China: GE demand hit but prices stay supported amid escalated raw material costs

China has been grappling with the resurgence of Covid, especially since the middle of March, 2022, a scenario that has impacted demand for graphite electrodes (GE) in the country.

With a major steel-producing hub like Tangshan declaring a stringent lockdown, GE demand from electric arc furnace (EAF) mills in that region has reduced to bare minimum levels in the past few weeks. The EAF utilisation rate in China has dropped to 57% in the first week of April, against 64% around the same time last month.

The needle coke factor

However, the escalated prices of a key raw material, needle coke, is adding to the cost pressure for GE manufacturers there, and ultimately providing support to GE prices despite weakened demand.

Needle coke has become costlier this year amid the Russia-Ukraine crisis and the subsequent sanctions slapped on Russia that have completely changed the global coal trade dynamics by creating supply disruptions.

Adding to the woes is the stringent lockdown in Shanxi, China's major coal producing hub. The coke producers there have cut down on their utilisation levels amid labour and transportation issues.

Prices as on 13 April, 2022

Subsequently, in the near term, GE prices in China are likely to remain firm. Also, with Tangshan emerging from the lockdown, electrodes demand may see a push and support the prices.

EU imposes anti-dumping duty on Chinese electrodes

In the first week of April, the European Union (EU) imposed anti-dumping duties of 26-76% on Chinese electrodes imports. These measures follow an investigation which showed that Chinese graphite electrodes were sold in the EU at significantly dumped prices. However, electrodes of small diameter - 350 mm or less - have been excluded from the scope of the anti-dumping duties as they are produced in very small quantities in Europe. As per Customs data, the EU's share in Chinese electrodes exports stood at an average of 20% in the last three years.

Excess supply likely in overseas markets

Russia has 20% share in China's electrode exports. However, with sanctions in place on the former by western countries, whether China will continue to supply the same to Moscow using the yuan-rouble payment system or completely stop, remains to be seen. In case of stoppage of supply by China to Russia and an anti-dumping duty by the EU, about 70,000-75,000 tonnes of Chinese electrodes will be available for exports, which is a plentiful number.