In September, we reported about a new graphite electrode surcharge. This surcharge influenced the prices of stainless steel. Since then, barely we heard to talk about it. Where are we currently?

What is a graphite electrode?

Graphite electrodes are made from needle coke with a high content of sulphur and coal tar. This combination brings many environmental objections. For this reason, production of this consumable moved to China, where environmental issues did not matter. But, today, Chinese authorities can no longer ignore the quality of their air. China produces 70–80% of the global supply of graphite. Thus, the world of metal, as we know it, depends on China. Electric arc furnaces work with these electrodes.

Medium and Coarse Grain---Special Graphite Block/Round

What has China done about it?

Among other measures, closed 30% of its production capacity of graphite electrodes. Looking to protect environment from polluting industrial plants.

How have the steel mills defended position?

Some manufacturers decided to impose surcharges for the graphite electrode. For example, Outokumpu, Carpenter Technology, AK Steel or Universal Stainless.

How does this market work?

Steel companies often buy graphite electrodes in annual contracts. Because opaque nature of this market, it is difficult to see the true impact. Is negotiated between client and supplier. But, there are some factors that explain that its incidence goes for long. For example, no new graphite mine has open in more than 20 years.

Incidence of graphite

The graphite electrode market is peculiar. The mines often are small and sensitive to rainy seasons. This means that the production is irregular. In some cases, it is not guaranteed throughout the year. Recent environmental policies, much stricter, affected graphite mines. The modernization of this industry has resulted in increasing costs and lower production. Also forced the closure of illegal mining companies. Other producers who were extracting material out of quota wiped out.

Protectionism

China has imposed export duties of 20% on graphite and a VAT of 17% to help protect its own industry. This was the cause of supply problems around the world.

India protected local production. This April, 20% export tax on graphite electrodes came into action.

European Union and the United States also declared that graphite is strategic material.

Russia also have problems sourcing electrodes. They are in the middle of an investigation.

The paradox of graphite

Some analysts, like Metalminer or Steel on the Net, have been very critical. They question the true impact of the price of graphite on the steel industry. Check this graph as an example:

Graphite it is more expensive now, it is true, but in 2012 it was even more expensive! Why is this surcharge introduced now and not before?