Posted on 21 Oct 2016
Showa Denko said Thursday it will acquire the graphite electrode operations of Germany's SGL Carbon, looking to shore up a business hit hard by a downturn in the steel market.
The Japanese chemical maker will spend 15.6 billion yen ($150 million) for all outstanding shares of SGL GE Holding, the world's second-largest producer of graphite electrodes by capacity. The transaction is expected to close by mid-2017.
The deal would lift Showa Denko from third place to first and give it a 30% share of the market. The pair has a combined capacity of about 260,000 tons, topping current No. 1 GrafTech International's roughly 190,000 tons. Their annual electrode sales total 70 billion yen to 80 billion yen.
Graphite electrodes are used when melting scrap steel in electric arc furnaces. Just under 2kg of electrodes are consumed for each ton of steel produced.
Showa Denko aims to take a rival out of the picture while paring excess capacity and easing price competition. It aims to save 6 billion yen a year through such steps as combining production facilities. "We'll revitalize the business into one that generates high profits again," President Hideo Ichikawa told reporters.
Japanese, European and U.S. businesses control a majority of the market for high-performance graphite electrodes. Yet all of these companies are in the red, according to an industry insider. The issue lies with the slump in steel prices stemming from China's supply glut. Steelmakers using electric arc furnaces have cut back operations, eroding demand for graphite electrodes. Electrode prices tumbled 50% over the last five years as the steel market deteriorated further.
But Showa Denko is bullish on electrodes, estimating that the market bottomed out in the first half of this year. It aims to have the business break even in 2018 and move into the black in 2019, with the help of the SGL GE acquisition.
Steel production by electric arc furnaces in Japan sank 6% to 24.05 million tons in 2015, data from the Japan Iron and Steel Federation shows. Output fell year over year for 22 straight months through September. Production is low in other Asian markets and the U.S. as well.
