Increase use of electrodes

Steel industry shift towards lower-carbon production from BOF to EAF will push up graphite electrodes consumption


China, which only produced 5% of its steel through electric arc furnace, still about 5 years ago is currently at a level of 12% and is aiming to reach 20% in the next few years. We believe electric arc furnace will grow at a CAGR of about 3% in the next decade, which would straight away translate into a substantial increase in electrode demand.

So as soon as those announcements were made, the existing graphite companies in China obviously had to increase capacity. They were seeing an increase in electrode demand of 4x from 5% to 20%. And at the same time, that 5% to 20%, I mean, it was a very, very difficult thing to achieve in just 4, 5 years. So it is at 12%. But that continuously grows year after year because China is also part of the world. And China is also seeing the advantages of decarbonization and that is where the electric arc furnaces came in.

Decarbonization efforts are driving a transition in steel with electric arc furnaces continue to increase share of total steel production. The EAF method of steelmaking now accounts for nearly half of global steel production outside of China and an increase from 44% in 2015, with market share growth in nearly every region. And this trend of EAF share growth is expected to continue. In fact, we continue to see examples of governments providing incentives to companies to help fund investments in new EAF capacity.

This ongoing transition toward EAF steelmaking is expected to drive demand growth for graphite electrodes over the longer term. Overall, considering planned EAF capacity additions based on steel producer announcements, along with production increases at existing EAF plants, we estimate that this would translate to global graphite electrode demand outside of China growing at a 3% to 4% CAGR over the next five years.
needle coke demand is expected to accelerate driven by its use to produce synthetic graphite for the anode portion of lithium ion batteries used in the electric vehicle market.

Growing demand for needle coke should result in elevated needle coke pricing. Given the high historical correlation between petroleum needle coke pricing and graphite electrode pricing, with an inflation-adjusted spread that has averaged approximately $3,900 per metric ton over the last 20 years, this trend should translate to higher market pricing for electrodes.


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