2021 Domestic Graphite Electrode Market Review

I. Price Trend Analysis

In the first quarter of 2021, the price trend for China’s graphite electrodes was relatively strong, primarily driven by high raw material prices, which continued to push up graphite electrode prices. Enterprises increased production under pressure, and the market showed a strong willingness to maintain prices. Moreover, supply of small- and medium-sized graphite electrodes remained tight, further supporting the overall upward trend in graphite electrode prices.

In the second quarter, China’s graphite electrode market showed a rapid upward trend followed by stabilization. The rapid rise was mainly evident in April, when steel mills launched a new round of bidding, and downstream electric-furnace steel plants, enjoying high profits, ramped up production, thereby boosting demand for graphite electrodes. On the other hand, due to the dual-control policy on energy consumption in Inner Mongolia, graphite calcination supply tightened, leading to a reduction in graphite electrode supply and fueling upward pressure on prices. However, from May to June, falling prices of the raw material petroleum coke turned bearish, and coupled with downward pressure from downstream users, the upward momentum of graphite electrode prices weakened significantly.

In the third quarter, China's graphite electrode prices remained stable but tended to weaken. The traditional off-season for demand, coupled with relatively strong supply, led to a mismatch between supply and demand, driving graphite electrode prices downward. Meanwhile, raw material prices continued to rise, putting upward pressure on costs and keeping graphite electrode prices firm. However, some graphite electrode companies quickly cleared their inventories to recover funds, causing graphite electrode prices to decline from the beginning to the end of the third quarter.

In the fourth quarter, domestic raw material prices continued to rise, driven by restrictions on production and power consumption within China. Among these, low-sulfur petroleum coke and asphalt saw particularly significant price increases. Electricity prices remained high, and graphite calcination supplies in regions such as Inner Mongolia were tight and prices stayed elevated. As a result, costs pushed up the prices of Chinese graphite electrodes. However, although production and power restrictions have affected graphite electrode manufacturers, the low operating rates and slim profit margins of downstream electric arc furnace steel plants have simultaneously led to a decline in market demand. With both supply and demand weak, prices have reversed course and started to rise. With no robust demand to support price increases—only cost pressures driving them—the occasional short-term price corrections have become a normal phenomenon.

Overall, in 2021, China’s graphite electrode market experienced generally strong fluctuations. On the one hand, raw material prices drove up or down the costs of graphite electrodes; on the other hand, the operating rates and profitability of electric furnace steel plants effectively influenced the price movements of graphite electrodes. In 2021, the price fluctuations in the graphite electrode market, aside from supply-side factors, were primarily driven by raw material costs and downstream demand, shaping the year-long price volatility of graphite electrodes.

II. Cost and Profit Analysis

From the perspective of cost analysis for ultra-high-power graphite electrodes, taking Jiangsu’s ultra-high-power graphite electrodes with a diameter of φ500 as an example, profits reached a peak of 5,229 yuan per ton in May during the second quarter, but plummeted to a low of -1,008 yuan per ton in September during the third quarter. Looking at the market performance throughout 2021 as a whole, ultra-high-power graphite electrodes maintained positive profit growth for most of the year. Compared with the period from 2018 to 2020, China’s graphite electrode industry has essentially entered a stage of healthy development.

According to Fangda Carbon’s financial report for the first three quarters of 2021, the profit growth rates were 71.91% in the first quarter, 205.38% in the second quarter, and 83.85% in the third quarter. The second quarter of 2021 was also a period of rapid profit growth.

III. Requirements Analysis

(1) Overseas aspect

In 2021, China's total exports of graphite electrodes are expected to reach 400,000 tons, representing a year-on-year increase of 19.55% and surpassing the 2020 level. According to export data from January to November, the volume of exports has already reached 391,200 tons. In 2021, the primary factor influencing this growth was the stabilization of the domestic epidemic situation, which enabled more organized and systematic operations, thereby boosting the volume of exports.

In 2021, China's graphite electrode exports showed an overall strong trend. Compared to the market conditions in 2019, the global economy—recovering from the post-pandemic period—exhibited a stark contrast. In 2019, China's graphite electrode exports were concentrated mainly between March and September, with monthly export volumes steadily increasing from March to July. The export volume from March to September accounted for 66.84% of the year’s total exports. In 2021, however, export volumes from April to October remained stable but slightly weak, while March and November saw rapid growth. Overall, the quarterly export volumes in 2021 were roughly comparable across all quarters.

(2) Domestic demand

Relevant authorities reported that in 2021, China’s crude steel production reached 1.04 billion tons, a decrease of 2.3% year-on-year. China’s demand for graphite electrodes was 607,400 tons, and the estimated output of graphite electrodes in China for 2021 exceeded 1.2 million tons.

Based on current domestic and international demand, China’s graphite electrodes are currently in a state of overcapacity. This has indirectly made it difficult for domestic graphite electrode prices to return to the era of high profits.

2022 Domestic Graphite Electrode Market Outlook

On the production front: During January and February, most mainstream graphite electrode manufacturers maintained normal production levels. However, as the Winter Olympics approach and stricter atmospheric pollution control measures take effect, regions including Inner Mongolia, Shanxi, Hebei, Henan, Shandong, and Liaoning will face production shutdowns for maintenance starting in January. As a result, market operating rates have declined and remained low. After March, the overall supply of spot graphite electrode resources in the market is expected to tighten.

In terms of inventory, due to production and power restrictions in the fourth quarter of 2021, market demand fell far short of expectations. Moreover, overseas market demand was once again hit by a resurgence of the pandemic, leading to a lack of strong willingness among companies to build up inventories for the new year. As a result, graphite electrode manufacturers saw their inventories pile up. Although some companies lowered prices to accelerate cash recovery, downstream demand has yet to show any significant rebound, and this has instead intensified malicious competition in the market. Although current inventory levels are not particularly high, the trend of accumulating inventories is quite evident.

On the demand side, the Chinese graphite electrode market is primarily driven by the steel market, the export market, and the metallurgical silicon market. In the steel market: During January and February, steel production starts remained low. Major steel mills have sufficient inventories from previous stockpiling, and electric furnace steel plants are operating at a moderate level. As a result, steel mills’ overall purchasing intentions remain weak in the short term, and the subdued downstream demand has little impact on the graphite electrode market in the near term. In the metallurgical silicon market: The metallurgical silicon industry has yet to emerge from the dry season, and in the short term, the industry will continue its relatively weak production levels seen earlier this year, keeping the demand for graphite electrodes steady but slightly weaker than before.

On the export front, shipping rates remain stubbornly high, and industry experts predict that freight rates will stay elevated for some time yet, with potential relief expected in 2022. Moreover, the issue of congestion at global seaports has persisted throughout 2021. Taking Europe and East Asia as examples, average delays have reached 18 days, and voyages now take 20% longer than before, driving up sea freight costs. The European Union has launched an anti-dumping investigation into graphite electrodes from China, which will to some extent affect Chinese graphite electrode companies’ export performance. Given the lengthy duration of the ruling process and the imposition of anti-dumping duties, Chinese companies’ export volumes and export prices will be impacted.

Overall analysis suggests that demand in the graphite electrode market may rebound in the second quarter. As downstream steel mills gradually resume operations and mainstream mills deplete their inventory reserves, steel mills’ demand for graphite electrodes is expected to gradually recover around March. Around April, the metallurgical silicon industry will emerge from its dry season, with an anticipated increase in operating rates. This will boost demand for graphite electrodes, potentially driving graphite electrode prices to reach a peak in the second quarter, as both supply and demand remain robust. However, due to the short-term mismatch between supply and demand, competition over pricing is likely to intensify. In the third and fourth quarters, the domestic graphite electrode market may shift from its high levels to a downward trend.