China's Graphite Electrodes prices remain high but stable amid tight supply

China's graphite electrodes (GE) prices, that have rallied by an average of 34% since Jan'21, continue to remain elevated with 600mm UHP grade currently being assessed at RMB 26,000-27,000/tonne ($4,025- 4,180/t) whereas HP grade 450mm is at RMB 21,000-22,000/t ($3,200- 3,400/t).

During Jan-May'21, China recorded a 14% y-o-y increase in its total crude steel output as the same stood at 473 millon tonnes (mn t). Out of this, the country's steel output via the electric arc furnace (EAF) route stood at around 47 mn t. In 2020, China was back to raising its steel output to more than 1 billion tonnes to meet domestic as well as overseas demand on the back of a revival in economic and industrial activities.

While demand for GE from country's EAF- steel-making sector is robust, its supply in the domestic market has turned tight amid rise in demand from the lithium battery sector, used in electric vehicles.

High raw material costs

Another reason for GE prices remaining elevated is the increased prices of a key raw material, needle coke. Needle coke is a specialised form of petroleum coke that is derived during coke production from coal tar or as a by-product of the oil refining process.
The average needle coke price in China is currently assessed at RMB 9,000-10,000/t ($1,400-1,550/t) which was at the levels of RMB 7,000-8,000/t ($1,090-1,240/t) three months back in Mar'21.

Along with its usage in the GE sector, there is soaring demand for the same from the electric vehicles (EV) industry. Electric vehicle sales in China are surging, as demand is growing for emission-friendly automobiles. The China Association of Automobile Manufacturers (CAAM) recently reported record EV sales for the month of June which saw a 139% y-o-y growth in sales at 256,000 units, whereas Jan-Jun'21 sales had moved up by 120% y-o-y basis.

What lies ahead?

July being a seasonally weak month for steel demand, China's crude steel output is expected to fall, impacting GE requirement in the process. In addition to this, steel plants in Henan, Hebei, Gansu and Anhui have been directed to cut their crude steel output. Thus, GE plants are cautious about production and are holding low inventories. In the short term, Chinese domestic graphite electrode prices would be supported by increased raw material costs and low inventories.