Stockpiles of iron ore at China’s ports may have touched a record high of 120 million tons this week, The Wall Street Journal reported. Higher stockpiles are an indication of weak demand from steelmakers, which could indicate that China’s property sector is cooling rapidly. However, some analysts argue that while downstream demand has declined, consumption may not be in a free-fall. “The ore stock level has been fairly steady this year, and although there has been some output reduction among smaller steel mills, there have not been large-scale production cuts,” said Zhang Jiabin, research director for Umetal.com, a Beijing-based steel consulting firm. Chinese regulators have urged banks to tighten credit to steel producers in recent weeks. Reports suggest that stockpiles for other commodities, such as coal and agricultural products, have also been growing in China as demand flags.
Steel demand in China is a two-edged sword for CHGI.
As demand for steel falls, inefficient and older blast furnace steel plants will be closed down more and more. That would hurt overall graphite demand and would hurt CHGI some, since CHGI still makes some graphite electrodes for blast furnace steel mills.
On the other hand, as older steel mills are shuttered, so will be older and inefficient graphite fabricators. There are lots of sort of mom and pop graphite operations that will not survive. The overall net effect will be that CHGI can probably still get what it wants in old blast furnace graphite electrode orders.
More importantly, none of the relatively fewer new electric arc steel plants will be shut down. Indeed, they will probably increase some even as lots of the older blast furnace mills are closed. That would keep up the demand for CHGI's ultra-high electrodes even in the face of lower overall steel demand: No decrease and probably an increase in the sort of steel mills CHGI plans on servicing with its nich ultra-high electrodes even though overall steel production (and therefore overall graphite need) falls.
At least that's the way CHGI thinks things will work. We'll see.