German electrode maker SGL looks for China partner

Thu Apr 25, 2013 12:28pm EDT

* SGL makes electrodes for scrap steel recycling

* Chinese electrode market to become world's biggest

By Ludwig Burger and Frank Siebelt

WIESBADEN, Germany, April 25 (Reuters) - Germany's SGL Carbon, a key supplier to the scrap-to-steel industry, is on the lookout for joint venture partners in China as the world's largest steel producing nation begins to embrace metal recycling.

"A joint venture appears to be the best option. We could contribute years of market knowledge and technological know-how in particular," said SGL Chief Executive Robert Koehler.

SGL is the world's biggest supplier of graphite electrodes used in electric arc furnaces that convert scrap steel.

With fledgling Chinese peers gradually emerging as competitors, SGL is eager to strike a deal in China while it still enjoys technological headway over prospective partners.

Chinese steel accounts for 46 percent of annual global output of 1.55 billion tonnes, but only about 10 percent of the nation's production comes from melting scrap metal.

By contrast, about 40 percent of the steel made in the rest of the world comes from recycled material.

"I hope that it will happen this year. It depends on the market and the environment. It's about getting the timing right," CEO Koehler told Reuters in an interview.

SGL has said it expects China, now a relatively small graphite electrodes market, to become the world's biggest within five to ten years. As the country's infrastructure matures and is replaced, more scrap will come available for recycling.

For now, Chinese electrode makers such as Fangda Carbon, Kaifeng Carbon and Nantong are producing more than the national market can absorb, but SGL's CEO said he hoped that would not last.

SGL's closest rival, Graftech of the United States, has complained of excess production capacity in the global graphite electrode market, at 1.2 to 1.3 million tonnes.

Graftech said capacity grew by 100,000 tonnes last year, 65,000 of that at Chinese suppliers, which are looking to add a further 100,000 tonnes over the next two years.

For that reason, SGL wants to gain control of existing factories in China through a joint venture, not invest heavily in new plants.

Koehler, who is set to retire next year after 22 years at the helm, said overcapacity would only put more pressure on prices.

SGL derives almost half of its sales from graphite electrodes and cut its 2013 profit guidance this month, blaming a slower than expected start to 2013 and an uncertain recovery across its businesses.

It is due to report first-quarter results on Friday.

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