electrode market, domestic manufacturers have relatively low-level ultra-high-power graphite electrode manufacturing capacity, but for high-quality and ultra-high-power graphite, the domestic manufacturing capacity is very limited. In 2019, China’s high-quality ultra-high-power graphite electrode output is only 86000 tons, accounting for about 10% of the total output, which is significantly different from the structure of foreign graphite electrode products.
From the perspective of demand, the consumption of graphite electrodes in the world (except China) in 2014-2019 is always greater than the output, and after 2017, the consumption increases year by year. In 2019, the consumption of graphite electrodes in the world (except China) was 890000 tons. From 2014 to 2015, the consumption of graphite electrodes in China decreased from 390000 tons to 360000 tons, and the output of high-quality and ultra-high-power graphite electrodes decreased from 23800 tons to 20300 tons. From 2016 to 2017, due to the gradual recovery of steel market capacity in China, the proportion of EAF steelmaking is increasing. Meanwhile, the number of high-end EAFs used by steel manufacturers increases. The demand for high-quality ultra-high-power graphite electrodes has increased to 580000 tons in 2019, of which, the demand for high-quality ultra-high-power graphite electrodes reaches 66300 tons, and CAGR in 2017-2019 reaches 68%. Graphite electrode (especially high power graphite electrode) is expected to meet the demand resonance driven by environmental protection and limited production at the supply end and the permeability of furnace steel at the demand end.
3. the growth of short process smelting drives the development of graphite electrode
3.1. demand for new electric furnace to drive graphite electrode
Steel industry is one of the pillar industries of social development and progress. In recent years, the global crude steel production has maintained a steady growth. Steel is widely used in automobile, construction, packaging and railway industry, and the global consumption of steel has also increased steadily. At the same time, the quality of steel products has been improved and environmental protection regulations are increasing. Some steel manufacturers turn to arc furnace steel manufacturing, while graphite electrode is very important to the arc furnace, thus improving the quality requirements of graphite electrode. Iron and steel smelting is the main application field of graphite electrode, accounting for about 80% of the total consumption of graphite electrode. In iron and steel smelting, electric furnace steelmaking accounts for about 50% of the total consumption of graphite electrode, and refining outside furnace accounts for more than 25% of the total consumption of graphite electrode. In the world, in 2015, the percentage of the total output of crude steel in the world was 25.2%, 62.7%, 39.4% and 22.9% respectively in the United States, 27 countries of the European Union and Japan, while in 2015, China’s electric furnace crude steel production accounted for 5.9%, which was far lower than the world level. In the long run, short process technology has obvious advantages over long process. The special steel industry with EAF as the main production equipment is expected to develop rapidly. The scrap resources of raw materials of EAF steel will have a large future development space. Therefore, EAF steelmaking is expected to develop rapidly, thus boosting the demand of graphite electrode. From the technical point of view, EAF is the core equipment of short-process steelmaking. Short process steelmaking technology has obvious advantages in production efficiency, environmental protection, capital construction investment cost and process flexibility; from the downstream, about 70% of special steel and 100% of high alloy steel in China are produced by arc furnace. In 2016, the output of special steel in China is only 1/5 of that of Japan, and high-end special steel products are only produced in Japan The proportion of the total is only 1 / 8 of that of Japan. The future development of high-end special steel in China will drive the development of graphite electrode for electric furnace steel and electric furnace; therefore, the storage of steel resources and scrap consumption in China have a large development space, and the resource base of short-term steel-making in the future is strong.
The output of graphite electrode is consistent with the change trend of the output of electric furnace steel. The increase of the output of the furnace steel will drive the demand of graphite electrode in the future. According to the data of the world iron and Steel Association and China Carbon Industry Association, the output of electric furnace steel in China in 2019 is 127.4 million tons, and the output of graphite electrode is 7421000 tons. The output and growth rate of graphite electrode in China are closely related to the output and growth rate of electric furnace steel in China. From the production point of view, the output of electric furnace steel in 2011 reached its peak, then it declined year by year, and the output of graphite electrode in China also shrank year by year after 2011. In 2016, Ministry of industry and information technology entered about 205 electric furnaces of steel-making enterprises, with a production of 45 million tons, accounting for 6.72% of the national crude steel production in the current year. In 2017, 127 new ones were added, with a production of 75million tons, accounting for 9.32% of the total crude steel production in the same year; in 2018, 34 new ones were added, with a production of 100 million tons, accounting for 11% of the total crude steel output in the current year; in 2019, the electric furnaces with less than 50t were eliminated, and the newly built and in production electric furnaces in China were more than 355, accounting for a proportion It reached 12.8%. The proportion of electric furnace steelmaking in China is still lower than the global average, but the gap begins to narrow gradually. From the growth rate, the output of graphite electrode shows a trend of fluctuation and decline. In 2015, the decline trend of steel production of electric furnace is weakened, and the output of graphite electrode decreases. The proportion of steel output in the future will be larger, which will drive the future demand space of graphite electrode for electric furnace.
According to the adjustment policy of steel industry issued by Ministry of industry and information technology, it is clearly proposed that “encourage the promotion of short-process steelmaking process and equipment application with scrap steel as raw material. By 2025, the ratio of steel-making scrap of Chinese steel enterprises shall not be less than 30%. With the development of the 14th five year plan in various fields, it is expected that the proportion of short process will further improve the demand of graphite electrode, the key material in upstream.
Except China, the major steel producing countries in the world, such as the United States, Japan and South Korea, are mainly electric furnace steel making, which requires more graphite electrodes, while China’s graphite electrode capacity accounts for more than 50% of the global capacity, which makes China a net exporter of graphite electrodes. In 2018, China’s graphite electrode export volume reached 287000 tons, an increase of 21.11% year-on-year, maintaining the growth trend, and a significant increase for three consecutive years. It is expected that the export volume of graphite electrode in China will increase to 398000 tons by 2023, with a compound annual growth rate of 5.5%. Thanks to the improvement of the technical level of the industry, China graphite electrode products have gradually been recognized and accepted by overseas customers, and the overseas sales revenue of Chinese graphite electrode enterprises has increased significantly. Taking the leading graphite electrode industry in China as an example, with the overall improvement of graphite electrode industry, due to its relatively strong product competitiveness, Fangda carbon has greatly increased the overseas revenue of graphite electrode business in recent two years. Overseas sales rose from 430million yuan in the period of the low period of graphite electrode industry in 2016 to In 2018, the overseas revenue of graphite electrode business accounted for more than 30% of the total revenue of the company, and the internationalization degree was increasing. With the continuous improvement of technical level and product competitiveness of China’s graphite electrode industry, China’s graphite electrode will be recognized and trusted by overseas customers. The export volume of graphite electrode is expected to rise further, which will become the key factor to promote the production digestion of graphite electrode in China.
3.2. the impact of environmental protection policy on epidemic situation causes the supply of graphite electrode to be tight
The carbon emission of the long process of short process steelmaking in electric furnace is reduced. According to the 13th five year plan of the waste steel industry, compared with iron ore steel making, the emission of 1.6 tons of carbon dioxide and 3 tons of solid waste can be reduced by using 1 ton of waste steel steelmaking. A series of processes are involved in the iron and steel industry. Each process will undergo a series of chemical and physical changes. At the same time, various kinds of residues and wastes will be discharged while the products needed are produced. Through calculation, we can find that when the same production of 1 ton slab / billet, the long process containing sintering process will emit more pollutants, which is the second in the long process of pellet process, while the pollutants discharged by short-term steelmaking are significantly lower than those of long process with sintering process and long process containing pellet, which indicates that short-term process steelmaking is more friendly to the environment. In order to win the battle of blue sky defense, many provinces in China have issued the notice of peak staggering production in winter and spring, and made staggered production arrangements for key gas related enterprises such as steel, nonferrous, coking, chemical industry, building materials and casting. Among them, if the energy consumption, environmental protection and safety of carbon and ferroalloy enterprises to which graphite electrode belongs fail to meet relevant requirements, some provinces have clearly proposed that production restriction or production stoppage will be implemented according to the actual situation.
3.3. the supply and demand pattern of graphite electrode is gradually changing
Novel coronavirus pneumonia caused by the global economic slowdown and some protectionist influence in the first half of 2020, made the graphite electrode both in domestic and foreign market demand and sales price declined, and the graphite electrode enterprises in the industry reduced production, stopped production and made losses. In the short and medium term, in addition to the expectation of China to improve the demand for graphite electrode, the capacity of overseas graphite electrode may be limited under the influence of the epidemic, which will further aggravate the situation of tight supply pattern of graphite electrode.
Since the fourth quarter of 2020, the graphite electrode inventory has been declining continuously, and the enterprise commencement rate has increased. Since 2019, the overall supply of graphite electrode in China has been relatively excessive, and the graphite electrode enterprises are also effectively controlling the start-up. Although the global economic downturn in 2020, the impact of foreign steel mills affected by COVID-19 is generally in the running, but China’s crude steel output remains stable growth. However, the price of graphite electrode market is affected by the market supply more, and the price continues to decline, and the graphite electrode enterprises have suffered a large loss. Some of the major graphite electrode enterprises in China have significantly consumed the inventory in April and may 2020. At present, the supply and demand of super high and large market are close to the supply and demand balance point. Even if the demand remains unchanged, the day of more intense supply and demand will soon come.
The rapid growth of scrap consumption promotes the demand. The consumption of scrap steel increased from 88.29 million tons in 2014 to 18781 million tons in 2018, and CAGR reached 20.8%. With the opening of the national policy on scrap steel import and the increase of the proportion of electric furnace smelting, it is expected that the consumption of scrap steel will keep rising rapidly. On the other hand, because the price of scrap steel is mainly affected by overseas demand, the price of overseas scrap has risen significantly in the second half of 2020 due to the impact of China’s start to import scrap. At present, the price of scrap steel is at a high level, and it has begun to callback since 2021. The decrease in demand caused by the impact of epidemic situation abroad is expected to continue to affect the decline of scrap steel. It is expected that the price of scrap steel will continue to be affected in the first half of 2021 The lattice will be oscillating and downward, which is also conducive to the improvement of furnace start-up rate and the demand of graphite electrode.
The total demand of global electric furnace steel and non furnace steel in 2019 and 2020 is 1376800 tons and 14723 million tons respectively. It is predicted that the global total demand will further increase in the next five years, and reach 2.1444 million tons in 2025. The demand for electric furnace steel accounts for the majority of the total. It is estimated that the demand will reach 1.8995 million tons in 2025.
The global demand for graphite electrodes in 2019 and 2020 is 1376800 tons and 14723 million tons respectively. It is predicted that the global total demand will further increase in the next five years, and it is expected to reach 2.1444 million tons in 2025. Meanwhile, in 2021 and 2022, the global supply of graphite electrodes was over 267 and 16000 tons respectively. After 2023, there will be a shortage of supply, with the gap of -17900 tons, 39000 tons and -24000 tons.
In 2019 and 2020, the global demand for UHP graphite electrodes is 9087000 tons and 986400 tons respectively. It is predicted that the global total demand will further increase in the next five years, and reach about 1.608 million tons in 2025. Meanwhile, in 2021 and 2022, the global supply of graphite electrodes was over 775 and 61500 tons respectively. After 2023, there will be a shortage of supply, with the gap of -08000 tons, 26300 tons and -67300 tons.
From the second half of 2020 to january2021, the global price of ultra-high-power graphite electrode has decreased from 27000/ t to 24000/ T. it is estimated that the head enterprise can still make a profit of 1922-2067 yuan / ton at the current price. In 2021, the global demand for ultra-high-power graphite electrodes will further increase, especially the export heating is expected to continue to pull the demand for ultra-high-power graphite, and the graphite electrode commencement rate will continue to rise. It is expected that the price of UHP graphite electrode in 2021 will be increased to 26000/ t by the second half of the year, and the profit will be increased to 3922-4067 yuan / ton. With the continuous increase of the total demand for ultra-high power graphite electrodes in the future, the profit space will be further increased.
Since january2021, the global price of common power graphite electrode is 11500-12500 yuan / ton. According to the current cost and market price, the profit of ordinary graphite electrode is estimated to be -264-1404 yuan / ton, which is still in a loss state. The current price of graphite electrode with ordinary power has risen from 10000 yuan / ton in the third quarter of 2020 to 12500 yuan / T. with the gradual recovery of global economy, especially under the carbon neutralization policy, the demand for furnace steel is rapidly increased, and the consumption of scrap steel continues to increase, and the demand for ordinary graphite electrode will also rise greatly. It is expected that the price of graphite electrode with ordinary power will be raised to above cost in the third quarter of 2021, and the profit will be realized. With the global demand for graphite electrodes of general power continuously rising in the future, the profit space will gradually expand.
4. competition pattern of graphite electrode industry in China
The middle reaches of graphite electrode industry are graphite electrode manufacturers, with private enterprises as participants. China’s graphite electrode production accounts for about 50% of the global output of graphite electrodes. As a leading enterprise in China’s graphite electrode industry, the market share of square carbon graphite electrode in China is more than 20%, and the capacity of graphite electrode is the third in the world. In terms of product quality, the head enterprises in graphite electrode industry in China have strong international competitiveness, and the technical specifications of products basically reach the level of similar products of foreign competitors. There is delamination in the graphite electrode market. The market of ultra-high-power graphite electrode is mainly occupied by the top enterprises in the industry, and the top four enterprises account for more than 80% of the market share of UHP graphite electrode market, and the concentration of the industry is relatively obvious.
In the ultra-high power graphite electrode market, the large graphite electrode enterprises in the middle reaches have strong bargaining power to the downstream steel making industry, and require downstream customers to pay to deliver goods without providing account period. High power and ordinary power graphite electrodes have a relatively low technical threshold, fierce market competition and prominent price competition. In the high-power and ordinary power graphite electrode market, facing the steel-making industry with high concentration downstream, the small and medium-sized graphite electrode enterprises have weak bargaining power to the downstream, so as to provide customers with account period or even reduce prices to compete for the market. In addition, due to the environmental protection tightening factors, the capacity of midstream enterprises is greatly limited, and the overall capacity utilization rate of the industry is less than 70%. Some enterprises even appear the phenomenon of being ordered to stop production indefinitely. If the prosperity of the smelting industry of steel, yellow phosphorus and other industrial raw materials downstream of graphite electrode decreases, the demand for graphite electrode market is limited, and the price of graphite electrode does not rise significantly, the increase of operating cost will lead to the survival of small and medium-sized enterprises without core competitiveness, and gradually exit the market or be acquired by large graphite electrode or steel enterprises.
After 2017, with the rapid increase of profits in electric furnace steelmaking, the demand and price of graphite electrode for electric furnace steel-making consumables also increased rapidly. The gross profit of graphite electrode industry has increased greatly. The enterprises in the industry have expanded their production scale. Some enterprises that have quit the market have been put into operation gradually. From the overall output of graphite electrode, the concentration of the industry has declined. Taking the leading square carbon of graphite electrode as an example, its overall market share has declined from about 30% in 2016 to about 25% in 2018. However, as for the specific classification of graphite electrode products, the competition in the industry market has been differentiated. Because of the high technical requirements of ultra-high-power graphite electrode, the market share of ultra-high-power products is further improved by releasing production capacity of the industry head enterprises with corresponding technical strength, and the top four head enterprises account for more than 80% of the market share of ultra-high-power products. In terms of common power and high power graphite electrode with low technical requirements, the competition in the market is intensified gradually due to the re joining of small and medium-sized enterprises with weak technical strength and expansion of production.
After decades of development, through the introduction of technology of graphite electrode production, large-scale graphite electrode enterprises in China have mastered the core technology of graphite electrode production. The production technology and technology level of graphite electrode is comparable to that of overseas competitors, and with the advantages of high cost performance, China graphite electrode enterprises are increasingly playing an important role in the global market competition.
5. investment suggestions
At the supply end, the concentration of graphite electrode industry still has room for improvement, environmental protection and production limit increase the proportion of electric furnace steelmaking, and the overall development of graphite electrode industry is favorable. On the demand side, for the sake of improving productivity and reducing energy consumption, the future 100-150 tons UHP EAF is the mainstream development direction, and the development of UHP EAF is the general trend. As one of the main materials of UHP EAF, the demand of large-scale ultra-high-power graphite electrode is expected to increase further.
The prosperity of graphite electrode industry has declined in the past two years. The performance of domestic leading graphite electrode companies has declined significantly in 2020. The overall industry is in the stage of low expectation and undervalue. However, we believe that with the improvement of the basic aspects of the industry and the gradual return of the price of graphite electrode to a reasonable level, the performance of leading enterprises in the industry will fully benefit from the rebound of the bottom of the graphite electrode market. In the future, China has a large space for the development of short-process steelmaking, which will benefit the development of graphite electrode for short-process EAF. It is suggested that the leading enterprises in the field of graphite electrode should be focused.
6. risk tips
The proportion of electric furnace steelmaking industry in China is not as expected, and the price of raw materials for graphite electrode fluctuates greatly.
Post time: Apr-13-2021