HEG Ltd., a graphite electrode manufacturing company is planning to increasing its production capacity to 100,000 metric tons (MT) per year, according to recent reports. Graphite electrodes have become an essential part in the production of steel, supposedly encouraging companies to pursue capacity expansion.
Chief financial officer of HEG Ltd., Raju Rustogi, was quoted saying that the company has a yearly capacity of 80,000 MT at the present, which it wants to increase to 100,000 MT per annum. After gaining approval for the expansion in the upcoming board meeting, the company would move for implementation, Rustogi added.
Apparently, conventional steel-making blast furnaces were considered to be a major cause of pollution after which they were even shut down in China. This seemingly provided a boost to the production and capacity utilization of electric-arc furnaces, which require graphite electrodes as a crucial raw material. As a result, electrode makers like Graphite India and HEG Ltd. witnessed prolific earnings.
For producing each ton of steel, 2.5 kilograms of graphite electrodes are required by the electric-arc furnaces. Citing reliable sources, pollution mandates in China could almost double the share of electric arc mills, to reach 20 percent of total production by 2020 from its existing share of less than 10 percent. This would push the global demand for electrodes up by 60 percent, as per industry estimates.
Bank of America Merrill Lynch, in its report, had covered the graphite producer with a ‘Buy’ rating. Allegedly, the price target for the stock is Rs 6,700, indicating a potential jump of 108 percent from the previous regular trade. Bank of America Merrill Lynch is also reported to be expecting a dividend payout ratio of 30-40 percent, indicating a dividend yield of 8.5 percent.
Market movements showed that the share prices of the HEG were trading over the upper circuit of 20 percent, at the price of Rs 3,885.75 per share the previous day.
