India's Graphite Electrodes Major Cuts Production amid Weak Demand

The tepid global steel demand and increasing presence of cheaper electrodes from China seems to be taking toll on the Indian electrodes producers as well. According to the market sources, India's graphite electrodes producer, HEG Ltd has cut its production by around 20% since early August.

The company produced about 4,000 tonnes of electrodes in August month against 5,000 tonnes in the previous month of July'19 and as per the sources the company has around 2,000 electrodes in stock. HEG has the production capacity of 80,000 tonnes per year and produced about 40,000 tonnes in the first eight months of 2019, from Jan-Aug). The company's production estimates for 2019 is about 56,000 against 78,000 tonnes in 2018.

The year 2019 is proving to be a very dull year for the graphite electrode manufacturers globally, the main factors being poor steel demand due to escalating trade war between two major economies U.S. and China and rising trade protectionism measures globally. HEG Ltd's sales in first quarter of FY20 (Apr-Jun) have registered a fall of 49% y-o-y basis from INR 1,587 crore to INR 815 crore whereas EBIDTA during the quarter have been recorded at 44% against 75% in Q1 FY19.

HEG's take on falling GE demand and prices

Highlighting the slowing steel demand, HEG's management has recently mentioned that the global steel production in first half of 2019 was down by 4% in the rest of the world without China after having grown at a very healthy levels of 8% and 5% in the two preceding years 2017 and 2018.

Some of the large steel producing regions like Europe, Japan, South America, and Turkey registered a decline mainly resulting from slowdown in demand due to an overall sluggishness of the global economy, trade tensions between the U.S. and China and other geopolitical tensions prevailing in some parts of the world. The trade sanctions on Iran and uncertain economic and political developments in Turkey and some other countries with a large EAF base also have had an impact on demand of electrodes.

The management also highlighted that over the past two years i.e. in 2017, 2018 and in the 1st quarter of 2019 saw an unprecedented tightness of supply of electrodes and that fear also created a surge in demand and many of the large steel companies overbought electrodes resulting into excess inventories in the pipeline. Amid steel market getting tough starting this year impacting production and resultant decrease in the demand of steel coupled with excess inventory of electrodes which the customers had built last year is resulting into a drop in the electrodes' sales, prices and production.