Japan's GE Major Tokai Carbon to Introduce Pricing Formula for Graphite Electrodes

Recently, Japan's key Graphite Electrode (GE) producer, Tokai Carbon unveiled the company's medium-term business plans for the next three years starting from the fiscal year 2019. As a part of this plan, the company is set to introduce a pricing formula for its graphite electrode business which is becoming increasingly important to the company's revenue in an attempt to stabilize its earnings base.

Pricing formula is an arrangement where a buyer and seller agree in advance on the price to be paid for a product delivered in the future, based upon a pre-determined calculation. This system will look at factors such as such as raw material purchase costs over a certain period of time to automatically adjust prices for the following period. This will help to stabilize graphite electrode profits by ensuring that higher costs for needle coke, a material used to manufacture the product, are passed on in the price of the electrodes.

The company's top official has confirmed that with regards to this change, Tokai Carbon has already begun negotiating with major customers with the goal of implementing the formula in the first half of 2019. As an initiation to this change, the company plans to use prices in this coming January as the basis for semi-annual price revisions. It has also been indicated this new formula will come into use if 10% of major customers agree to it.

The graphite electrode demand and prices in China - which governs the entire global graphite electrode market have risen dramatically since the latter half of 2017 amid the closure of polluting graphite electrode units as a part of China's anti-pollution campaign. Due to this the business of GE producers across the globe including Japan's Tokai Carbon's also experienced massive growth. Graphite electrodes now account for 47.8% of the entire company's sales and 75% of its operating income.

However, recently the Graphite electrode prices in China are registering fall as there is once again sufficient supplies of graphite electrodes in the country with China starting up new graphite electrode capacities. Thus, amid this fluctuating market situation and increasing raw material costs, Tokai Carbon wants to start bringing in the formula pricing as a pre-emptive measure, preparing for when the situation does eventually revert back to normal.