China has decided to impose a stricter review of its graphite exports to US, and has banned graphite dual-use commodities Germanium and Gallium in principle, leading to a potential supply scare, Reuters reported on December 3.
The development has sent share prices of India's top graphite electrode makers soaring, with very strong investor interest in HEG and Graphite India, both higher by 17% and 10% respectively.
This is the highest gain for Graphite India shares in 11 weeks, and most gains for HEG in 8 weeks. Both companies also featured in a recent list of Jefferies' top stock recommendations.
The development in China is in response to United States cracking down on China's semiconductor industry, with exports curbs levied on 140 companies, including a chip equipment maker.
The shares have extended gains a day after news report suggesting Centre is considering a Rs 9,000 crore PLI scheme to support makers of electric battery components.
HEG has recently completed its graphite electrode plant's capacity expansion to 100,000 tonne, which will make it the single largest plant in any location in the entire western world. HEG is hoping that the ramp up will yield cost advantages over other large producers. It has been clocking a capacity utilisation of 80% during the September quarter, which is highest in the world, and hopes to continue this for the rest of the year. The company has been facing reduced demand globally, as a result of which it said its pricing power in under pressure, and for the medium to longer term, it is upbeat about the prospects for the industry.
With decarbonisation emerging as an irreversible theme, a lot of greenfield furnaces are in the works, HEG recently said, adding that it stands to benefit from the new capacities that are being added.
"...more than 100 million tons of new capacities have been announced which would be in operation between now and 2030. As we have been exporting about two-thirds of our production to more than 25-30 countries for a very long time, we are in a good position to meet this increasing demand all over the world," Ravi Jhunjhunwala, Vice Chairman of HEG said during the earnings call earlier in November.
HEG's Vice Chairman Riju Jhunjhunwala had told analysts that if the company got no subsidy for its projects from the state government then its payback becomes 9 to 10 years. However, with subsidies from the state governments, its project payback comes down to 6 years, implying a higher rate of return.
Apart from HEG and Graphite India, there are two major competitors the world over in the business that have roughly double the capacity of the Indian players. One, GrafTech International, erstwhile Union Carbide, and a Japanese company called Showa Denko, now called Resonac.
HEG has maintained that it is very confident of its capacity ramp up, and has an advantage when it comes to exports, which has comprised of two-thirds of revenue for nearly three decades.
India is one of the driver of steel demand growth since 2021, with an expected 8% rise over 2024-2025, according to Graphite India. This is largely driven by investments across steel consuming sectors. Graphite India's Chairman KK Bangur said, "As the world moves towards decarbonisation, Graphite India will continue to benefit from the further adoption of EAF manufacturing processes by the steel industry."
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