Graphite electrodes have not typically been a "sexy" part of the steelmaking supply chain.
Prices have traditionally been fixed annually, and the components -- which are used in electric arc furnaces and ladle furnaces and can exhaust in six to eight hours -- comprise just a few percentage points of the overall cost of steelmaking.
For years electrode producers hemorrhaged cash as global electric arc furnaces preferred cheaper semi-finished steels to melting scrap. Electrode producers cut capacity, ran down inventories, consolidated and slashed capex to survive.
Around 21% of global electrode capacity has been shuttered in the past four years, according to investment bank Jeffries. Electrode supply for steelmaking is now 900,000 mt/year, or thereabouts, according to leading producers.
Against this, demand next year is expected to be around 1 million mt, according to one producer's estimate.
Partly because of the savage downturn of the last few years and a recent uptick in steel production, electrodes are now a sizzling hot topic. Curtailed Chinese electrode output and exports and lower needle coke supply have caused a supply shortage, just as demand has increased on the back of a surprisingly strong 18 months or so for global steel pricing.
There has been much talk throughout the supply chain of cargoes being delayed, cancelled or renegotiated on the back of steepling electrode costs.
China's largest producer, Fangda, has turned into a rockstar on the Shanghai stock exchange, trading at multi-year highs of late, after being one of the worlds most traded stocks in volume terms in early-August.
The interest of hedge funds and investment banks has been deeply piqued by the electrode shortage. "How long does the cycle have to run?" one New York-based fund asked, "and how long does it take to bring fresh supply to market?" Stock-pickers are looking for value, and the potential for new entrants to bring back recently shuttered capacity.
"Hardly a listed company that makes them [electrodes], and those that do [are] already through the roof," one ferrous raw materials trader said. "So therefore time to sell those stocks in a few months."
It's not time yet, though, according to Jeffries. "It is not every day one finds stocks that appear inexpensive after tripling in value in one year," it said in a note Wednesday, initiating a buy recommendation on two Indian electrode makers.
While electrode prices are still in their ascendancy, the cost-push from needle coke will also continue -- partly due to higher demand from electrode makers, but also because of lithium-ion battery demand, Jeffries said.
Still, spreads between electrodes and needle coke could settle above $3,000/mt for newer contracts, the bank said.