IRON and STEEL
The sharp decline in graphite electrodes prices in past one year has dragged down the performance of Chinese graphite electrodes manufacturer, Fangda Carbon, as its net profits have registered a fall of more than 50% in the first three quarters of 2019.
According to company’s financial statement, during Jan to Sept’19, the company has achieved an operating income of RMB 5.64 billion (USD 93 million), registering a y-o-y decrease of 39% and a net profit of RMB 1.93 billion (USD 27 million), a y-o-y plunge of 57%. The company’s net cash flow from operating activities was RMB 3.71 billion (USD 53 million), down by 21% y-o-y basis.
On quarterly basis, the company has achieved an operating income of RMB 1.70 billion (USD 24 million) in the third quarter (Jul-Sep’19), down by 45% against Q3 2018 and net profit stood at RMB 485 million down by 64% y-o-y basis.
According to the historical data, in 2017 and 2018, Fangda Carbon had realized an operating income of RMB 8.35 billion and 11.651 billion yuan respectively, thus recording an increase of 249% and 40%. During same time period, net profits of the company have been recorded at RMB 3.62 billion and RMB 5.59 billion, up by 5,268% and 54% respectively.
Benefiting from the impact of national supply-side reforms, de-capacity in the steel industry, and environmental protection, China’s electric steelmaking ratio in 2017 soared resulting in higher demand and prices of graphite electrodes. This high trend continued for almost a year but in 2019, although the demand for electrodes remained high, the capacity restrictions policy weakened, resulting in demand-supply imbalance and fall in GE prices. As a result, although the company's graphite electrode output continued to grow, the sharp drop in prices caused the company's revenue and net profit to fall sharply.
With the further expansion of Fangda Carbon’s production capacity, company’s inventory over past two years grew relatively fast, but has slowed down significantly during Jan-Sep’19.
Carbon industry encounters bottleneck
As a leading company in China's carbon industry, Fangda Carbon's performance report reflects the trend and current situation of the entire industry environment. The decline in both revenue and net profit also seems to indicate that the industry is experiencing development bottlenecks.
As per the industry experts, with the increase in demand for ultra-high power arc furnaces, UHP grade graphite electrodes are going to have higher demand in the coming future against non-UHP grade electrodes.
At present, there are already some enterprises have stalled their production. However, with respect to Fangda Carbon, the company has jointly invested RMB 2.7 billion with Baowu Carbon Materials to build a UHP grade GE plant with an annual output of 100,000 tonne in Honggu Park, Lanzhou Economic and Technological Development Zone which is expected to be completed and put into production by the end of 2020.