China: GE prices fall 10% in Aug amid heatwave, subdued demand

Adverse weather conditions and tepid demand in China have impacted its domestic graphite electrodes prices as the 600mm HP grade has come down by 10% m-o-m in August to RMB 24,400/t ($3,525/t) while the 450mm HP grade has fallen by 4% to RMB 21,250/t ($3,070/t). The prices have come down by an average 15% against their highs in April-May this year.

The extreme heat wave that has gripped China since late July resulted in power shortages in the eastern and south-western parts, forcing local authorities to introduce power rationing for industrial units, including electric arc furnaces (EAFs), in order to prioritize the household sector.

The EAF units that require double the electricity against blast furnaces to produce one tonne of steel have been asked to schedule or produce on alternate days to conserve power. In fact, many units in Zhejiang and Jiangsu provinces have shortened their production schedule from 14-15 hours per day to 7-9 hours, to minimize electricity consumption. The power rationing has impacted GE requirements by the EAF mills.

Suppressed downstream demand

In addition, the sluggish steel demand in China has also weighed on the country's electrodes demand and prices. With easing of strict Covid restrictions in June, it was expected that China's downstream demand may pick up in the upcoming months, which did not happen as restrictions were tightened again in August amid sporadic outbreaks of Covid in a few provinces.

In August, China's factory activity is likely to contract again, as per a reputed market survey, owing to the Covidflare-ups and a distressed property sector that has seen demand for steel plummeting while a power crunch in south-western China hit production.

The worsening property crisis in China has adversely impacted steel and its raw material demand. China's property sector makes up a third of its economic output. But the country's economy has been slowing - in the last quarter it grew by just 0.4% compared to the same quarter in the previous year and that is largely because of Beijing's zero-Covid strategy characterized by repeated lockdowns. Post-Covid slowdowns have affected incomes and, in turn, savings and investments. Demand for homes is also not rising as China undergoes a demographic change with urbanisation and population growth slowing.

What lies ahead?

The high temperatures have abated in some provinces while in others the weather is expected to ease in the next few days. While normal temperatures will lead to halt in power rationing and production resumption at EAF mills, steel demand from the property sector is expected to remain restricted amid the government's reluctance to bail out property developers who have defaulted on their debt payments. This may impact infrastructure spending and indirectly the steel and ore sectors. This leaves limited room for any support to Chinese GE prices in the upcoming months.