Four main factors cause graphite electrode price chaos

Of the global graphite production, approximately 70% are being accumulated by China. For meeting its own steel industry’s huge demand, China is already trying to keep graphite inside of its own borders by imposing export duties.

Not least these measures caused the increase of graphite electrode prices, which oscillated between 500 and 600 US-Dollars around the turn of the millenium. Reaching their peak in 2012 at roughly 3.000 US-Dollars per ton, electrode prices quickly plummeted under the level of 2.000 US-Dollars.

graphite electrode prices, JAN 17 - APR 18

However, after graphite electrode prices had hit an all-time low, vast turbulences erupted in spring 2017 culminating in record high graphite electrode prices. Panic purchases by steelworks managers, unreliability of many partners and general upheaval were the consequence. But what caused those turbulences? We found a total of four main factors.

  1. the decrease of available raw materials for graphite.
  2. an increase in demand for steel.
  3. the chinese government introduced bold restrictions.
  4. partners involved acted unpredictably.

As a consequence of all these factors, chaotic market situations emerged, which complicated the situation further. The common denominator? The biggest graphite producer – China!

Supply, demand and governmental intervention

The demand for graphite electrodes skyrocketed in 2017 due to the steel industry’s demand. Yet, the recovering global economy and thereby driven steel industry only faced empty graphite warehouses, because the producers sold most of their stocks after the lowest electrode prices in history. Everyone with stocks, had quickly sold them after the first few demand increases at relatively low electrode price levels.

Just as the West, China is increasingly interested in environmental protection. For solving this tremendous task, the government tightens environmental regulations to a strangeling degree. This caused many graphite electrode producers to halt their production in favor of government inspections, shrinking the total output in spring 2017 to almost zero.

Facing this supply bottleneck, end users paid double or triple of the regular electrode price, causing further electrode price increases. Some suppliers noticed that willingness, disregarded contracts and sold in favor of the highest bid. Consequences were not to be feared, since the contracting parties were to far abroad. By declaring “Force Majeure” some European contractors also ignored contracts hoping for better conditions but causing further insecurity.

And – what does the future bring?

So, what will the future be like? Well, even stricter environmental regulations are a heavy burden for the graphite industry. The latest example happened in northern China from 2017 to 2018, when governmental actions caused the production to stop between October and March.

Furthermore, the most populated nations in the world, China and India, are experiencing the rise of an increasingly wealthy middle class, which yearns to show off their wealth in western means – how about a trendy and sophisticated electric vehicle, which communicates perfectly with the owners smartwatch and smartphone? Due to these and similar shifts, the Swiss UBS predicts a rise of global graphite demand in the next decades by an immense 264% of todays world market volume.

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Sources
1) „Graphit hat Zukunftspotenzial“, In: miningscout.de, 19.01.2018,
https://www.miningscout.de/blog/2018/01/19/graphit-hat-zukunftspotenzial/, accessed: 22.05.2018.
2) UBS-Studie: Diese Rohstoffe profitieren vom Siegeszug der Elektroautos“, In: wallstreet-online.de, 23.10.2017, https://www.wallstreet-online.de/nachricht/9996039-ubs-studie-rohstoffe-profitieren-siegeszug-elektroautos, accessed: 22.05.2018.

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