Graphite India hits new high; HEG nears record high

Graphite India hit a new high of Rs 925, up 5%, while HEG too up 5% to Rs 3,650, trading close to its record high of Rs 3,695 touched on May 17, 2018 on the BSE in intra-day trade.

Shares of graphite electrodes (GE) manufacturers continued their upward movement with Graphite India hitting a new high of Rs 925 per share, up 5%, surpassing their previous high of Rs 908 per share recorded on January 4, 2018.

Shares of HEG too were up 5% at Rs 3,650 per share, trading close to their record high of Rs 3,695 per share touched on May 17, 2018 on the BSE in intra-day trade.
 

In past one week, HEG and Graphite India have outperformed the market by gaining 12% and 10%, respectively. On comparison, the S&P BSE Sensex was rose 0.21% during the same period.

HEG believes that this current upsurge in the global graphite electrode demand which commenced in 2017 is expected to sustain its momentum over the foreseeable future as the demand-supply gap in the graphite electrode space is only expected to widen over the coming years.

This augurs well for the business division. Even as the team remains focused on strengthening its efficiency standards, the management is contemplating an increase in the operational capacity to capitalise on the structural changes in the industry space, HEG said in its FY18 annual report.

Last week, the brokerage firm Macquarie initiated coverage on Graphite India with an outperform call, target at Rs 1,260 per share, while the brokerage firm initiated with an outperform call on HEG with target at Rs 4,810 per share.

“The GE market should remain tight on supply chain bottlenecks. With growing demand, it’s more a ‘strategic resource’ now. Despite a 5x surge, we see GE prices staying strong for 3 years, as utilisation remains on an uptrend. It still accounts for <5% of steel’s cost,” the brokerage firm said in a report.

The two Indian GE producers have a 22% global market share in relevant market for Ultra Higher Power GE. Both, Graphite India and HEG, are well placed to benefit the price buoyancy with needle coke supply contracts ensuring 85-90% utilization.

“We forecast GE industry capacity to increase 8% (from 813kt to 882kt) against 12% demand growth over 2017-22E. New capacity should be limited due to technology, capital, time and raw material constraints. With a tight market balance and increasing utilisation, we forecast GE price to sustain at $12,500/t -13500/t during FY19-21E,” the brokerage firm said in a report.