like being involved in a bikie gang, we are the 1% ers. what i mean is the majority of graphite produced cannot be used for high end applications. right now electrodes are made from synthetic graphite, the electrode makers uses the most purest form of graphite to do so. no natural graphite production has been able to achieve the purity level to substitute this.....until now. Recent HXG announcements have alluded test work is getting performed by these types of carbon uses, so watch this space. here is part of a very interesting article today.
By Masumi Suga
(Bloomberg) -- One of the world’s biggest producers of
graphite electrodes says investors are underestimating its
ability to maintain unprecedented profit margins.
A drop of almost 40 percent in Tokai Carbon Co.’s shares
since October belies a bullish outlook for the material that
will remain in tight supply for the next two to three years,
according to the president of the Tokyo-based company. Customers
in Japan have just agreed to a 25 percent increase in prices for
the first half of 2019, Hajime Nagasaka said in an interview on
Friday.
“There’s growing suspicion we won’t be able to sustain high
levels of profits, and in response to that, I say the current
market environment for electrodes and profit margins from the
business won’t change,” Nagasaka said. Operating profit margin
at Tokai’s electrode unit are in excess of 50 percent, he said.
It’s been a bumper couple of years for the world’s
electrode producers as China’s campaign to clean up its air
spurs an explosion in prices of the little-known material
because of its use in a less-polluting steel-making process.
That drove an unprecedented advance in the shares of suppliers
like Tokai and India’s HEG Ltd., but they began to cool in the
latter part of 2018 on speculation that China’s demand may have
peaked.
While Tokai’s shares have retreated in recent months,
electrode prices are still going up and Nagasaka sees further
gains possible this year. The company is selling to
international customers at $14,000 a ton in the first half of
2019, up from $12,000 in the final six months of 2018. Prices
were as low as $2,500 a ton in the first of half of 2017.
The company gets about half its revenue from the graphite
electrodes business and also produces carbon black and materials
for semi-conductors. Annual operating profit will climb more
than six times to 75 billion yen ($684 million) in 2018 and
sales will more than double, the company said in November. Tokai
is scheduled to release its mid-term business plan next month.
Graphite electrodes are used electric arc furnaces, which
recycle scrap metal into steel. The process is less polluting
than blast furnaces, which use iron ore and coal.
So, when China started shutting particularly dirty furnaces
to clean up its skies, producers turned to electric arc plants,
bolstering demand for electrodes. It also shuttered the plants
that produce the graphite electrodes from a substance called
needle coke, cutting supply. Prices, and profit margins for the
likes of Tokai, exploded.
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