Shares of graphite electrode makers -- Graphite India and HEG -- continued their northward movement in Wednesday's session on strong growth outlook as the pick-up in steel production globally is expected to drive demand for electrodes in near term.
Among individual stocks, HEG hit a fresh 52-week high of Rs 2,023, up 11 per cent on the BSE. The stock has surged 32 per cent in the past two trading days. Shares of Graphite India too hit a fresh 52-week high of Rs 620, up 6 per cent, having gained 15 per cent in the last two sessions.
In the past three months, HEG (up 104 per cent) and Graphite India (up 91 per cent) have outperformed the market as analysts estimated the demand to revive, aided by higher steel production and reduced inventory levels. The Chinese economy has seen a sustained and robust rebound from the pandemic-driven slump. In comparison, the S&P BSE Sensex was up nearly 3 per cent during the period.
During the October-December quarter (Q3FY21), the overall recovery in steel production led to a small pickup in graphite electrodes (GE) demand. Going forward, steel industry production growth trend is likely to continue with a healthy recovery in major steel-consuming industries like construction and automobiles. The excess inventories of GE have been liquidated and now steel companies are working at normal inventory levels.
"The increase in steel production and normalisation of electrode inventory levels have resulted in an increase of electrodes demand thus increasing our capacity utilisation levels. We expect electrode prices to start firming up from next quarter," the management of HEG said.
According to Graphite India management, the steel industry production growth trend is expected to continue with the strong recovery in the major steel-consuming industries. The domestic steel industry is also poised to grow with the recent announcement of increased government spending on Indian infrastructure, it added.
"The combination of these factors will hopefully drive the demand for steel and electrodes in the near term. The electrode pricing has started to stabilize and we look forward to a positive recovery in the coming quarters. The impact of these developments is expected to be visible in future financial performance with a lag of normal business cycle," the management said while announcing Q3FY21 results on February 11.