Graphite Electrode Sector: Huge Export Potential Waiting To Be

The Rs 550 crore plus graphite electrode (GE) industry notched up a growth of over 10 per cent in 1996-97 despite dumping of GEs by international players.

Brisk exports of Indian electrodes that fetched good prices also contributed to this growth. While exports rose by 27 per cent in 1996-97, import of GEs doubled to 6,000 tonnes (3,000 tonnes). This sounds a bit quizzical, but the fact is that Indian users import cheap and low quality electrodes. China has reportedly dumped inferior grade and low priced electrodes in the Indian market.

Steel manufacturers employing electric arc furnace (EAF) technology are the main consumers of graphite electrodes. Therefore, demand for GEs hinges on the requirements of steel plants that use EAF technology.

 

About 4.5-6 kgs of electrodes are needed to make one tonne of steel. Larger diameter, ultra higher power (UHP) electrodes are now in good demand. This is because less UHP electrodes are required for smelting a similar amount of liquid steel than normal electrodes.

It is logical to expect that the market for graphite electrodes is set for a steady expansion. The hope is based on the fact that steel industry is all set for growth following a great stress on improvement of infrastructure to accelerate economic growth. The increase in capacity of steel manufacturing will propel demand for graphite electrodes. However, there is a caveat to this rather rosy picture.

The industry players are worried about the technology that will be used by the steel manufactures. Demand for GEs will go up only if the steel manufacturers go in for EAF technology on an increasing scale.

The fact, however, is that not many steel units in the country are opting for the EAF route because of high power cost. In the process of producing steel through EAF, electric current passes through electrodes generating a heat arc that helps to melt scrap in the furnace and produce steel.

In 1996-97, production of the graphite electrode industry increased by 2.7 per cent to 38,000 tonnes.

It is expected to go up to 50,000 tonnes in the current fiscal. In 1996-97, the industry exported 55 per cent of its total output. Capacity utilisation of the industry fell to 76 per cent in 1996-97 from 93 per cent in the previous year.

K.K Bangur group's two companies, Carbon Everflow and Graphite India, dominate the GE market in the country. The share of graphite electrodes in the total turnover of Carbon Everflow is around 59 per cent.

The corresponding figures for other companies, based on 1995-96 figures, are Graphite India (90 per cent) and HEG (49 per cent).

In the first half of 1996-97, sales income of three graphite electrode companies increased by 11.1 per cent to Rs 283.1 crore (Rs 254.7 crore).

Operating profit margin of the companies improved to 21.5 per cent (18.5 per cent) and gross profit margin went up to 14.8 per cent (14.3 per cent). However, net profit margin declined to 9.2 per cent (10.2 per cent).

Carbon Everflow showed an increase of 27.4 per cent. This was because of an increase in the installed capacity last year. Operating profit increased by 28.8 per cent to Rs 60.8 crore (Rs 47.2 crore). Gross profit rose by 15 per cent to Rs 41.8 crore (Rs 36.4 crore). Net profit, however, remained unchanged at Rs 26 crore.

Main raw materials like calcined petroleum coke (CPC) and pitch are imported by the industry. Any increase in the duty and fluctuations in the rupee vis-a -vis the dollar may affect profit margins of the companies.

According to industry sources, the cost of raw material for producing one tonne of graphite electrode in India works out to Rs 36,000 whereas in USA and Japan, it is Rs 25,000 and Rs 31,000 respectively.

High cost of power, apart from frequent cuts, also affects the industry. Many companies have set up captive power plants to tide over this problem.

India has lower fixed and administrative costs than the US and Japan. This low costs make Indian graphite electrodes, at approximately Rs 71,000 per tonne, score over Japan's electrodes selling at Rs 99,000 per tonne.

Industry players claim that the share of steel production through the EAF route, which was around 33 per cent in 1996, is likely to jump to 40 per cent by the year 2000.

Developed countries like USA are already producing more than 40 per cent of their steel though EAF technology. This is expected to cross 50 per cent in the next five years. That gives a major scope for export of graphite electrodes from India

The Indian electrodes, industry sources argue, get better prices in the international market This shows that the Indian graphite electrodes are well accepted in the international market.

In 1996-97, exports increased by 27 per cent to Rs 190 crore (Rs 150 crore). However, it is slated to grow by 58 per cent in 1997-98. India enjoys a share of over 10 per cent in the international trade of graphite electrodes. Modernisation, expansion and upgradation of quality helped the industry to make a major dent in the global market.

Ravi Jhunjhunwala , chairman & managing director, HEG says, "the growth of Indian exports is not being liked by the American/European and Japanese producers.

In order to counter India's growth in exports, they are resorting to large scale dumping in India, and have cornered more than 30 per cent of the domestic market.

While Indian exporters are selling their products at over $2800, international producers are dumping the same product in India at less than $ 2200. The Indian Graphite Manufacturers Association has filed an anti-dumping application with the ministry of commerce in September 1996. However, the bureaucratic process takes so long that a decision on this application is still awaited."

Uninterrupted supply of power has become a major problem for the industry as it constitutes more than 35 per cent of the manufacturing cost.

Industry players say that there is a need for the government to make power available at international rates at least for export-oriented products.

The future of the industry hinges on the EAF technology used by steel manufacturers. Although the domestic market does not hold much promise, there is a large potential in the export market as the use of EAF by steel manufacturers is on the rise internationally.

However, the GE players have to absorb state-of- the- art technology, promote energy conservation, reduce cost and develop better human skills to compete in the international market.