Graphite India, HEG shares tank on oversupply concerns in China

NEW DELHI: Shares of Graphite India and HEG tumbled up to 9 per cent on Wednesday after global brokerage firm Nomura said that graphite electrode production volumes in China are likely to increase sooner than they had previously forecast.


Graphite India cracked 5 per cent to Rs 721.55, whereas HEG Ltd dipped 9 per cent to Rs 2,903. On the other hand, benchmark BSE Sensex plummeted 351 points, or 1.05 per cent, to 33,019.

While sharing takeaways from China trip, Nomura in a report said, “First, supply shortages for needle coke (from which graphite electrodes are made) look likely to gradually ease going forward as a result of Chinese producers increasing their output. In particular, these producers are increasing the production of needle coke for graphite electrodes with diameters of 550mm or smaller. Second, graphite electrode manufacturers able to clear environmental regulatory hurdles look likely to install more production capacity in 2018-2020.”

For the quarter ended December 31, 2017, Graphite India reported 1,356 per cent year-on-year rise in net profit at Rs 340.53 crore against Rs 23.38 crore in the corresponding quarter last year. HEG posted net profit of Rs 342.11 crore against net loss of Rs 3.51 crore during the same period.

Net sales of Graphite India jumped 160 per cent year-on-year (YoY) to Rs 933.06 crore in Q3FY18, whereas top line of HEG advanced 235 per cent YoY to Rs 842.71 crore during the same period.

It further added that although the government-enforced curbs on production at SMEs have forced many of these smaller producers out of the market. “We were able to confirm that companies that are properly compliant with environmental regulations have been adding production capacity since the latter half of 2017. We lower our 2019 forecast for margins on graphite electrodes from $6,000 per tones to $3,800 per tonnes and our 2020 forecast from $6,000/t to $2,500/t,” Nomura said.

Since January 2017, shares of graphite electrode majors including Graphite India and HEG Ltd have spurted up to 2000 per cent till April 3, 2018.