China's Graphite electrode prices lack support amid lower EAF utilisation rate

The GE prices in China have bottomed out and continue to hover at low levels without any uptick amid fall in capacity utilisation of EAF (Electric arc furnace) mills and undeterred electrodes production.

• The average utilisation rates of EAF mills in China has come down in July (77.3%) against last month (84.3% in Jun'20) and their in-plant inventories piled up as the wet season delayed the end-users steel demand.
  
  
• High costs of feedstock steel scrap and weak rebar prices drove more than half of EAF steel mills into losses. This also accounted for the slower operation at EAF steel mills.
  
  
• In case of GE production, except in Feb'20 when the domestic electrodes production in the country touched a low of 38,500 tonne (due to COVID-19), the same has been continuously increasing.
  
  
• The latest month's, Jun'20 China's GE output stood at 71,000 tonne, up by 2.3% m-o-m and 1.4% y-o-y basis. The monthly average GE production in 2019 stood at around 66,700 tonne, as per the data provided by China-based market intelligence provider CBC.
  
  

The ex-factory tax-included price of 600mm ultra high-power graphite electrodes is in the range of RMB 17,000-21,500/t ($2,440 - 3,085/t) and that of high-power graphite electrodes 450mm is around RMB 12,500 -13,800/t ($1,795 - 1,980/t).

Sluggish export demand despite slashed prices

According to market participants, domestic buyers are more focused on the purchase of small-sized electrodes and the demand for large-sized high-grade electrodes majorly consumed by export markets is yet to recover fully.

"Due to the impact of pandemic this year, overseas markets are under-operated, export business is sluggish, market transactions are at a low level, and corporate profits are reduced impacting GE export demand", quoted a trader based in China.

• China exported about 1.73 mn t of GE in H1 2020 (Jan-Jun'20) against 1.80 mn t in the corresponding period of previous year.
  
  
• The average export price of Chinese GE in H1 CY20 stood at around $2059/t against $7,087/t in H1 CY19.
  
  

Outlook

Industry participants expect a rebound in China's downstream demand that would contribute to increase in EAF operating rates in the weeks ahead, on the back of bullish prospects for end-users' procurement of steel products in August.

However, amid the high inventory pile-up of electrodes, any significant upward movement in China's domestic GE prices seems unlikely in the near-term.