Graphite Electrode Makers’ Woes Intensify As China Shadow Looms 

Graphite electrode makers that have seen their value erode by about 60 percent since October have more to worry.

Resumption of production at China's leading graphite maker is expected to add to the supply glut and one of the largest producers of the steelmaking raw material is negotiating lower prices.

If adequate electric arc steel furnace capacity isn't installed quickly in China to absorb the supply, prices could fall further, Graphite India Ltd. said in its annual report for FY19. It flagged growing imports and the government's withdrawal of anti-dumping duty on electrodes made in China in September as factors that will have a negative impact on price and volumes in India.

China's crackdown on polluting units had sent the prices of graphite electrodes soaring. That widened margins of HEG Ltd. and Graphite India. Shares of the companies turned wealth creators by returning gains of over 1,000-fold in 2017 and early 2018. Their fortunes have turned since October last year on expectations of additional supply. Shares of HEG and Graphite India have plunged by nearly 57 percent and 45 percent, respectively, so far this year.

Global Factors

The Changsheng Carbon Company—China's largest graphite electrode maker—is resuming production after a seven-year lull, as per a Steel Mint report, with annual production of nearly 30,000 tonnes. The report also said Chinese companies are increasing production—with an eye on exports—despite weak domestic demand and depressed domestic prices.

In an earlier report, Citi said China plans to increase production by nearly 40 percent to 800 kilotonnes in 2019-20, which will have a bearing on Indian producers. It estimated a capacity addition of 465 kilotonne in 2019, 310 kt in 2020 and 185 kt in 2021.

Prices of the commodity in China have already fallen by more than 23 percent since the beginning of this year.

Tokai Carbon Co. Ltd.'s pricing points to falling prices. The world's fourth-largest maker of graphite electrodes, according to a Nomura report, was negotiating prices for July-December at a 10 percent discount to current rates.