Graphite electrode makers under pressure;Graphite India, HEG hit 52-wk lows

Thus far in the calendar year 2019, HEG (down 68 per cent) and Graphite India (down 63 per cent) have nosedived by more than 60 per cent each, as compared to 7 per cent rise in the S&P BSE Sensex.

Shares of graphite electrode (GE) makers – Graphite India and HEG – slipped by up to 9 per cent in intra-day trade on the BSE, hitting their respective 52-week lows on concerns of softening GE prices. Moreover, an uptick in prices of key raw material is likely to impact margins.

Among individual stocks, Graphite India plunged 9 per cent to Rs 278 on the BSE, its lowest level since September 15, 2017. HEG tanked 7 per cent to Rs 1,197, its lowest level since October 2017.

Thus far in the calendar year 2019, HEG (down 68 per cent) and Graphite India (down 63 per cent) nosedived by more than 60 per cent each, as compared to a 7 per cent rise in the S&P BSE Sensex.

The global GE overcapacity has adversely affected graphite electrode prices in the past, and may adversely affect again in the future, which could negatively impact sales, margins and profitability of the Company, Graphite India said in its 2018-19 annual report.

“With new needle coke and electrode capacities having been installed and commissioned in China, it is likely that electrode supply will be more balanced or to certain extent exceed as compared to demand. Hence, the market dynamics may reverse if enough Arc Furnace Steel capacity is not installed in China quickly,” it said.

The GE industry has historically followed the growth of the electric arc furnace (EAF) steel industry and, to a lesser extent, the steel industry as a whole, which has been highly cyclical and affected significantly by general economic conditions.

Major customers for the steel industry include companies in the automotive, construction, appliance, machinery, equipment and transportation industries, which are industries that were negatively affected by the general economic downturn and the deterioration in financial markets, including severely restricted liquidity and credit availability, in the recent past.

“Needle coke is a key raw material used in manufacture of UHP grade graphite electrodes. As needle coke is scarce in supply, its prices are on a sustained uptrend. In a scenario of softening graphite electrode prices, an uptick in needle coke costs is likely to impact the margin profile of Graphite India,” analyst at ICICI Securities said in May 2019 research report.