With this series that bears the name “Graphite electrode prices on a roller-coaster ride”, I would like to address a most relevant topic of the electrode shortages and thereby caused price chaos beginning in spring 2017. Many steel mills were hit hard and the consequences are still perceptible now.
Recently, I came across an interesting article on a popular question-and-anwer site, Quora Digest as well as on LinkedIN. The question about whom we can attribute the copyright to doesn’t matter for our purposes. Its name was “What is the reason and trend of graphite electrode price increase?” – I was really excited and its title grabbed my attention within a nanosecond.
You must know that during my visits and discussions with purchasing managers of steel plants, one of the first questions I most often encountered was: >>Mr Sarkoezy, please tell us, what caused this price increase in graphite electrode prices in 2016/2017?<<
Before I present my point of view (which is essentially the position of GES Group’s), I would like to relate to above article. I am not giving the post in full; instead I am summarizing my thoughts on it.
My opinion about the two articles “What is the reason and trend of graphite electrode price increase?”
The author identifies three reasons for the price tumult at the beginning of 2017; all of which originated in China.
- production cycles of electrodes prolonged because of imposed heating season
- increased inland demand for graphite electrodes due to a shift in production technology towards electric furnaces
- refilling stocks to fulfill market demand of after spring 2017
While the writer does a superb job on describing the altered demand state inside China and the governmental actions, she doesn’t take into consideration/mention the following points
- competition among graphite suppliers. This also leads to the next point
- graphite is supplied through a multitude of sales channels (directly and indirectly through third party dealers)
- availability of raw materials before and after price increases
- were all contractual parties treated fairly? This point is overseen easily as we always implicitly presume that companies stand to contracts.
What also confuses about the article on Quora Digest is that the author constantly mentions HP electrodes (which essentially is a hyperlink to her company’s pages). >>HP<< is short for >>High power/purity<< and denotes a specific quality of electrodes. Later, I am going to talk about various qualities in more depth. However, I want to point out that graphite electrode prices increase happened worldwide and for every and each electrode size and quality.
A new try – what caused the graphit electrode price increase – 2.0
Reading through the article, you may wonder, whether the shortage and thereby caused electrode price increases were a totally random event? My answer is >yes, but<.
Indeed, it was not possible to predict external factors such as government behavior in the short run. BUT there were alarming signs such as the empty stocks; something, that remained un-communicated in most cases between Chinese manufacturers and overseas endusers.
This means: for a graphite electrode enduser without any close ties to the Chinese graphite market, the shortage was not foreseeable. By >close ties< I mean you have your own agents based in China who are able to interpret the market situation, draw conclusions and give you a timely recommendation. However, if you had a partner with deep market insights before the crash, you would have been alarmed at least 5 months in advance? How do I come to this concrete number? Well, according to the 2 authors above, this was the time span from Oct/Nov 16 to Feb/Mar 17 when warehouses had to be refilled.
In my next blog article, I am going to post an article that will be published in a popular steel magazine in the August 18 edition. For all non-German speakers among the readers of this blog: I am also going to post the English translation.