The Turkish Steel Exporters' Association (CIB) said in its latest electrode market report that EAF mills may need to cut output next year, with suppliers currently not giving price or delivery commitments for 2018.
An executive with one large EAF-based mill said electrode suppliers were pushing people to shorter-term quarterly contracts, and prices had already been negotiated more than twice. The increases were adding $15/mt or more to steel costs for some mills, he said.
In Turkey, electrode consumption via the arc furnace is 1.4 kg/mt, and 0.4 kg/mt through the ladle furnace, the CIB said.
"The electrode cost price per ton for billet also rose tenfold and reached as high as $38/mt," the CIB said.
Switzerland-based special steel producer Schmolz+Bickenbach confirmed the concern about rising costs.
"We see a shortage on the market as well at the moment and therefore the related price dynamics," S+B said. "At the moment, we still have enough material, but monitor the situation closely. It is very difficult to say how long this situation will continue."
"This will price-wise stay a topic in any case, which will deserve our attention in the second half of the year," it said.
Tightness in Chinese electrode and needle coke supply -- the primary raw material for graphite electrodes used in steelmaking -- has curbed the amount of material available, and China's own electrode consumption is rising as electric arc furnaces are melting more scrap rather than charging hot metal, sources said.
Chinese electrode exports are likely to dwindle to around 100,000 mt this year, from 200,000 mt in recent years, one producer said.
Consequently, Chinese traders are currently offering electrodes spot at around $15,000-$20,000/mt, from around $5,500-$6,000/mt for western producers in longer-term contracts; mills with such contracts will have no issues securing supply, but it will be tough for them to increase production given limited availability, a source at one producer said.
One Chinese electrode producer is issuing prices weekly, sources suggest.
A trader in the Turkish market said electrode prices had moved above $25,000/mt on a spot basis from China, although a Dubai-based trader said Turkish mills had factored this into their production plans. "[But] we are getting a lot of Southeast Asian producers asking if we supply electrodes," he said.
An electrode producer source said cyclicality would continue and, while the next one-two years would be very good price wise for suppliers, the next five-six would see a return to a low-to-no margin business.
There was still a global electrode surplus of around 200,000 mt, he said, but it was not currently possible to run to capacity given the needle coke shortage, and the lack of investment in plant over recent years, which meant "close to nobody" can run to nameplate capacity.