【Fangda Carbon】Is there a growth logic for graphite electrodes?

I. Domestic steelmaking is generally divided into two types:

1. Blast furnace smelting iron ore, high efficiency

2. Recycling scrap steel with electric furnaces, slightly higher cost, but waste utilization itself is more economical and in line with the theme of carbon neutrality. 

Europe is now mostly using electric furnaces to smelt scrap steel, but China is mainly using blast furnaces to smelt iron ore.

The reason is that China's steel consumption is too large, and there is not enough scrap steel available. Europe, having been industrialized for decades, has a lot of scrap steel from dismantled old buildings and vehicles, which is basically sufficient.

Following this line of thought, our country will also reach this stage, just as new energy vehicles gradually replace gasoline vehicles.

It's not to say that electric furnaces (graphite electrode steelmaking) will replace blast furnaces, but the proportion of electric furnaces will certainly increase in the future, after all, iron ore is imported, and we cannot always let others control our supply.

II. Graphite electrodes

Electric furnaces require a consumable material, graphite electrodes. The domestic leading company in this field, which everyone should be familiar with, is Fangda Carbon.

This company was a star stock in 2017, rising fourfold in four months. The reason for the surge at that time was the country's crackdown on substandard steel (referred to as "ground steel").

Ground steel is a type of inferior steel made from scrap steel using induction furnaces, which can easily deform when bent. The notorious tofu-dreg projects in the past were largely due to this type of steel.

At that time, the country required all ground steel-producing furnaces to be demolished and replaced with electric arc furnaces to produce high-quality steel, and the increase in electric arc furnaces sparked the demand for graphite electrodes. It was a policy-driven thematic investment that came quickly and left quickly, flipping fourfold before falling for three years straight.

This wave of electric furnaces gradually replacing blast furnaces is a slow growth logic. If the logic holds, there may be a slow bull trend for many years in a row.

III. The real supply and demand relationship

To verify this logic, we still need to start with the supply and demand relationship, and study the demand side, which is a bit disappointing.

The penetration rate of electric furnaces is increasing very slowly. Unless there are new policies in the future, the growth of the demand side is basically non-existent based on the current rate of natural evolution.

As for the supply side, a large number of new players have flooded into the industry, and production lines have been built. However, due to overcapacity, everyone's operating rate is not high, and even if demand increases, supply can quickly catch up, making it difficult to generate huge profits.

Among the new players, the larger ones include Long Mang Baili's 80,000 tons and Tangshan Dongri's 100,000 tons.

At this point, the conclusion can be basically drawn that there is no growth logic for graphite electrodes.  For detailed data analysis on the graphite electrode industry, please feel free to contact us.