The Application Of Graphite Electrode In EAF

　　Electric arc furnaces that produce steel typically range in size from those that produce about 25 metric tons of steel per production cycle to those that produce about 150 metric tons per production cycle. Electric arc furnaces operate using either alternating electric current (A/C) or direct electric current (D/C). The vast majority of electric arc furnaces use alternating current. Each of these furnaces typically uses nine electrodes (in three columns of three electrodes each) at one time. The other electric arc furnaces, which use direct current, typically use one column of three electrodes. The size of the electrodes varies depending on the size of the furnace, the size of the furnace’s electric transformer and the planned productivity of the furnace. In a typical furnace using alternating current and operating at a typical number of production cycles per day, one of the nine electrodes is fully consumed (requiring the addition of a new electrode), on average, every eight to ten operating hours. The actual rate of consumption and addition of electrodes for a particular furnace depends primarily on the efficiency and productivity of the furnace. Therefore, demand for graphite electrodes is directly related to the amount and efficiency of electric arc furnace steel production.

　　Electric arc furnace steel production requires significant heat (as high as 5,000 degrees Fahrenheit, which we believe is the hottest operating temperature in any industrial or commercial manufacturing process worldwide) to melt the raw materials in the furnace, primarily scrap metal. Heat is generated as electricity (as much as 150,000 amps) passes through the electrodes and creates an electric arc between the electrodes and the raw materials.

　　Graphite electrodes are currently the only products available that have the high levels of electrical conductivity and the capability of sustaining the high levels of heat generated in an electric arc furnace producing steel. Therefore, graphite electrodes are essential to the production of steel in electric arc furnaces. We believe there is currently no commercially viable substitute for graphite electrodes in electric arc furnace steel making. We estimate that, on average, the cost of graphite electrodes represents about 3% to 4% of the cost of producing steel in a typical electric arc furnace.

　　Electric arc furnace steel production for the last five years has grown at an estimated average annual growth rate of about 3%. We believe that EAF steel production will continue to grow at an average annual long term growth rate of about 3% to 4%. We estimate that there are currently approximately 2,000 electric arc steel production furnaces operating worldwide. Electric arc furnace steel production grew from approximately 90 million metric tons in 1970 to approximately 325 million metric tons in 2005, representing approximately a third of the world’s steel production. We estimate that steel makers worldwide added 11 million metric tons of new EAF capacity in 2005, not all of which was fully operational in 2005. We are aware of about 37 million metric tons of announced new electric arc furnace steel production capacity that is scheduled to be added in the 2006 through 2008 time period, approximately 11% of which is replacement capacity. Additionally, not all of such capacity is expected to be fully operational during this time period.