Q&A: K K Bangur, MD, Graphite India Ltd

'In one to three quarters, we will see prices correcting'

With the graphite electrode industry coping with pressure on pricing and increase in input costs, Pooja Sarkar spoke to K K Bangur, managing director, Graphite India Ltd, a key player in the segment, who says the price drop has been arrested. Edited excerpts:

The graphite electrode industry is witnessing price pressure and also an increase in input costs. How are you planning to cope?
Graphite electrode prices have taken a beating in the last 12 months, starting from January 2009. We have seen that electrode prices have come down by 15-17 per cent. Further, the fall in price has been arrested and now, we will see an upward curve in prices. It is a matter of time, be it in one to three quarters, but we will definitely see prices correcting. The ballpark figure for electrode, the most popular size, is $5,000 per tonne.

 

Your operating profit margin was under pressure last quarter.
Input costs have gone up and realisations have also come under pressure. But the margin we enjoyed in 2009-2010 was a one-off instance because the conditions and realisations were very good that year despite the sharp fall in volumes. The input cost was lower which helped us to generate that kind of margin. There could be a small dip in a particular year or a quarter but long term we think our margins would be around 25 per cent. In FY 2011-12, how quickly the prices would improve is difficult to say at this point, but we do expect improvement in realisations and as and when it happens, the impact of that would determine growth or change in margins. Also, the global indicators are positive.

What are your present capacity utilisation levels and at what rate would you like to run the plant this financial year?
During the pre-crisis level that is before October 2008, everyone, including us, were producing at optimum utilisation levels. But after October 2008, there was a slowdown in the steel industry, our main consumer and as a result, the electrode industry slowed down. The effect started from January 2009 for us. In 2009-10, our utilisation was at 52 per cent but the effect of curtailment of production was partially seen during the last quarter. The full effect came in the last financial year. Thereafter another financial year has passed by and we have improved our capacity utilisation from 52 per cent to 78 per cent. We would be improving it to around 98 per cent this year. The expansion is pretty much timely. We will be at optimum levels of utilisation in 2012-13 and see a big jump in overall sales.

You were investing Rs 450 crore for the expansion of your plant by 20,000 tonnes and the power plant. What is happening on that front?
So far as expansion is concerned, it is already under way. By December 2011, we would complete 20,000 tonnes and commercial production would come during the last quarter of this financial year. As regards the power plant, we have earlier indicated there has been a delay due to environment clearance. Once we get that, hopefully, we would take another 12 months to complete it. FY 2011-12 will keep us busy with these plans, as the investment is of Rs 450 crore. There would not be any major initiative in terms of any capex plans.

Needle coke is an important input material. What is the price movement?
Keeping in mind the volatility in crude prices, they have been stable and that's good for us. Needle coke prices will move in tandem with electrode prices.

Across the globe, electrode producers are sitting tight. It is only Indian companies which are undertaking expansions. What are the reasons?
In the next two decades, steel demand would increase and so would steel production. Production through the electric arc furnace (EAF) would be very high and that's where our product comes in place. If you look at our part of the geography, we are much less industrialised as opposed to the western world. If we have more industry, more scrap would be generated, which would have to be recycled. EAF consumes scrap and it would be converted back into steel. It would throw up more opportunity for the prime driver and the second reason why we expect EAF to increase is because people here are becoming more conscious about the environment, which was not the case 5-10 years back. This tendency would support more EAF plants that are environment-friendly. Third is the capital cost, which is lower as compared to blast furnaces and fourth, the volatility of iron ore and coal prices. Demand for graphite electrodes would be robust in the mid to long term. Short-term, there would be not so significant growth. When we talk mid-term, we are talking two-three years down the road.