Graphite India Ltd. and HEG Ltd. are leading manufacturers of graphite electrodes, an essential component of electric arc furnaces that turn scrap into steel. They’re up more than 400 percent since the start of January, making them the best performers among global peers and Indian industrial companies.
The firms are riding a wave of demand as world steelmakers ramp up output in response to a slump in Chinese exports of the metal and the highest prices in more than four years. Meanwhile, cuts in electrode capacity have curbed supply, China’s clampdown on pollution has hurt production of electrodes and there’s a shortage of needle coke, the raw material used to make them.
Analysts expect the producers to rally further as earnings surge. Brokerage Anand Rathi Financial Services Ltd. last month raised its 12-month targetfor Graphite India to 524 rupees. Jefferies Group LLC sees HEG at 1,050 rupees in a year. Shares of Graphite India jumped as much as 5.5 percent to a record 392 rupees in Mumbai on Tuesday, while HEG was up 3.6 percent to 967 rupees.
The squeeze on supply has been worsened by cuts of about 20 percent in production capacity for graphite electrodes in the past four years because of an earlier drop in demand, Jefferies Group estimates. An environmental crackdown in China that is limiting capacity across heavy industries has also caused shortages of electrodes, according to Eurofer, the region’s steel lobby group, in a release last month.
Global peers of the Indian companies have posted healthy gains in 2017. Tokai Carbon Co. has jumped more than 170 percent in Japan, Showa Denko KK has more than doubled and Nippon Carbon Co. is up over 90 percent. SGL Carbon SE has climbed 70 percent in Germany.
Source: Bloomberg
