Graphite electrode makers under pressure; Graphite India, HEG fall upto 9%

HEG plunged 9 per cent to Rs 2,986, hitting at its lowest level since June 6, 2018, while Graphite India slipped 7% to Rs 626, hitting a nine-month low on the BSE in intra-day trade.

Shares of graphite electrode (GE) manufacturers Graphite India and HEG were trading under pressure, falling by up to 9 per cent on the BSE on concerns of margin pressure due to the rising cost of raw material.

HEG has plunged 9 per cent to Rs 2,986, hitting its lowest level since June 6, 2018, while Graphite India slipped 7 per cent to Rs 626, hitting a nine-month low on the BSE in intra-day trade.

HEG plunged 40 per cent from its all-time high level of Rs 4,950 hit on October 16, 2018. Graphite India was trading at its lowest level since April 19, 2018, slipping 34 per cent in past two months. The stock was quoting close to its 52-week low price of Rs 597 touched on February 7, 2018.

Needle coke is the main raw material for GE production & is very critical for the growth of GE industry.

“Due to excess capacity of needle coke in the recent past, some of the needle coke producers have been trying to find a new application for coke in the Lithium Ion batteries. In the last couple of years, needle coke has been successfully used in this application and a reasonably large part of needle coke is now being used in China in Lithium Ion batteries”, HEG said in an investor presentation on January 10, 2019.

With the sudden increase in demand for GE, needle coke availability has become a bottleneck. The company said all Global GE manufacturers are not able to operate beyond 85-90 per cent capacity utilization. One of the largest producers of needle coke is debottlenecking its capacity enabling them to increase its production by around 50-60,000 mt, it added.

This is likely to be on stream in the second half of 2018 and should help the Graphite Industry to some extent for short term Q42018 onwards, it added.

“Supply constraints in needle coke would mean lower capacity addition in the next two years. The quadrupling of needle coke prices, from $1,000 a ton, and mounting demand would lead to higher selling prices of graphite electrodes, of up to $14,000 a tonne in FY19. Any decline in steel prices would eat into realisations and EBITDA”, analysts at Anand Rathi Share and Stock Brokers said in company update.

“The sluggishness in the user, the steel industry, would cut into volume growth. The needle coke is the key raw material. An increase in its prices would eat into profitability”, the brokerage said November 2018, Graphite India note.

At 01:08 pm; HEG (down 7 per cent at Rs 3,056) and Graphite India (down 6 per cent at Rs 632) were down more than 5 per cent each. In comparison, the S&P BSE Sensex was trading flat at 36,090.