Graphite Electrode : Graphite India/HEG

Graphite Electrode in a Special Situation

The Entire Graphite Electrode Industry is in a special situation like never seen before…

My Reasons for the same :

  1. Strong Moat - Technology is not available publicly and new entry not easy. Last tech shift happened 25 years back.

  2. Expansion by Exiting Players - Wont be easy as the supply of Needle coke (one of the key raw materials for Electrode is severely constrained). Needle coke is now getting used in Batteries which has caused a huge spurt in price almost up by 6 times. Current expansion plans : Graftech 35000 tonne increase and HEG going up from 85,000 to 100,000. Around 50K tonne increase over the next few years may not be enough

  3. Total Current World Capacity is roughly 700,000 excluding China ( source :

  4. Raw Material Supply Constraint to continue : As per Industry, it takes 2 to 3 years to respond to the demand on needle coke demand expansion.

  5. China’s curb on Pollution causing a dramatic shift - China almost becoming a Net Importer from Exporter of GE. Export reduction of 120,000 tonne from China will lead to 10% reduction in overall supply ( . The Real impact of this will be felt in 2018

  6. Pollution Impact - Steel can be produced through Electric Arc Furnace (EAF) or Blast Furnace(BF) where EAF is getting preference due to high pollution in BF . China has close 300,000 tonne of BF Steel Manufacturing plants already and is planning to open up 57 new EAF plants to add 120Mn Steel in 2017 and 137 Mn Steel in 2018 resulting in higher Steel prices of Steel across the world and also forcing others to produce more steel till China’s new EAF Steel capacity comes up. Also explaining drop of 200,000 Tonne of Graphite Export in 2018.

  7. Graphite Use in Steel - 2-3 kg of Graphite per tonne of Steel so not a significant input cost for Steel

  8. Any Alternatives of Graphite for EAF Manufactures - We need energy to make steel. You can take either for Chemical energy through exothermic reactions Or electric energy which needs GE. However it is not an easy task. However in the past GE was not a cost factor so no research has been done in this. But at this point in time there can be a lot of attention drawn towards these estimates and cost analysis. . In some plants in China and Russia plants are running without GE only on chemical energy by altering factors such as charge etc. Most EAF have gone towards hot metal to avoid GE and power consumption. This reduces GE consumption significantly. These are very early days still

Source :

  1. Net Impact on GE prices : Prices have gone up by almost 6x and is currently at 15000 USD per tonne of Grpahite up from 2500 USD per tonne

  2. What is factored in GE price already : GE are sold through annual contracts and the new contracts that reflects the price generally starts from January. Having said that some GE are sold through Spot prices so we expect the real impact should reflect from Q1-2018-19 Results

  3. Is it a temporary or permananet Shift - Grafftech one of the key producers have contracted upto 60% of their capacity at 9500 USD for the next 5 years. They are able to do so since they are vertically integrated and produce Needle Code internally . GI and Heg may not be able to do such long comtracts so since they cannot favtor in Needle Coke Price commitment for so long. But still the story will be intact for several years and may not be a few quarter story

  4. Are the profits real - Both GI and Heg have given strong dividends to reflect that profits are real and may not be only in paper. GI has spent almost 100 Crs in Dividends , still leaving 240 Cr of Net profit retained in the last quarter along

  5. Targets for GI - Difficult to predict as it depends on two key factors : Price for Needle Coke and Price for GE. Both have gone up 5 to 6 times over last one year so any estimates will be futile . But we can predict looking at the price factors that GE should clock EPS of 45 - 50 by Q4 of current year and anywhere between 100 - 120 by the coming fiscal year on a conservative basis.

All Contradictory views welcome

Disclaimer : Invested since lower levels and these are personal views derived from various reports available publicly. Pls do your own research before investing


Thanks for starting this thread Sukhani. I was also surprised not to find any thread on GE players so had posted my questions on Graphite India/HEG on the cyclicals thread.

In my view, there are 2 questions:

  1. at these levels - does investing in GI/HEG still make sense? Going by EPS projections - it does make sense from the next 1/2 years perspective. However - need to get many more views on this. Jiten has exited all his GE positions - so that is a big negative knowing his expertise is cyclicals :blush:. More views invited

  2. Once it is established that it does make sense at these valuations - then of course the discussion could be GI/HEG/both?


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Has @jitenp given any reason for the same. People sell their position for many reasons like need for cash, re-balancing the portfolio etc.

Thanks @sukhlani1 for initiating this very relevant thread. I think, you have summarized it very well. Just one suggestion - If you could also explain, how difficult it is for the new needle coke capacities to be setup, It will be helpful.

Jefferies report on Graphite India and HEG.

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Based on my research, it isn’t easy and infact the technology is available with few countries and very companies. Additionally the pull from the EV space i.e. batteries will ensure that there is continuous increase in demand.

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Very comprehensive analysis. Agree with most points. I even spoke to the GE management. They opine a price of $15000 in FY19. I am also bullish on the steel cycle, specially China moving towards EAF. However, some concerns:

  1. Valuing these companies at a 6-8 PE based on abnormally high margins is not comforting for me (although I beleive the cycle is likely to last 2-3 years).
  2. Both HEG and Graphite may face shortage of needle coke in FY19 and possibibly operate at lower utilization.
  3. Capital allocation could be an issue here. Shortage of needle coke may be constraint to expanding capacity despite strong cash flows. So, aside from dividends and share buybacks, management may look to venture a different business, who knows?
  4. China has the technology to make Non-UHP grade electrodes, which they could expand rapidly and play a spoilsport in the party.
  5. Lastly, sharp run-up in the stock prices in last one year is a concern with regards to taking long positions.

What are non-UHP grade electrode? Can you enlighten us more more about their dynamics?

Thanks in advance.

Two types of electrodes, Ultra high power (UHP) and non- UHP. Now, technically, non-UHP are mea nt for old technology EAFs; China knows only to make these and they have not been able to produce UHP so far as per HEG Management. Rest of the world uses only UHP electrodes.HEG and Graphite hardly produce any non-UHP grade electrodes. Currently, both electrodes are in shortage and hence, prices are similar.

non-UHP require higher usage of the product compared to UHP is what i understand. Kindly go through HEG quarterly call transcripts which will throw more light on this subject.


As per the following article, China would be adding 150 million tonnes of EAF capacity by 2020 and consequently there will be additional demand of ~200,000 tonne UHP grade GE and China does not have the UHP grade GE manufacturing technology. Won’t this be in fact, positive for India-based GE manufacturers?


I just could not understand you point of view here. The whole GE price rise got actuated by Chinese cutting down their capacity due to pollution. Why do you think they will reverse their stand and start quickly expand the capacities again?

Also, in the latest National People’s Congress Chinese have re-iterated their stand to fight pollution.

While pollution has led to shut in capacities, there are newer capacities being planned in China at some non-polluting regions. The recent graphite conference points out that they are expanding electrode capacities in line with higher EAF capacities that are coming up. Same goes for steel, chemicals I guess…they would expand but at some other locations, not in Heibei or Tangshan regions where pollution is a big issue right now.

Thanks @bhavveshh for your quick reply. Can you link Graphite conference you have mentioned?

Hi @bhavveshh, However, as per the following article, China seems to be exporting a lot of quantity also. If China does not produce UHP and the rest of the world makes use of only the UHP, what is this export for?

Oh yes, stumped.Went by Managment commentary of HEG. I am unsure how they are exporting. At the same time , spot prices in China are $25,000/t.

PFB the notes from the conference, I had taken:

Global Graphite Electrode Conference 2018 being organized by SteelMint is presently underway in Mumbai where industry experts from across the globe have gathered to express the views and opinion on the volatile GE industry. Live coverage of Question and answer session of the Conference below.
How will the industry be impacted with China continuously adding EAF capacity?
In China presently 57 EAF plants are coming up with each having about 1 to 1.25 mnt capacity per plant. That accounts for about 60 to 70 mnt of fresh capacity. There are around 35 plants already existing. China is substituting closed capacity with EAF. Demand is visibly high there. There will certainly be an impact on demand side but we cannot assume that supply of Graphite Electrode would be restricted. There is a demand supply mismatch which would last for between 2 to 3 years. There are two drivers behind EAF development in china, first is to avoid environmental issue in future. And the other is to compensate for closed capacity. Chinese can hinder the GE export from China to protect the steel industry. It remains an important raw material.
What is the contribution of Chinese GE suppliers?
It is difficult to track the Chinese market right now. The precise amount of GE being produced is not available with us right now. We need to understand that quality of Chinese product is different. Ultra high power GE is being produced by India, Japan etc. but the production of this is limited in China. EAF producers in China itself avoid using entirely Chinese made electrode. China could play a role but Graphite capacity in China has also been closed. It is a possibility that more capacity can be closed.
What is synthetic graphite how can it disruptive? Are there new capacity?
Natural graphite has a different structure. The molecular structure is such that it can withstand a lot of heat. It is not very likely a substitution can happen any time soon.
India commands 25% global market share? What if the Indian Government imposes 20% export duty on GE to protect its domestic steel industry?
Graphite India and HEG, the two India suppliers were selling their product at differential prices to large producers and to those procuring a limited quantity. It is due to this differential pricing the smaller steel producers approached the Indian government and suggested that an export duty be imposed as protective measure.
The Govt. did consider the suggestion. However now of late pricing has been equalized for all Indian producers. Now this issues of imposing export duty is not be looked at very serious of late.
What are chemical components which can reduce cost for EAF?
You need energy to make steel. You can take either for Chemical energy through exothermic reactions. Or electric energy which needs GE. Technically if it is viable they can use high speed injection for carbon. That way more energy is coming from chemical reaction. However it is not an easy task. If a study is done you can arrive at a formula to balance both. However in the past GE was not a cost factor so no research has been done in this. But at this point in time there can be a lot of attention drawn towards these estimates and cost analysis.
Are there any alternatives being seen in place of EAF production to mitigate rising cost of GE?
Not right now. BOF and LF combination can be considered. But still these industries are polluting. This can be helpful in the short term.
Is any new GE entrant expected as the industry is in strong upcycle?
–Technology restriction, it was shared by US and German companies in INDIA, the possibility of the exchange happening is limited. No capacity has been seen in china also. Not likely. Graphetization needs a 20 feet bunker and other furnaces. This setup cant be done by everyone.
–Equipment not available. It needs customized requirement. Last equipment was supplied almost 40 years back when the last GE plant was set up in India.

Export Duty Not Good For Indian Buyers
Graphite India and HEG account for close to 25% of the world production, and if the situation arises of Graphite Electrode prices rising by 20% – it will be easily absorbed by the global market.
Hence, we believe Indian buyers will end up paying more, in line with international prices if any duty is ever imposed.

In a recent article published by IC Carbon, CCIA( China Carbon Industry Association) reported that Baosteel Chemical Co. is expected to have stable production in January, with needle coke production estimated at 1500-2000 MT and corresponding price of RMB 22,000/MT. It is estimated that the output of needle coke will increase by 20% in 2018.
The user will be mainly anode material manufacturer and graphite electrode manufacturer. In addition, the company will conduct a 25-day overhaul in April.
A longstanding limiting factor to the increase of graphite electrode production is the supply of needle coke, which is limited to a few refineries around the world with only one independent needle coke production facility in the world.
Shortage of needle coke, a form of calcined petroleum coke (CPC), is exacerbating the ability of graphite electrode producers currently operating, to increase production rates to meet demand. Needle coke represents approximately 70% of the input cost of graphite electrode production.
According to China Carbon Industry Association (CCIA), needle coke price sky-rocketed by over 726 percent in 2017 while imported needle coke price lagged behind in rise given its longer order time.
CCIA data shows the total production of China’s needle coke is 143,000 MT in 2017 and needle coke imports were recorded at 170,000 MT. In view of uplifting performance, there has been an expansion boom in China’s needle coke market.
According to CCIA, eight needle coke enterprises, including Jinzhou Chemical, Jingyang Chemical, Baitailong, Hongte Chemical, Baosteel Chemical, Yida New Materials, Fangda C-Chem, etc. have released production resumption, expansion and new production plans. China’s needle coke demand is expected to reach 600,000 MT by 2020

As part of the Q&A round for the second session of Global Graphite Electrode Conference 2018 being conducted by SteelMint Events, Joey Xiao, Vice General Manager Sinbro International China and Liang Wang, Manager International Sales IC Carbon, China responded to questions from the delegates and present China’s perspective on the present situation in the industry.
Are Chinese Pollution norms acting as a catalyst for upturn in GE sector?
The environment pollution in china was quite high two to three years back. Focus has shifted from GDP to health in China. Earlier it was not so. When I drove at 6 am, visibility was not more than 5 metres. The pollution was very serious. But now it is already getting better. EAF is more environment friendly. In the long run pollution would play a big role in government decision making. BF capacity would go down. But it will take time.
The Chinese government acted on smaller mill, which do not have recycling facilities etc. or proper technology. The government forced them to shut shop.
Is there any difference in UHP and HP grade of GE in China as against the rest of the world?
So it depends on the effectiveness and the usage. Where you are using the electrode matters in determining output. The effectiveness of the plant plays a role. In china we also have a standard for what type of GE we use in what sector. Another factor is where the GE is being procured from. The kind plant that is producing the product in China.
Why is UHP in China equal to HP in India do they follow different standards?
We have already supplied to quite a few Asian countries but there have been no such reports. All of them buy UHP. I don’t think there is a difference in quality. There are a few mills which are not that good. But as long as it is being bought from right mills there is no problem.
Is the China Govt concerned with rising cost of GE? Can China turn importer?
Chinese GE prices increased a lot. Even the stock market was concerned and even in India it was the same. The Chinese govt is concerned. Because steel industry is a main industry in China. So it also influnces the steel sector at large. We are also concerned because we will not be able to buy raw material. Speaking interms of China. This is a serious concern for the govt. But this is just one industry. China considers a lot of other trade industry. So the policy is determined by many factors. We are also focusing on healthy society. So if we will increase production or go for import is not sure. But right now imports wont be a lot.
Are Chinese companies cutting production because of excessive capacity and Anti dumping?
Other countries in the world are rising at a great pace but China it is quite slow. China in the long run they are controlling capacity. The govt is trying to speak to other countries to shift their capacity to other countries. So that they can encourage employment for other countries and to facilitate Chinese migration to other countries. This can be one way to control capacity. This is mostly discussion among people. Statistics show that rate of growth has declined significantly.
Reports suggest more than 300,000 capacity has been closed in china is it true ?
So far as we know it is true. Most of the mills are losing a lot of money. Many mills have not been announced bankrupt but they are already there. Because the govnt check is very stringent and regular. Because the real term figure is this. There are several other places where the use this. So for example in china. There are several entreprises which have closed down.
Due to recent clamp down is EAF capacity is expected to grow?
Capacity is expected to grow to 137 MnT in 2018 compared to 120 MnT in 2017
What is the production ?
According to our statistics, from 2017 onwards the ratio was 6 % in 2017 it came up to 7.5 % it would go to 10% in 2018 in 2020 it would go to 13%. Gradually we are incrasing every year. Because of the importance given to environments but the EAF production is also increasing gradually.
Does China have the capability or technology to produce UHP grade of GE which can actually be sold overseas and complete with other producers?
At present China is already manufacturing different kind of products. There does not seem to be problems in production. Primarly because Chinese graphite electricity utility of China has no problem with technology or raw materials.
Scrap generation is very high in China – 340 mnt scrap is expected by 2030? Export duty is 40% for scrap? Where is China going to get EAF to consume this scrap?
We do talk about production of scrap but it is a little difficult to say. There is over supply and that’s why we are trying to include other countries. The OBOR is also part of this policy.
Can China be net importer of GE?
It is a bit difficult to import. Because price from other countries has to be low enough to cover duties etc. Atleast for next 1 to 3 years we don’t see it happening.
What is needle coke demand from China for Lithium Ion?
It is about 60% earlier but it has reduced to 40% now.


Here you can see contrary report of GE export by China. One from Steel Mint (which you posted) says China is still exporting

whereas below news article in S&P Global Platts, Jefferies mention that china has become net importer.

China has become net importer of graphite electrodes: Jefferies

We need find the source of data for SteelMint which seems contrary to what is happening in GE market?

Following blog from the Steelmint Graphite Electrode conference blog is trying to address the point on China export/ import of GE as well as China production of the UHP grade GE :

I think 9000 usd per tonne should be a reasonable floor for the next few years. The buyers by signing for long term 3-5 year take or pay contracts with graftech signal that that price level should be a reasonable benchmark.

The trick here it to not assume the peak earnings say at 15000 realisation and give a high multiple on top of that. If at 9000-10000 dollars a tonne, they can do 100 rupees eps ( graphite india i mean ), that should be sustainable in my view for the next 2-3 years and thus the market would be willing to give a decent multiple of say 10 times to that. The higher the eps goes, lesser the multiple the market will assign to it coz no one knows if that is sustainable ( perhaps not )


If you read the Global conference , it is clear that is cutting down BF capacity and replacing with EAF . Close to 57 new EAF plant is a clear testimony.
Also new EAF plant will need GE and hence the export of GE from China is going down by 120,000 ton in 18-19
Hope that explains