HEG — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
CHAIRMAN, MANAGING · DIRECTOR & CEO.
DIRECTOR & CEO.
MR. MANISH GULATI, EXECUTIVE DIRECTOR.
MR. GULSHAN KUMAR SAKHUJA - CFO.
Moderator · Conference Operator
MR. NAVIN AGRAWAL -
HEAD- · INSTITUTIONAL
INSTITUTIONAL
Ravi Jhunjhunwala
HEG Limited June 02, 2022 Good day. ladies, and gentlemen. welcome to the I IEG Limited Q4 and FY22 Earnings Conference Call. organized by SKP Securities Limited. /\s a reminder, all participant lines will be in the listen only mode.
And there will be an opportunity for you to ask questions after the management opening remarks.
Should you need assistance during the conference call, please signal an operator by pressing "*'' then ·'0" on your touchtonc phone.
Please note that this conference is being recorded.
I now hand the conference over to Mr. Navin Agrawal.
I lead Institutional Equities al SKP Securities Limited.
Thank you and over to you, sir.
Good afternoon, ladies. and gentlemen.
It's my pleasure to welcome you on behalf of HEG Limited and SKP Securities lo this Financial Results Conference Call with the leadership team at I IEG Limited.
We have with us Mr. Ravi Jhunjhunwala - Chairman, Managing Director. and CEO. along with his colleagues Mr. Manish Gulati- Executive Director and Mr. Gulshan Kumar Sakhuja - C FO.
We will have the opening remarks from Mr. Jhunjhunwala followed by a Q&A session.
Thank you and over lo you Mr. Jhunjhunwala.
Thank you.
Navecn. /\nd good afternoon friends and welcome lo Quarter Four and Full Year 2 1-22 Concall.
This quarter's performance was in line with the previous three quarters, showing a consistent i111provc111cnl.
202 1-22 Results arc significantly better than the previous year driven by strong sales volumes and electrode prices.
In terms of volumes, this year has shown a record production as well as sales. /\ rapid increase in industrial activity is all over the world conu·ibutcd to higher-than-expected demand for steel and steel products all over the world and consequently demand for our products also increased.
In calendar year 202 1, excluding China. the top IO steel producing countries increased their steel production by a whopping 13% over previous year 2020.
Large steel producing countries like US, Japan, Germany increased their steel production by as high as 18.3%, 14.9% and 12.3%.
These kinds of increase, we've not seen in a long time.
In order to control carbon emissions, you will remember, China had gone on a spree of closing down around 125.
I SO million tonnes of its highly polluting blast furnace-based steel capacities in 20 IS, I 6 and 17. which led to their steel exports declining to a whopping levels of about 11 S million tonnes between 2016 - 2017 to about 55 million tonnes in 2020.
It's close to half of what they used to export earlier.
This reduced trend of steel exports out of China continues and their Steel exports continued tQ be at these levels in the entire year of 202 1, and also in the first four months of 2022.
As you know any reduction in export of steel from China enables all other countries of the world to produce more steel, where about 47% to 50% of steel is produced through the electric arc furnaces. which is where our products finds its use.
HEG Limited June 02, 2022 However, global steel output has recently started to moderate in the recent past due lo the escalation of the Russia Ukraine crisis. coupled with supply chain interruptions, and innatcd input costs impacting their margins despite near record level of steel prices.
The margins of steel industry still continue to be healthy. although a bit lower than in the past quarters. f'riends. as we shared with you in our last concall after a very long time. we've seen a nutTy of announcements by some of the large steel companies of the world especially in the US and Europe, for establishing new electric arc furnace-based steel capacities.
These new Greenfield announcements total up to between 30 to 35 million tonnes of additional capacity - about 15 to 20 million tonnes of these are likely 10 he on the ground between this year and 2025 while balance will also be on the ground between 2025 and 2030.
This is in-line with world's desire to control carbon emissions seriously and take effective steps in that direction.
1t·s not out of place here to mention that every ton of steel proclucccl by blast furnaces emits about 4 times more carbon in the atmosphere as compared to the same ton of steel produced through the Electric /\re Furnace and hence this focus on electric arc furnaces.
Therefore. as the world keeps adding more and more electric arc furnaces in the immediate and loreseeable future. the demand for electrodes is likely to keep increasing - most of these will be large sized furnaces using ultra-high-power clcctroclcs which we arc fully equipped to cater to.
As you arc aware, for a very long time. we've been maintaining a level of about two thirds of our production going for exports to more than +40 countries ofthe world, including US, Europe, Asia, and Middle East, etcetera.
With this backdrop, our expansion o f 20,000 tonnes. which is likely to be ready by the encl of this year has been very timely and we arc confident of being able to find markets for this additional production as soon as we go on stream.
Indian crude steel production has been increasing continuously in the past few quarters, calendar year 2021 versus calendar year 2020. increase was a whopping close to 18%.
In January.
March 2022, it fu11her grew by about 4.6% compared to the preceding quarter of October.
December 2 1.
The steel industry in India has been in good shape supported by strong demand from domestic consumption and also exports 10 various countries.
The demand and consequently the price of electrodes improved quarter-on-quarter since the beginning of 202 1.
And we expect prices Lo remain strong during the rest of 2022 as well.
We continue to work at about 90% capacity utilization since past three quarters and we expect to remain at these utilization levels.
Needle Coke prices also kept rising since the start of202 I in line with electrode prices.
Besides needle coke, prices of other raw materials and inputs also kept increasing.
But as electrode prices have kept pace with this trend, we 've been able to maintain our margins. ·6 HEG Limited June 02, 2022 We are upbeat by our expansion corning on strca111 by the end of this year at a ti111c when 111ore and 111orc new electric arc furnace capacities are being installed.
As no new capacities have been announced by any other graphite corn pan) in the Western world, we don' t foresee any problems in finding 111arkets for additional 20.000 tonnes.
Our plant in Madhya Pradesh with a capacity of about 80,000 tonnes has been the single largest plant in the world under one roof and aflcr expansion to I 00.000 tonnes, this gap between us and other plants will increase further thereby increasing our co111petitive edge due to economics of scale.
In the current financial year, we expect our sales to be higher versus the previous financial year.
Part of this increase would co111c by so111e technological innovations achieved by our technical tca111 in existing facilities and the other part from the newly expanded facility which would start production from early 2023. /\s you know the electrode process is a fairly long one involving between two and a half to five to six 111onths.
So. even if wc start our expanded capacities let's say by end of this year, it will take another two to three months, two to four 111onths to see the products out in the 111arket.
In the passing, 1' 111 happy to share that 2022 is company's 50th year since the incorporation and in all these years we have grown every fc" years. from a level of I 0,000 tonnes to I 00,000 tonnes.
We' ve also gathered lots of experience and learnings as a company and have been through various kinds of business environments only to c111crge stronger.
1' 111 very proud of our entire team at 1-JEG, whether general 111anagc111ent. technical, marketing or finance, who have left no stone unturned to bring I IEG to where it is currently standing.
They' ve all worked tirelessly over all these years. especially the last two COYID years lo make sure that we still attain our targeted com111issioning of the expanded capacity, 111ore or less within the ti111e period that we originally announced.
With our five decades of experience in international business, we expect to be a supplier o f choice to all our global and Indian customers.
With that I would like to pass the floor to our CFO Gulshan, who will walk us through the financial nu111bers, and then between me, our Executive Director, Manish, and CFO Gulshan we would be very happy to answer all your queries.
Thank you.
Over to Gulshan.
Gulshan Kumar Sakhuja
Thank you sir.
Good aflernoon friends.
I will now briefly take you through the co111pany's operating and financial performance for the year ended 3 1st March 2022.
For the year ended March 2022, I IEG recorded revenue from operations of Rs.2201 crorc as against Rs.
1256 crore in the previous year.
The revenue for the fourth quarter of FY2022 was Rs.673 crorc as against Rs.380 crores in the corresponding quaiter of the previous FY.
The revenue for the year saw an increase of 75% on an annual basis, while it witnessed an increase of 77% on Q-on-Q basis.
Since the turnover is a factor of both volumes and prices, we are happy to inform you that the company has been able to achieve healthy growth in both aspects.
HEG Limited June 02, 2022 During the year ended 3 1st March 2022 the company has delivered EBITD/\ including other income of Rs.607 crore as against 54 crores in the previous year.
EBITDA for the year ended 3 1st March 2022 has increased many fold vis-ii-vis last year, due to an increase in both the sales quantity and the price realization of graphite electrodes.
The increase in annual employee benefit expenses over the financial year 2021 is on account of annual increments in salaries and incentive to employees and provisioning for the profit related commission payable to CM D and ED of the company under contractual terms of their appointment.
The increase in expenses pertaining to power and fuel is on account of higher production during FY2 l-22 and the increase in the price of LNG, furnace oil. etcetera.
The increase in other expenses is due to higher logistic cost, which is because of the increase in the sales quantity in the current FY as compared to the previous FY along with increase in the price of freight and forwarding and increase in consumption of stores and spares on account of higher production.
In accordance with the provisions laid down in Section 135 of the Companies Act, the company has incurred expenditure on account of Corporate Social Responsibility amounting to Rs.19.1 2 crore during the quarter ended 3 1st March 2022, Rs.5.3 crore during the quarter ended 3 1st December 2 1 and Rs.30.65 crorc during the financial year ended 3 1st March 2022 which has been included under the head other expenses.
Please refer to note number eight ofour published results.
RBI has also extended the interest equalization scheme on pre and post shipment rupee export credit during the quarter four of FY2022. The extension takes effect from I st of October 202 1 and the interest equalization rate have been revised from 3% to 2% with effect from I st October 202 1.
The impact of the same related to the period I st October 202 1 to 3 1st December 202 1 amounting to Rs.1.6 crore has been considered in the quarter ended 3 I st March 2022.
Please refer point number nine of our published results.
The company recorded a net profit after tax of Rs.39 1 crorc in FY2022 as against a loss of Rs.25 crore in the previous FY.
The company is a long-term debt free and has a treasury size of approximately 1400 crore as on 3 1st March 2022, yielding an average return of approximately 6% per annum.
The Board of Directors has recommended a 400% of final dividend that is Rs.40 per share, which is subject to the shareholders' approval at the ensuing AGM.
Questions and answers
Manish Gulati
Sonali Salgaonl<ar: HEG Limited June 02, 2022 We would now like to address any questions or queries you have in your mind.
Thank you.
Over to Navccn.
Thank you very much.
We will now begin the question-and-answer session.
The first question is from the line of Sonali Salgaonkar from Jefferies India.
Please go ahead.
Sir my first question is regarding the price hikes.
Could you help us with the broader quantum of price hikes between Q3 and Q4 Iha! sequential as well as any further price hikes from Isl of April till now?
Sonali, good afternoon, between Q3 and Q4, it is oflhe order of 12%.
And your question about what we foresee in the future, we arc expecting to add at least 4% 10 5% quarter-on-quarter.
And this could be throughout FY23, for the next three, four quarters at least?
I hope for that, because two quarters arc visible lo us. the April to June and July to September, that is for sure.
And beyond that as we arc booking quarter-by-quarter which you know about.
So, I cannot really say that what will happen lo the balance so, but demand continues to be there so I think it will go on.
Right.
Sir just continuing on that.
Your initial comments did mention that the global steel output has moderated post the Russia Ukraine crisis as well as supply chain issues.
Sir could you dwell a little more deeper into this because all throughout last year. we saw very good demand which was supporting our +90% capacity utilizations.
So. once and as the demand is moderating do you foresee the capacity utilizations to stay at elevated levels?
See the issues which arc arising out of this Russia Ukraine thing arc the steep hike in energy and electricity prices in Europe.
So, as electric arc furnaces need a lot of electricity.
So, we have seen the electricity prices go up by three times, which is kind of a dampener for the European electric arc furnaces.
So, that is one issue, the supply chain which you know very well, that the way freight costs are going up, ii is hindering global trade, whether ii is of steel, or other commodities.
And the way iron ore prices arc also shooting up.
So. all pul together they're posing some challenges for steel industry.
Got it.
And what arc the current inventory levels, in the light of Russia, Ukraine war?
Arc we still looking at optimal or near normal inventory levels in the channel or do you think that they are now more at an elevated level?
Arc you talking about steel inventories of steel companies or electrodes?
Electrodes.
Sonali Salgaonkar
HEG Limited June 02, 2022 We arc working at very low inventory levels, still. normal would be. let ·s say a month and we are working less than that.
So. there arc no excess inventories. either with customers or with electrodes suppliers.
Understand sir.
Also one more thing about the China supply trends. the entire downturn about two. three years back majority of that was because of excess Chinese exports.
So. how arc we foreseeing the situation right now, has the supply really moderated especially of the electrodes I am saying not about steel. or do we still foresee some price disruption going forward because of any possibility of China coming back to export more?
I should clarify here.
I'm sure you·vc heard this so many times from us.
There is no dearth of capacity of electrode making in China.
But what type of electrodes they're making and exporting to rest of the world is mostly the high-power variety. the lower grade electrodes which arc mostly used in the ladle furnaces.
We arc yet to sec the big customers actually qualifying them for UIIP grade and giving them let's say 20%.
30% business.
So. that is where we don't compete globally also.
India also, we don't compete with them on the UI IP part and our production is mostly UI-IP and not non UI-IP, we do make about 25% or some 30% ofnon-UI IP grade electrodes. but that is to service our customers who bought electrodes as a package they want us to be supplying the UI IP also and HP also.
And one point I can add to this is that, recently Europe has put a stifT anti-dumping duty on Chinese electrodes to the order of25% to 27%.
And US has also imposed a duty. that duty was imposed about maybe almost four years back, five years back and it still continues.
So, there are steep duties against their electrodes (Chinese).
Yes. but Sonali notwithstanding the duties and everything that Manish explained.
Let me again explain clearly that, more than two thirds of our production is what you call ultra-high power.
China doesn't have the technology to produce the ultra-high power.
So. what we are competing with China is for the lower 25%, 30% category which is the non-UI IP.
And as most of the steel companies who need ultra-high power, they also need one fourth of that quantity about that. in that region because they also have a small ladle furn ace.
So, we reduce that one fourth of our total production in non-ultra-power, because all these companies don't want to go to too many suppliers to find electrodes.
So, generally everybody will be buying in that ratio of20:80.
25:75 kind of a ratio ofnon-UI-IP and UI IP.
Right.
Sir what percentage of our overall exports is towards Europe, I'm asking because you did mention that the electricity cost in Europe have spiked. which is leading to some disruption in the demand from EAF so what exactly is the percentage of our exports to Europe?
Without going into the specific numbers, it's very low, it's not a very signi ficant number.
Okay.
Sir so. which are our key expo11 geographies?
Ravi Jhunjhunwala
HEG Limited June 02, 2022 Sec. America is one lollowed by Middle East. followed by Southeast Asia. then fo llowed by Europe and lilllc bit to African countries.
So. we arc prclly much in all the continents and all the major steel producing countries of the world about 40 countries, I would say.
Got it.
Sir and this 30 to 35 million new EAr- steel production which you talked about in opening remarks. where is it exactly coming?
About 15 to 20 in America, and rest is in Europe.
This is a new trend.
I have been in this business for last 40.
45 years and except addition of a couple of million tonnes every two. three, fi ve years. we haven't ever seen these kinds of numbers.
And these kinds of numbers are all serious numbers.
50, 20 million tonnes each in America and 15.
20 million in Europe.
These arc signilicant numbers in terms of steel making.
And as I explained. the major reason is that the focus that the world has now seen in the last live. seven years on the environment and carbon emissions and green energy and everything that has led to this kind ora shill.
So, I'm not sure how many million tonnes of blast furnaces arc getting closed to replace this by electric arc furnace, but a fairly large chunk of this is a replacement. they arc being replaced by electric arc furnaces because as I said, you produce the same ton of steel through the two processes and the carbon emission is about four times higher in blast furnaces.
Right.
So. sir you're saying that majority of this 30, 35 million is via replacement by EAr- versus the earl icr blast furnace due to de-carbonization, is that correct?
Not exactly.
I would not say all of it.
But a part of that is replacement. a part of that is addition.
Sonali the ones which arc coming in America arc the new electric arc furnaces, while Europe is more trend towards de-carbonization, America was anyway predominantly electric arc furnaces.
So, these are the new furnaces, which are coming up in US of 15, 20 million metric tonnes they're like, and in Europe, they want to actually close down the blast furnaces, Europe is still 47%.
48% for electric arc furnace.
So, the existing key companies what they are doing is. they are going to phase out the blast furnaces and put the new electric arc furnaces there.
And j ust to put a ligurc, America produces 70% of its steel through electric arc furnace.
So, obviously there is a bigger focus on electric arc furnaces in America to start with.
And Europe is about 50%, is that correct?
In that region of 45%, 50%, there is no published data, we arc just giving you this number based on experience. e
HEG Limited June 02, 2022 Sure.
Sir just last question from my side, you did mention that the CAPEX will likely commission towards the end of this year.
So. what proportion of our outlays already spent out of th is 12 billion and how much are we lefl to invest this year?
See, 800 crorcs has already been spent till date and 400 remains LO be spent until December.
Thank you.
Next question is from the line of Abhijcct Day from Quintus Wealth Advisors.
Please go ahead.
Just one question in terms of needle coke, because last year we saw prices rising.
But going forward. let's say over the next two quarters what is the kind of price increases you expect in needle coke?
See, /\bhijcct just like electrode, which is practically five, six companies in the world it's more or less the same story in needle coke, they're only two, three of them. /\nd this kind ofa needle coke that we use in graphite business, this is typically only for graphite.
So, obviously irthcre is a higher demand for graphite electrode automatically, there is a higher demand for needle coke.
So, both of these go hand in hand.
So, it cannot happen, there could be a lag of one quarter here and there. but normally. we tag each other as wheels.
So, whatever happens to graphite business the needle coke follows.
But you don't see something like what you're seeing, three. four years back that graphite is today, the movement in graphite electrode prices basically lead needle coke prices and that spreads improved, that scenario do you expect to sec this year or next?
No, I didn't get your question what scenario.
As I said as needle coke if graphite price will go up needle prices will certainly follow, it's a matter of one or two quarter lag.
Okay.
I was asking the spreads, the price of graphite electrode minus the price of needle coke. you don't see that going up materially?
No, I'm not saying that.
Obviously, there is a correlation between the two.
But it is never an exact correlation.
So, a couple of quarters here and there.
It'll catch up.
But obviously, what we arc basically saying is that demand for electrode is very strong and as we have been saying that for a very, very long time we have been somehow concentrating on exports.
Every year, our export is about between 65% to 70% of our production.
So, although we don 't see too many new electric arc furnaces being established in India, but we already spoke about this number of 30, 35 million tonnes which is on the annual in the whole world.
And we have been there for last 30, 40 years in all these 30, 40 countries.
Most of these new investments are coming at our customers who arc already buying from us.
So, it's just a matter of adding a little bit of market share with the existing customers.
HEG Limited June 02, 2022 And. on the Russian Ukraine con llicl is there any disruption as far as Russia is concerned on the supply of electrodes.
Russia is an exporter of electrodes.
I understand to both Europe as we ll the US, it may not be the largest, but they have some market share.
So, have you seen any kind or disruption over the last two or three months in terms of supply from Russia?
Russia is a very small producer or electrode and Russia is a fairly large steel producer, so a very large majority of their electrodes are self-consumed within the country.
So, lo the extent that they must be exporting a little bit to Europe, but it's not worth. it"s 1101 a quantity, which can be disruptive to anything, i1·s a very small quantity, it has always been a very small quantity.
Again. in the lower category, the non-lJI IP.
I fl could add to what Chairman said, see, this Russian supplier of electrodes was expo1ting some quantity, and at the same time Russia was importing some, with this, both have stopped.
So. they were like exporting some low-quality electrodes and their steel companies were importing some high-quality electrodes.
So. net-net. now they have lo make do, they can neither export nor import.
So. they have to make do with whatever is available locally, in whatever quality they can get, they have to manage with that.
Thank you.
Our next question is li·om the line of Pranav Jain from I IDFC Securities.
Please go ahead.
Sir. can you help me with the production and sales volume for Q4 FY22 and for the whole fi nancial year 22?
Yes, we are at 90% capacity utilization, that's the figure you can take.
Okay, so you don't provide the numbers in terms of production and sales?
No, not at all.
This is completely out of order in fact against the guide! ines also, that we have published against, in fact the figures arc not supposed to be given.
Pranav, I would just like to clari fy here that if you have been tracking graphite business for a long time, as I said, it's a very long drawn process.
Easiest process takes about two months to produce, and the most difficult one takes between five to six months to produce.
So, in our kind of industry, which takes so long to convert the needle coke into electrodes and then go out in the market, so there arc four, five very, very distinctly different processes in this period of two to five, six month that I'm talking about.
And practically, we've never seen anybody consistently being able to achieve capacity utilization of let's say, more than 90%, 92%.
So, 1 'm very generally saying that in our kind of an industry, which is process one lo five are very, very distinctly different, and very. very long, even if there is a very small breakdown in any of' these five processes the whole thing suffers, the whole supply chain suffers.
So, we may sec this going beyond 90%, 92%.
We haven't seen any company consistently going beyond 92% to 93%.
Manish Gulati
HEG Limited June 02, 2022 Thank you.
Our next question is from the line of Rajcsh Agarwal from Moncyorc.
Please go ahead.
My question. did we have a volume growth in Q4 and when we like capacity come on line, and when can we sec volume growth?
The volume growth of Q4 was the same as Q3 because the last three quaitcrs have been quite hot in demand, and for the new volume to come in. we would rather say first quarter of calendar year March 23. that's when we should start seeing the volumes.
I low much volume growth can happen that time?
From this year to next considering the electrode demand we should be doing 7%, 8% more than what we have done last year 2 1-22, 7% to 8% more than that.
And sir the price hike which we will be taking quarter to quarter 4%, 5%. will there be a commercial increase in expenses also, no?
Sec the needle coke price also is quarterly so that is also increasing quarter-by-quarter.
But the good part is that electrode prices arc able to absorb that increase and some other key inputs also.
Okay.
So, net to net benefit will be much more than the price hike?
Al least similar margins would be there that's what we can safely say.
Is there a possibility of spread increasing?
Depends on the market actually.
I fthc demand scenario is very robust because 30.
35 million it will get added in US and all, then lot of local steel players who wants to increase the capacity by EAF technology.
So, is there a possibility of spread increasing that is there?
Possibility of what?
Increasing spread.
More than needle coke our selling price increases?
It's very difficult to answer this question actually, considering the global environment today, suppose this has not happened, we would said this with more confidence.
Bui even ifwe are able to say we have healthy margins, and even ifwc are able to say today that we are in a position to maintain that, despite all kinds of problems, that is good, is it not? ·6 Ra_jesh Agarwal:
Rajcsh Agarwal
R,ivi Jhunjhunwala:
Ravi .Jhunjhunwala
Ra_jcsh Agarwal:
Ravi Jhunjhunwala
HEG Limited June 02, 2022 It's good but. in commodity company it has lo come fro m both the spread and volume growth also, volume growth will be I 0%. if it would have been 20% ii is okay with this volume.
And we are going to get additional volumes.
I don't think there is any demand destruction in the graphite.
It docs 1101 mailer.
We don '1 see that and the cost part, you have been tracking the logistics disruptions and all and since they are exporting more than two third of our products. in some countries the freight rate has gone up by five times, double is very, very normal. two times Lo three Limes is very normal, but in some cases it is.
We arc taking the freight hit sir or the customer is taking that?
We deliver CNF.
CN F is door delivered so all this.
Three times increased; we have been able lo pass on all the increases basically.
Sir, there can be any disruption in the capacity being added to EAF technology no?
No, there is in fact on the contrary, the clamor towards EAF is only increasing by the day.
Okay.
And what about worldwide graphite demand and supply. is ii a shortage?
Right now all the global companies, all the Western companies are running to this order of 90%.
Any Ii Ille demand increase will help in further hardening of prices.
Thank you.
Our next question is from the line ofDcwang Sang havi from IC ICI Securities.
Please go ahead.
My question is regarding the European market.
European market is currently 45% lo 50% EAF based and we expect another 15 to 20 million ofEF capacity coming on line.
So, this 45%, 50% share can go Lo 60% plus in the next three Lo four years?
Yes, obviously, when this gets added, ii will increase the share ofEAF.
Dcwang, if you look al the world production or steel, it's like somewhere in the region of 900 million to lei's say, 950 million something like that.
So. if you calculate mathematically between 45% to 50% in electric arc furnace and then you add another 30 million tonnes.
So, it's a substantial change, substantial number.
And basically, the other way Lo look at it is lhc 30 million tonnes whenever it gels added obviously to happen over the next two, three, four years.
Some of
Manish Gulati
HEG Limited June 02, 2022 this is going to happen within this year.
I don't want to public!) give the numbers on the table.
Out of this 30 million tonnes. some ofit is coming within this year. within the next nine months.
Some of it is coming in 2023 and then in the next five to six years. all that is going to be on the table.
So. the demand increase for electrode could be anywhere in the region of between 40 to 50 thousand tonnes if you take 1.5, 1.6.
1.7 kilos per ton of steel, on 30 million tonnes, 35 million tonnes the demand increases is going to be in that region of 40, 45.
50 thousand tonnes.
And no new capacities have been announced. at least up till today.
So. the only increase which is happening in the graphite industry in the world is the 20.000 tonnes that we arc adding by the encl of this year.
And again, to remind you, we had taken this decision to. and it's a brownfield expansion it's not even a Greenfield. /\nd we had announced our intent to increase exactly in October of 2019.
Our company which has gone through six. seven. eight expansions in its lifetime we have taken about three. three and a half years.
3.25 years just lo acid 20,000 tonnes.
So, what I' m trying to impress is that. even if somebody was to announce an expansion today, it's a matter of anywhere between three to four years.
Basically. what I'm trying to impress is, new capacities even in a brownfield case. is a very long drawn process.
Right.
So, demand supply dynamics will be strongly in favor of demand for next three, four years, because demand is there and there's no specific new capabilities corning on stream?
I can only put the figures; I' m hoping what you' re saying is right.
True sir.
Secondly, this European market. it was seeing some challenging times. because of the electricity cost as you highlighted in your opening remarks, has this been implemented in last 15 20 days or it is the same thing?
Last 15, 20 days I don' think anything has changed in 15, 20 days.
Closer to a month. say utilization improvement in Europe aflcr not a good April and March because of energy cost and maybe first three, four months because of energy cost and some improvement happening in say last month or so, still tl1c challenge continues.
I just want to take your view on the same.
Can we see improvement in Europe happening next tl1ree, four months, while it's still difficult to call?
Dewang this energy cost prices for them are still at a very high level.
O f course, they are not sustainable and of course they will come down with time.
But right now they continue to face that challenge.
So, we have seen the customers were placed orders on us, requested for a push back.
Anybody who needed electrode in June now wants in July, the July guy wants it in August, so it's a push back of orders because they're not operating electric arc furnace to tl1e full extent they can.
They operated off peak hours and in peak hours, the electricity prices are way too high for them.
But all this is going to be temporary, and nobody is going to pay those kinds of electricity prices, industry or domestic.
They're just completely unsustainable so they will probably cool off in the next two, three months.
The long term trend of electric arc
Dcwang Sang
havi:
Moderator · Conference Operator
Ravi ,Jhunjhunwala:
HEG Limited June 02, 2022 furnace will always be there, because they arc very cautious about it, and the best efforts are being put in Europe to dccarbonizc. they have put carbon taxes on that.
The cost is very high and probably will not sustain, and maybe this has come with a comeback?
Carbon cost has gone up from $28, $30 to almost $90 today.
So, who's going to pay that carbon cost, it's completely away.
So. eventually it will be restored. it's only temporary that electricity prices are so high that they are kind of operating the electric arc furnaces less than capacity.
Alright.
And my last question 011 the recent exposure to on steel exports.
What is your take on the same is there any demand impact?
Sec in India Dcwang, India despite producing 120 million tonnes of steel. no more than 30% is produced from the electric arc furnace route.
So, yes. it is a dampener for our steel customers, but government is trying to do whatever it can to control in0ation.
So, I believe this is also a temporary nobody puts export duty like this.
They will also be taken off once the domestic market cools down on prices. and we arc anyway, as Chairman said two thirds is we export to 40 countries. so we won't see as much impact.
Thank you.
Thank you very much, that was the last question in the queue.
As there arc no further questions.
I would now like Lo hand the conference over to Mr. Jhunjhunwala for closing remarks.
Thank you. friends for joining us today and asking some very pointed, pertinent questions.
We are very happy to be living in this environment, which looks very good, very optimistic to us.
And I look forward to talking to you once again in three months' time.
Thank you.
Thank you very much.
On behalf of SKP Securities Limited, that concludes the conference.
Thank you for joining us.
You may now disconnect your lines.