Graphite electrode sector sees demand rising: Cost pressure looms large

Steel Insights Bureau

With the normalisation of economic activity, country’s largest Graphite Electrode (GE) maker, Graphite India excepts strong demand for steel and electrodes both in domestic and international markets.

In addition, excepted fall in China’s steel exports during 2021 will lead to higher production of steel in the Electric Arc Furnace (EAF) steel producing nations, resulting in increased demand for electrodes, Graphite India Chairman K K Bangur said.

However, rising needle coke input prices in line with electrode pricing may put some pressure, he told investors while announcing the quarterly results of the company.

Current industry scenario

Graphite India’s capacity utilisation during Q1 of FY22 grew to 75 percent as compared to 36 percent in Q1 FY21 driven by volumes as corresponding quarter of the last year was severely impacted due to first wave of the Covid-19 and related lockdowns.

Quarter on quarter growth is primarily driven by improved realisations which was partly offset by slightly lower electrode volumes due to the onset of second wave of the pandemic in India, the company said.

The company saw recovery in its German operations and also in electrode demand in the European region.

In FY21 India Ratings estimates the average market price of GE to have been around $3,000/ton, half of $6,000/ton seen in the previous year.

The already-low prices were exacerbated by the Covid-19 pandemic with global steel consumption, excluding China, reducing by around 10 percent y-o-y in 2020. This contributed to a sharp fall in the spreads, which compressed to around $1,000/t in FY21 againts $1,400/ton in FY20.

Companies like Graphite India are further impacted by its high-cost Needle Coke (NC) inventory when prices were falling.

Owing to the sharp correction in prices of both GE and NC, and the long manufacturing process of four-to-five months, which entails HEG to carry higher inventory, the company took inventory loss.