Market mulls impact to price as China scraps graphite duty
By DAVIDE GHILOTTI
Published: Friday, 06 January 2017 Print | Email | Comment |
The elimination of the previous duty regime for Chinese graphite exports may lead to short-term reduction in prices from the Asian origin, market participants said, although some played down the long-term impact of the change.
China’s recent decision to scrap the existing duty system on graphite shipments bound for export has taken the industry by surprise, as operators fear that a knock-on effect on market prices may be imminent.
Following Beijing’s announcement at the end of December, the export tax previously applicable on natural graphite products was eliminated from 1 January this year. The commodity group was subject to a 20% duty on the sales price of natural flake and amorphous graphite previously.
Commenting on the change, western market participants reacted with a mixture of surprise and scepticism, while Chinese suppliers canvassed by IM showed uncertainty as to the timing of the policy change and questioned its long-term impact.
Graphite prices out of China have remained stable in January so far, although most sources forecasted that the market could experience a drop in the near to mid-term.
"The market is stable at the moment – there hasn’t been an immediate impact," one central European trade told IM, while another contact added: "We’ll have some clearer view in mid-February."
In earlier conversations with IM, both had suggested the graphite market would start to edge upwards in 2017, and maintained their views after the latest updates.
Informed of the tax regime change, a middle eastern supplier said he has been in contact with his Chinese business partners on amorphous graphite prices, and found that latest offers had remained unchanged.
At the same time, he was adamant the market "could soon fall". A North American contact agreed.
A buyer of graphite based in Asia told IM: "My guess is that prices of Chinese natural graphite will be going down by about 10-18% on a CIF basis."
On their part, Chinese suppliers are now assessing the breadth of the policy change and deciding how this will reflect on their selling prices.
One seller said he was planning to review his offers downwards by 20% pending internal feasibility assessments.
Another stated he will not reduce his prices in light of the new system, and will stick to existing quotes. He added that not all exporters were paying the full duty, as some found ways around it. For this reason, the downward impact may be less severe than expected.
This was a point made by other local companies, stating that taxes paid through some locations were below the standard tariff.
Knock-on effects
The consequences of China potentially reducing its graphite prices would nonetheless have consequences for the rest of the world’s suppliers.
According to one non-Chinese seller, buyers in negotiations with suppliers outside China may request discounts on the back of falling offers from China.
Additionally, new players seeking to step into the market will face a challenging start of operations.
"Who [will most feel the hit] are new start-up graphite mines outside of China, who must offer some discount to major buyers in order to get them to [accept] their new supply," one contact said.
Short-term impact
Some sources questioned whether the announcement will be followed through in practice, and for how long, with one saying: "I have heard about it but I don't think that they will apply it."
One Chinese producer said he believed the new duty-free regime would start in July, and any effect would be felt from then.
Another Europe-based contact added that the Chinese government "may add another tax to replace this one, or some other fee" to maintain the same revenue stream it had from the export duty.
This view was shared by others in the industry, who suggested that any decline in price may unfold in the short-term, while the market would go back upwards later in the year.
The European source noted that graphite stocks in China have been depleted. This, against a situation of stable demand, could boost market prices from China despite the cancellation of the export tax.
On top of that, local companies could take the opportunity to improve their returns on sales, after a long period of market weakness, by upholding their prices post duty cancellation.
"If the Chinese producers have to increase their margins, the result will be status quo," another source in Europe told IM, adding that potential higher demand in the steel industry may translate into higher rates for refractory feedstocks throughout the year.
