Price Briefing: Graphite end users feel the pinch as demand stutters

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Published: Wednesday, 24 October 2012

Prices for all grades of flake graphite from key producing regions in the world are stabilising, new information from IM Data has shown.

Prices for all grades of flake graphite from key producing regions in the world are stabilising, new information from IM Data has shown.

 
 Flake graphite prices, 2012
Data gathered from industry participants in India, Africa, China, Europe and North America shows flake graphite prices firming up after a downward trend in H1 2012 where they fell between 15-20% across the board. Ê

Prices have stabilised for the last three months to 1 October, particularly medium to small flake grades on offer from Chinese sellers. Chinese -100 mesh, 94% C material, for example, is available at $1,200/tonne (export, FOB) and has been at this level since August.

Indian flake graphite prices - which are traded domestically - have also exhibited a stable trend. The country, which mines flake graphite from Jharkhand, Odisha and Tamil Nadu states, has a domestic price of Indian rupee (Rs) 68,000/tonne ($1,311) for 94% C, 100 mesh. This has not changed in the last three months.

Industry sources active in Africa’s flake graphite industry have commented on the favourable market conditions in 2011, but indicated that prices have seen little change in 2012.

Africa is home to some small-scale graphite production, and is a source of high quality flake graphite.

The continent tends to trade less regularly than China and sells principally to Europe and North America. The slower pace of trade means there are fewer deals and price points available for analysis.

One example of grades on offer in Africa is 94% C material, with no mesh size stated, at $825/tonne. This is for long term (annual) contracts, the prices of which are consistently lower than spot prices but less common in today’s marketplace.

IM Data has also received information from buyers in North America which suggests the price is strengthening from the $1,000-1,400/tonne range for 94-97% C, -100 mesh graphite.

As the winter season approaches, deals are expected to slow until Q1 2013. Confidence in the market as the New Year dawns will be a key factor in prices strengthening, and this will depend on refractory producers’ outlook for steel demand in H1 2013.

Softness “exaggerated”

The recent softening in graphite prices is not as sharp as has been widely reported, market sources told IM.

“While I agree that graphite prices are lower of late, I do think the magnitude of the change has been exaggerated,” one market participant said.

The recent sharp fall in prices may be due to producers agreeing longer-term contracts at discounted prices, another source suggested.

“I see a significant difference between [long- and short-term] prices,” the source added.

In September, Brazilian refractory producer Magnesita Refratarios SA announced that it had obtained a licence to build a new graphite plant in Minas Gerais, Brazil, as part of its vertical integration strategy to insulate the company from high graphite prices.

Magnesita’s view on the graphite market was confirmed by analysts.

“The graphite market is expected to remain tight over the next few years, given the strong demand potential and limited capacity additions,” Marcos Assumpcao and Andre Pinheiro, analysts at investment bank Itau BBA, said in a note to clients.

End users hike costs

German-headquartered graphite electrode manufacturer SGL Group this month announced a price increase of 9% over contracted prices for its graphite electrode business.

The new prices are in effect immediately for new orders and will be valid on all shipments until 30 June 2013. Prices for the company’s products manufactured in China are set independently by its joint venture operation with Tokai Carbon Co. Ltd in Shanghai.

SGL, which uses both synthetic and natural graphite materials to make its products, said that the price increase reflects the impact of rising energy and raw material costs.

The company manufactures graphite cathodes and electrodes used in steel furnaces, as well as a range of speciality graphite products.

It supplies global steel giants including ArcelorMittal, as well as major Asian companies such as Perwaja Steel and Megasteel.

SGL added that the move was part of ongoing efforts to recover earlier cost increases that could not be offset with previous price measures.

The company had indicated in its 2012 half-yearly report that it would be putting up prices for its graphite performance products as part of its strategy to maintain margins in the face of higher input costs.

“We are recording higher raw material and other factor costs increases in [the] fiscal year 2012, which we are passing on in our sales prices,” SGL stated in the report.

It added, however, that it did not anticipate higher prices to impact sales volumes, which the company predicted would increase in H2 2012 in line with electric arc furnace steel production.

An SGL source told IM that it was attempting to reduce costs along its value chain in order to compensate for the increase in raw material prices.

The pinch was felt further afield, with electrode producer Graphite India Ltd announcing a price hike of around 9% for its carbon products for the second time in a year, Business Standard reported.

Graphite India’s chairman, K K Bangur, said that the move was designed to counter the impact of surging raw material costs, which rose 20% in the past year, as profitability dipped to a six-year low.

The company supplies global steel giants, including Posco and Arcelormittal.

It is India’s largest manufacturer of graphite electrodes and receives 60% of its revenue from overseas sales. It is, then, also facing falling demand from Europe, where the steel industry is suffering amid the protracted economic crisis in the region.

Once it has finished ramping up its operations, Graphite India is counting on demand from India’s domestic steel industry and a recovery in the US market to boost sales of its products amid economic uncertainty in Europe and stuttering Chinese demand.

The company is raising its capacity by 26%, increasing its graphite electrode production by 20,000 tpa to 98,000 tpa.

“This is a good time to add capacity when the industry is on a ‘down cycle,’” said Paras Bothra, vice president for equity research at Kolkata-based Ashika Stock Broking Ltd in Kolkata.

ArcelorMittal, the world’s biggest steelmaker, announced on 1 October that it plans to permanently close its Florange blast furnaces in France as the European debt crisis continues to weigh on construction and infrastructure building, sapping steel demand.

Posco, Asia’s third-biggest steelmaker by output, reported in July that its second quarter profits had declined 44% as demand waned from car and ship manufacturing.

Lithium

This month also saw increases in lithium markets and their end markets.

Lithium concentrate prices increased by 7% in Q1 FY2013 when compared to the same period last year, Australia’s Talison Lithium announced in its preliminary sales and production results, which were released in October.

The global leader in hard rock lithium produced 126,558 tonnes of lithium concentrate - which is approximately 19,000 tonnes of lithium carbonate equivalent (LCE) - in Q1 FY2013. This is up from 90,708 tonnes produced last year.

Talison sold 82,410 tonnes of lithium concentrate during Q1 FY2013 (approximately 12,000 tonnes LCE). This is 3% more than the amount sold in Q1 FY 2012.

“From quarter to quarter sales volume and average sales price may vary as sales are made in large shipments that can be irregular in timing and in varying proportions of technical-grade and chemical-grade lithium concentrate,” Talison explained.

FMC Lithium Corp. later announced it would be hiking lithium metal prices by 10% and prices of some of its lithium end products by 8%, citing rising raw material and transportation costs.

From 1 November the company will increase global prices for n-butyllithium and s-butyllithium and all specialty organic products by 8%, it said.

“During 2012 continued raw material price pressures and rising transportation costs has made this price increase necessary,” said Chris Senyk, global marketing director, FMC Lithium.

FMC Lithium produces butyllithium at plants in the US, the UK and India, and recently started up a new facility at Zhangjiagang in Jiangsu, China. The chemical is used in the production of certain plastics.

The company produces lithium raw materials at its brine operation at Hombre Muerto, Argentina.

In September, Eric Norris, manager of FMC’s lithium division, told IM that he expected demand for butyllithium and specialty organics “to grow faster than GDP over the coming decade”.

In 2010, the company increased its prices of f n-butyllithium and s-butyllithium and lithium chloride products, for the same reasons it is citing this time round.

Earlier this year it increased its prices for lithium salts, saying that it needed to increase prices in order to offset production costs and reinvest in the company.

Prices of lithium carbonate have remained steady this year, according to the IM prices database, at a range of $2.50-3/lb (large contracts del continental US). Last year prices were lower, at a range of $2.30-2.40/lb.

Calcium carbonate

Like FMC, Imerys SA also announced it would be increasing its prices due to higher productions costs.

The company is to increase its prices for all calcium carbonate products in North America by 4-10%, effective from 1 December 2012.

The company has said that the price increases, which are subject to any provisions in individual contracts, will help offset increases in production costs caused by inflation.

Increasing calcium carbonate prices will support investments in manufacturing, quality systems, environmental compliance and new product development, the company added.

Imerys’s announcement follows price increases from Huber Engineered Materials earlier this year for its industrial calcium carbonate products, attributing the price changes to inflated raw material costs.

According to the IM prices database, prices for calcium carbonate (GCC, 3 microns, untreated, FOB US) stand at $170-185/s.ton.

Demand for calcium carbonate has grown rapidly since a shift in paper making processes from acid to alkali-based technology in the 1980’s has meant that both ground (GCC) and precipitated calcium carbonate (PCC) can be used as a filler instead of more traditional minerals like kaolin.

PCC prices then have been moving upwards over the last few years, partly also due to increased lime costs and inflated production and energy costs.

Prices for the mineral are expected to continue to rise, with some sources predicting another 8% increase by 2013.

Diatomite, perlite

The company is also hiking North American prices for its filtration products by between 4 and 12%, effective 15 November 2012.

All diatomite, perlite, cellulose and silicate products will be affected by the price rises and the current energy surcharge will remain in place.

The price increase supports continual investments and rising costs in manufacturing, maintenance, quality systems and environmental compliance, the company said.

Imerys Filtration Minerals Inc., the division in charge of filtration products, last increased prices for its filtration and functional filler products shipped within North America by between 3% and 9%, effective July 2012.

EP Minerals LLC, another major producer of diatomite, perlite and cellulose products, recently announced a 3-7% price increase for its filtration products, effective 1 November 2012.

The company added that it expects prices for its key inputs to continue to increase over the next year.

EP Minerals told IM in September: “We do not see another price increase in the near future but situations change and we need to adjust accordingly.”

Imerys also implements an energy surcharge to some of its European facilities (see table). An energy surcharge can be applied at the America facilities but only when natural gas rises above a certain floor price.

*Earnings before interest, taxes, depreciation and amortisation.