HEG Limited (NSE: HEG) Q2 2025 Earnings Call dated Nov. 15, 2024
Corporate Participants:
Ravi Jhunjhunwala — Executive Chairman of the Board, Chief Executive Officer, Managing Director
Ravi Kant Tripathi — Chief Financial Officer
Puneet Anand — Chief Strategy Officer
Analysts:
Navin Agrawal — Analyst
Saumil Shah — Analyst
Aryan Sharma — Analyst
Unidentified Participant
Pradeep Rawat — Analyst
Dhaval Doshi — Analyst
Presentation:
Operator
Good day, ladies and gentlemen, welcome to the HEG Limited Q2 FY25 Results Conference Call organized by SKP Securities Limited.
As 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 presentation concludes. And you will be able to ask questions after the management’s opening remarks. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Navin Agrawal — Analyst
Good afternoon, ladies and gentlemen. I’m pleased to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team at HEG Limited.
We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director and CEO; and Mr. Riju Jhunjhunwala, Vice Chairman, along with their colleagues, Mr. Manish Gulati, Executive Director; Mr. Om Prakash Ajmera, Group CFO; Mr. Ravi Tripathi, CFO; and Mr. Puneet Anand, CSO.
We’ll have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Thank you, and over to you, Ravi.
Ravi Jhunjhunwala — Executive Chairman of the Board, Chief Executive Officer, Managing Director
Thank you, Siddhanth. Friends, good afternoon and welcome to our financial results conference call for the second quarter of fiscal year ’24-’25.
As per the recent data published by the World Association of Steel, global crude steel production for the first nine months of 2024 declined by about 2% to 1,394 million tons. While production for the previous quarter, July-September saw a larger drop of 5.5% compared to the same period last year. This declining trend shows notable differences across major steel producing regions. While US saw a decline of 1.6%, Japan decreased by 3.3%, South Korea by about 5% and Russia by about 6%. In contrast, India’s steel production went up by 5.5%, reaching 110 million tons, supported by government’s push on infrastructure projects. Germany and Turkey also experienced some small increases of 3.8% and a large one in Turkey, 12.1% respectively. Meanwhile, China, by far the largest steel producer of the world declined by about 4.8%. It is important to highlight here that China produces a little over 55% of the total world steel in the first half of the current year. Chinese steel exports have surged to around 81 million tons till September, which is on-track to reach close to 100 million tons by the end-of-the year. This impacts the demand of graphite electrodes of all the world, which brings pressure on sales prices and the production, obviously. Operationally, our performance was more or less similar to past two quarters.
Now coming to the outlook, as you are aware, our expansion from 80,000 tons to 100,000 tons is now fully operational and stabilized and this makes us by far the single largest plant in the entire Western world, leading to certain cost advantages over all the other large producers. For Q2 ’24-’25, our capacity utilization for the quarter was about 80%, which is highest amongst all the other producers around the world. We expect this to continue for the rest of the year. The electrode pricing continues to remain under pressure due to reduced demand [Technical Issues].
Operator
Ladies and gentlemen, the line for the management seems to have disconnected. Please hold while we reconnect. Ladies and gentlemen, thank you for patiently holding. The management is back online with us. Sir, I’d like you to resume your presentation.
Ravi Jhunjhunwala — Executive Chairman of the Board, Chief Executive Officer, Managing Director
I’m sorry we had some technical glitch on our side.
So now coming to the outlook, as you are aware, our expansion from 80,000 tons to 100,000 tons is fully operational and this makes our plant by far the single largest plant in any location in the entire Western world, leading to certain cost advantages over all other producers. For Q2 ’25, our capacity utilization for the quarter was 80%, which is highest amongst all other producers around the world and we do expect this to continue for the rest of the year. The electrode pricing continues to remain under pressure due to reduced demand. The needle coke prices kept correcting through the past year due to difficult market conditions, but the spread between electrode prices and needle coke prices narrowed down bringing pressure on margins. While we are currently facing some near-term margin pressures, but we are positive about our industry in the mid to long term.
Decarbonization has now become an irreversible process, we are consistently tracking more and more announcements as they happen for new greenfield electric arc furnaces from different parts of the world. Already more than 100 million tons of new capacities have been announced, which would be in operation between now and 2030. As we have been exporting about two-thirds of our production to more than 25, 30 countries for a very long time, we are in a good position to meet this increasing demand all over the world.
We remain one of the most competitive plants due to our large capacity at a single location. The next few quarters may see margins remaining under pressure, but we are hoping that the demand would come back sometime from second half of 2025 and we are fully equipped to take advantage of that. We have all the technological capabilities, operational efficiencies, and market reach to take our company forward to succeed and thrive in all emerging situations to create long-term value for our shareholders.
Now, friends, coming to our quarterly performance. As you have seen from our results, our profit before tax has been much higher in this quarter as compared to the previous one. I would like to mention about the impact of one of our treasury-related investments in the equity shares where we have taken a mark-to-market gain due to increase in stock price of that company and booked it under the head of other income, while in the previous quarter, we had a mark-to-market loss due to fall in its stock price.
With this, I’ll now pass-on the floor to our CFO, Ravi Tripathi, who will take us through the financial figures. Following that our Vice Chairman, Riju; Executive Director, Manish; Chief Strategy Officer, Puneet; and I will be delighted to address any queries that you may have. Over to you, Ravi.
Ravi Kant Tripathi — Chief Financial Officer
Thank you, sir. Good afternoon, friends. I will now briefly take you through the company’s operating and financial performance for the quarter ended September 30, 2024.
For the quarter ended September 30, 2024, HEG recorded revenue from operation of INR568 crores as against INR614 crores in the corresponding quarter of the previous financial year. During the quarter ended September 30, 2024, the company delivered EBITDA of INR140 crores as against INR130 crores in the [Technical Issues]
Operator
Ladies and gentlemen, the line for the management seems to have disconnected. Please hold while we reconnect. Ladies and gentlemen, thank you for patiently holding. The line for the management is reconnected. Sir, please go ahead.
Ravi Kant Tripathi — Chief Financial Officer
Yeah. I’m continuing my speech.
For the quarter ended September 30, 2024, HEG recorded revenues from operation of INR568 crores as against INR614 crores in the corresponding quarter of the previous financial year. During the quarter ended September 30, 2024, the company delivered EBITDA of INR140 crores as against INR130 crores in the corresponding quarter of the previous year. The company on a standalone basis recorded a net profit-after-tax of INR62 crores in Q2 FY25 as against similar amount of INR60 crores in the corresponding quarter previous year. And on consolidated basis, the net profit-after-tax is INR82 crores in Q2 FY25 as against INR96 crores in the corresponding quarter of the previous financial year. The company is long-term debt-free and had a treasury size of nearly about INR923 crores as on September 30, 2024.
Now to take more questions from the participants. A detailed presentation has been uploaded on the company’s website and on the stock exchange. Now we would like to address any questions or queries you have in your mind. Thank you. Over to, Navin.
Questions and Answers:
Navin Agrawal
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Saumil Shah
Hi, sir. Thanks for the opportunity. Sir, on a consolidated basis, our EBITDA margin is in the range of 17% for this quarter. So where do we see this range settling for the remaining half of this year?
Ravi Kant Tripathi
Yes, we are expecting a similar range in the coming quarters too, sir.
Saumil Shah
Okay. And sir, I mean, considering the current demand scenario, any guidance you would like to give for FY26?
Ravi Jhunjhunwala
As I said in my opening remarks, we don’t see much of a difference in the next couple of quarters. But as I said, something like 20 million tons, 25 million tons of new capacities, which we talked about out of 100 million tons, we expect about 20 million tons, 25 million tons of them to be operational, let’s say, sometime in the second-half of next year. So that will obviously increase the demand.
Saumil Shah
Okay. And sir, my final question, sir, any update on this demerger of HEG Greentech?
Ravi Jhunjhunwala
I’ll ask Puneet, our Chief Strategy Officer, who is pursuing that.
Puneet Anand
Hi, good afternoon. So our scheme of arrangement is today with the stock exchange in — I think in a couple of weeks, we go to SEBI for the approval. Once SEBI approves it, then it will go to. We feel that by October or September ’25, the entire process will be completed and the company will be listed, the HEG.
Ravi Jhunjhunwala
This is what we had originally said. I mean, we are more or less on-track. So there was a big delay of one month due to the split which we have done in-between, but everything is flat on to it.
Saumil Shah
Okay. And then in one of the interviews, we had mentioned that we are looking at an EBITDA of INR1,000 crores in next two, three years for HEG Greentech.
Ravi Jhunjhunwala
Yeah. So I mean, Puneet, anything you would like to say about that?
Puneet Anand
It is too early to say because the Anode project which we are envisaging and we are putting, it has some lag for a quarter or two. So we expect that by next conference call, we’ll give you the better timeline on the EBITDA for the coming years for the new company.
Ravi Jhunjhunwala
But the business is on track.
Saumil Shah
Okay. So as of now, is there any — I mean, sales from this company, HEG Greentech? I’m sorry, I’m not tracking this.
Ravi Jhunjhunwala
So if you ask me about HEG Greentech, today it holds the hydro assets, which has the business and they are generating the revenue and the EBITDA, which has been shown in the HEG books also. Apart from this, our battery storage company is also doing very well and we have won a couple of contracts there. So we are expecting to have a good turnaround in that company. Apart from this, we have some wind assets which are generating the EBITDA. The future revenue and EBITDA will be coming from the Anode part which is the major asset we have there.
Saumil Shah
Okay. So as of now, Greentech EBITDA would be how much?
Puneet Anand
As of now, Greentech EBITDA will be — it will be in a range of — at a consolidated basis, you’re asking?
Saumil Shah
Yes, consolidated.
Ravi Kant Tripathi
[Indecipherable]
Saumil Shah
I am sorry. I did not get you.
Puneet Anand
On a consolidated basis, the EBITDA is between INR275 crores to INR300 crores.
Ravi Kant Tripathi
That is once the scheme is approved and 100% of Bhilwara Energy shares belong to the Greentech.
Ravi Jhunjhunwala
Correct. So yes, post the consolidation of the entire hydro asset under HEG Greentech, the EBITDA is between INR275 crores to INR300 crores, seeing the numbers today.
Saumil Shah
Okay. That’s it from my side. Thank you and all the best.
Puneet Anand
Thank you.
Operator
Thank you. [Operator Instructions] Thank you. Our next question is from the line of Aryan Sharma from B&K Securities. Please go-ahead.
Aryan Sharma
Yeah, Actually I had a question about the pricing scenario. So since we saw one of the major global players, [Indecipherable] increased prices by around 20% in September. So we are still saying that margins will remain subdued. So what would be your outlook on spreads for the rest of the year? And what do you think about this price hike which the global player came out with?
Ravi Jhunjhunwala
We have seen that announcement that you’re talking about, but we haven’t seen that on the ground. But the obvious question is if the demand, there is a pressure on demand, there is extra capacity worldwide. So we are basically not seeing any impact of that 20% increase. Everybody is attempting to do that, but it is not going through.
Aryan Sharma
Okay sir. Sir, final question, you mentioned that we have the highest capacity utilization globally currently. So could you mention what is the average global capacity utilization in HEG right now?
Ravi Jhunjhunwala
So we are at about 80% and some of these major foreign players are more or less at about 50%, 55% and probably the other Indian companies at about 60%, 65%.
Aryan Sharma
Okay, sir, that’s it.
Ravi Jhunjhunwala
These are all public data. This is all available, they are all listed names.
Aryan Sharma
Okay, sir. Thank you sir. Thank you so much. That’s it from me, sir.
Operator
Thank you. [Operator Instructions] Thank you. Our next question is from the line of Pradeep Rawat from [Indecipherable]. Please go-ahead.
Unidentified Participant
Yeah, good afternoon. So sir, can you name some of the major global player in graphite electrode business?
Ravi Jhunjhunwala
Basically, there are only four, five of us, apart from us and Graphite India in our country, there are two large competitors of ours who have more or less 1.8 times to 2 times of our capacity, but they have several plants. I mean, one company is called GrafTech International, which used to be Union Carbide about 20 years ago, and about till recently, it was part of Brookfield and now it’s a professionally run independent company. They have about 180,000 tons and then there is a Japanese company called [Indecipherable]. It’s a very large conglomerate where graphite business is a very minuscule kind of a percentage. They have about 200,000 tons, 210,000 tons, but again at four different locations. And all these locations are in Europe, America, and Japan. So obviously, over these locations, we have certain advantages of costs.
Pradeep Rawat
Okay sir. And what is the status for our graphite anode plant?
Puneet Anand
The status of our anode plant is as follows and I’ll be as candid as I can be. So the global battery prices, the cell prices for which we will supply this product have sharply come down as you may know from around $85 to $100, $0.85 to $1 per KWH. And now they’ve come down to around the level of $0.55 to $0.60 per KWH. Now this obviously depends on different applications like energy storage or EV cars. So for the sake of prudence, we are taking our top-line, which we were expecting two years back, let’s say, at 9,000 to 10,000, we are doing all the project planning at 6,000. So we are going back to the state government, trying to get some more subsidy on power because power will be the major component in this around 15,000 units of power per kg of production in this particular product. So while we have the land in place, we leveled the land, we are ready to place the machinery orders, but we are still fighting with different state governments for giving us slightly more subsidy to make the project commercially viable from day one. So that is the status right now. We are ready to break ground tomorrow. I mean, after this call, technically we can break ground, but we are purposely holding back. And I think by the end of December, middle of January, we’ll have two very good letters from two different state governments giving us different power rates, beneficial power rate, and capital subsidy that will help us make this project even more successful at $6,000 per ton also. So after doing all the sensitivity of $70,000 — $7,000, $8,000 or $5,000 for BESS, $6,000 is a very conservative number that we’ve taken and we are going to start, construction of this plant as soon as we get these extended the benefit from the state government in-hand.
Unidentified Participant
Yeah, understood. That’s all from my side. Thank you and wish you all the best.
Operator
Thank you. Our next question is from the line of Dhaval Doshi from Dymon Asia. Please go ahead.
Dhaval Doshi
Hi, thank you. Thanks for taking my questions. Just continuing on the previous question, so if you can just elaborate a bit more in terms of the kind of return expectations that we have, assuming status quo, which is no incremental subsidies that the government, any of the state governments are offering, how would that be? And what would change with the state subsidies coming in? And secondly —
Ravi Jhunjhunwala
I’ll tell you in terms of simple — very simple words, if we get no subsidy from the state government, then also our project payback on paper becomes nine to 10 years. But if we get those subsidies from the state government, the project payback goes back to around six years, which is basically a higher rate of return. At six years, we are looking at more than 20% return on equity, which is what we desire at this point in time. Having said that, all the cell companies also, which were putting up their cell capacities in India, they’ve all kind of seen the decline in prices. They also are doing the same kind of work that we are doing. And with our pilot plants, we are already working with those companies and seeing a lot of success as to how much we’ll be able to sell the product at and the quality.
Dhaval Doshi
So in terms of the product approvals, at what stage are we?
Ravi Jhunjhunwala
So in terms of product approval, fortunately, our pilot plant is fully up and running since the last one year. And we are working on at least 28 different permutation and combinations of raw materials that we need and we are working very closely with all the cell companies, whether they are in India or abroad. And on the technical front, I can assure you that on almost all parameters, we are not only achieving the global standard, but we are also beating them. So this plant is definitely coming. Whether three months, three months there, I cannot say and whether we sell in the domestic market or export market. And once again, from the point of view — I mean, we are assuming 45% capacity utilization in year one going up to 60%, then going up to 75%, and going up to 90% because this is not a commodity product. Like you rightly said, we have to work very closely with the cell makers so that there is complete standardization of that product. But the pilot plant is greatly helping us to kind of resolve that problem. So once the branch is up and running, we want to run at least at 45% capitalization utilization from day one.
Dhaval Doshi
So our assumption in terms of the payback is assuming what kind of utilization is, 45%, 60%, 70% and 90%, what you mentioned over the next year?
Ravi Jhunjhunwala
Yeah. 45%, 60%, 75% and 90% and that was included in the payback calculation and taking $6,000 as the most pessimistic price for part-time [Phonetic] selling of the product.
Dhaval Doshi
And how long do you think so will the construction take once we break-down?
Ravi Jhunjhunwala
So let’s say, if we start tomorrow, this will take around 18 months. The longest lead-time in this is the 220 KWA line, but we can start production even before that because you won’t be operating at 100% capacity utilization. In short, I mean, right now, we’ve taken INR6 as the power cost, but we are trying hard to negotiate with the government to get us power at INR4.5 per unit. Once that happens, there is absolutely zero problem in this project.
Dhaval Doshi
So given we have our existing plant, can’t we use them as in terms of restructuring PPAs because Bhilwara Energy plants will be a part of the demerged company, right, wherein —
Ravi Jhunjhunwala
No. But you know that company, the Bhilwara Energy we have a very — it’s a run-of-the-river plant and it has its own reservoir, which basically produces 60% of its energy at peak power. So we are able to sell that power at INR8, INR9 to the state government and the average cost of selling that power becomes around INR6. So I mean, keeping this at arm’s-length, why should we take that power, which we are able to sell tomorrow to the state government at INR6 and make more money there. We’d rather negotiate with the state governments to give us cheaper power over here or also at the same time, looking at solar CPAs, captive power, etc, as all the options. So when I speak to you, I mean before the last con-call and this call, a lot of work has actually happened on the ground in terms of trying to work with the different companies. But yes, the captive power plant that you’re talking about for Bhilwara Energy, which will be part of this company, we don’t want to mix the two things up because there we are already getting an advantage of selling the power at an average of easily more than six weeks per unit. So it will be foolish for us to use that power for this particular project.
Puneet Anand
And moreover, sending this power from Himachal to, let’s say, Madhya Pradesh is more or less impossible. It’s too expensive.
Ravi Jhunjhunwala
[Foreign Speech] the government has exempted like you can put a power in Karnataka, power plant in Karnataka and sell the power to your — this thing, but that is only limited to solar power. So as the Chairman just mentioned that getting this power from Himachal Pradesh to Madhya Pradesh or Odisha wherever we set-up this plant, there will be so many government surcharges, etc that INR1 INR1.5 will actually go into that, right? So instead of selling the power straight at INR6 and getting that advantage to Bhilwara Energy, we are not even looking at that option of kind of selling that power to this particular plant. But we are very confident. I mean, Odisha as a state, let’s say, already has a policy of INR4.5 power. But again, that would mean going and buying new land, going and doing an entire new setup, environment approval. So as I talk to you today, we are in a position tomorrow to open LCs for all the machine, give out all the civil costs. But we are just holding back on that for three more months so that we can get cheaper rates from the government. And having said that, all the cell capacities also that were coming up in India, they are coming, but they are also well delayed by a year or two. So we don’t see a problem in kind of a three to six-month delay on this project. [Speech Overlap]
Ravi Kant Tripathi
And no money has been spent except for buying the land, so that money would be going into kind of making the project not viable.
Dhaval Doshi
What is the project cost that we’re looking at in total?
Ravi Jhunjhunwala
We are looking at INR1,750 crores, which is including a INR100 crore unnecessary cost of 220 KWA line that we have to build over 52 kilometers. So that is the long-lead item actually. But the total project size for the 20,000 tons is around INR1,750 crores.
Dhaval Doshi
Okay. Thanks a lot for these details. Just one more question with regards to the electrode pricing. So the Chairman did mention that the prices aren’t getting absorbed on the ground despite of the announcement by [Indecipherable] hike. Is it to do with the Chinese electrodes still coming into the market and coming at much lower pricing or it is to do with the overall weak demand environment as well?
Ravi Jhunjhunwala
Let me take this question. It’s a combination of both. So Chinese electrodes are coming and they are coming quite a lot in India especially. But as we have always maintained that we also produce about 25% 20% of our products, which are what we call non-ultra power. So in that segment, we do compete with China. And to that extent, I mean Chinese prices are crazily low. So you don’t even want to compete with that.
Dhaval Doshi
Okay.
Puneet Anand
Sorry, I’m [Indecipherable] side and sorry if I’m just commenting in-between. Like Iran is completely kind of blocked from our market right now because of all the sanctions. So all the Chinese products are getting dumped in Iran. Now with all the geo-politic changes happening, etc. we don’t know what’s going to happen tomorrow. If that market re-opens for us, then obviously it takes a lot of pressure off ahead in terms of volumes. Of course, till four years back, Iran used to be a major market for us.
Dhaval Doshi
Yeah, that’s correct, but it was —
Ravi Jhunjhunwala
[Speech Overlap] Right now, I think then the Chairman is talking about 80% capacity utilization, etc, it is all without Iran. Tomorrow if Iran actually comes on the global map by any chance, you don’t know what’s going to happen three months, four months down the line, then definitely our supplies will increase to that region also because these are always very strong over there.
Puneet Anand
Then Iran is a large market. I mean they consume about 40,000 tons, 45,000 tons every year and they used to buy practically everything from India seven, eight years ago till the sanctions were put on them.
Dhaval Doshi
Okay. So right now, if you were to touch a bit more on the realization part, what is the current realizations? And do we see any bit of an improvement or practically no more improvement there?
Puneet Anand
So I think it’s very difficult to — it’s very difficult to put a number. I mean, basically, if I were to guide it, I would say more or less similar numbers.
Dhaval Doshi
Okay. So the global plants operating at below cash cost, we’ll need to see how long do they take to blink. Is that the correct understanding?
Ravi Kant Tripathi
And that is exactly what I said when I said we have the single largest plant and that plant happens to be in India versus most of the major plants in Japan, Europe, and U.S. So we do have that advantage and that is why you see the difference between our capacity utilization versus others.
Dhaval Doshi
Thanks. Thanks a lot, sir.
Operator
Thank you. [Operator Instructions] Next is a follow-up question from the line of Dhaval Doshi from Diamond Asia. Please go ahead.
Dhaval Doshi
Hey, thanks. Sir, if you can just elaborate how do you see the CBAM mechanism changing the industry dynamics going into CY’25 and ’26?
Ravi Jhunjhunwala
No, we are very bullish. I mean, as I said, about 100 million tons of new electric arc furnace capacities have already been announced. And when I’m saying 100%, I mean 100 million tons has been announced, out of that 100 million tons, we believe that somewhere in the — in the region of 70 million tons are such where the grounds have been broken, the orders have been placed for all the equipment. Because as you know, electric arc furnaces of large capacities of 1 million tons, 1.5 million tons, and 2 million tons, they take about two and a half to three years to build and these are all greenfield plants.
So our confidence is coming from the fact that out of that 100 million tons which have been announced till now, about 65 million tons to 70 million tons are due to start operations between 2025 ’26 and let’s say, first half of ’27. So our confidence is coming from that number that 65 million tons, 70 million tons are definitely coming. I mean the grounds have been broken. Obviously, the construction has started, the equipments have been ordered and I don’t want to publicly give the number, the breakup of that 65 million tons, but we do have certain numbers for ’25, ’26, and ’27 separately.
So we are pretty confident there and we have an advantage that we have been in exports for more than 30, 35 years. And from 30, 35 years, our exports has been more or less in the region of two-thirds and one-thirds. So one-third Indian market, two-thirds exports. So our — we have relationships, we have been selling to all these customers for the last 30, 35 years. We have been exporting two-thirds. So it’s only a matter of time. I mean, and obviously, these existing customers are the ones who are adding all these 100 million ton capacities. There are not too many total newcomers, so to say. So it’s only a question of they building these new capacities of electric arc furnace needing more electrodes. So even if we continue to sell the same market share that we today have with them, running at 80%, 85% is not a problem.
Dhaval Doshi
Sir, my question was more to do with how China is likely to react and also to do with the pricing. I completely understand in terms of the overall volume game that you’re trying to say, but that was a similar story probably a few years back as well before China actually started ramping up their electrode production into the global market. So —
Ravi Jhunjhunwala
No, just to remind you, I mean, see, any steel producers, electric arc steel producer who buys electrodes, he buys more or less three-fourth of his electrodes, which is called ultra-high power.
Dhaval Doshi
Yeah, I agree.
Ravi Jhunjhunwala
— and 25% 30% is the small ladle furnace as they call. So while we do compete with China, but our competition is limited to that 25%, 30% of the non-[indecipherable]. Most of these new furnaces which are coming up in the Western world, they are all going to be 1 million tons, 1.5 million tons, 2 million tons kind of furnaces, which will require 65%, 70%, 75% ultra-high power. So we don’t compete with China in that segment and it is not just us, but all the other four, five international graphite players. So we don’t —
Dhaval Doshi
Correct me if I’m wrong, sir, but China is gaining acceptance even in the UHP segment?
Ravi Jhunjhunwala
I mean it’s a very loose term. I mean, it’s not easy to explain on a call, but we can have a one-to-one call and I can explain to you in detail, but — it’s a very, very loose time. What is UHP, what is non-UHP. But yes, I mean, if you go literally, then China can produce something which is on the very low-end of UHP. But beyond that, China cannot. And one thing again, I’ll remind you, the cost of electrode for a steel company is less than 1.5% to 2%. So they don’t want to take any chance on a product where the — it costs them only 1.5% to 2%. They want to be very sure about the quality and they don’t want to give — take that chance that to save that 1.5%, 2% if they buy an inferior product, then what they lose is much, much more than that 1.5% that they save.
Dhaval Doshi
Okay. Sir, secondly, with regards to China once again, when I said CBAM mechanism and its impact on China, this time I’m referring more to the mode of steel production. Do you see China shifting more towards its electric arc furnace production despite of a higher cost, probably running into the second half of next calendar year?
Ravi Jhunjhunwala
Look, I’ll tell you, you see until about four, five years ago, if you remember the electrode boom which came in 2018, ’19. China was at that time also producing more than 50% of the world’s steel. And while rest of the world was producing 40% of their total steel through electric arc furnace, China, which was the other half, China was only producing 5%. So the difference between China and rest of the world in which I’m literally taking each country in North America and everybody. So that part of the world was producing 40% through electric arc furnace and China was producing 5%. And today, and when that boom happened, it basically happened because China announced on a particular day five years, six years ago that they want to close 140 million tons, 150 million tons of blast furnaces simply to control their pollution and replace this by 150 million tons of electric arc furnace to again to control the environment and the pollution and all those things. So while they had announced their intentions to go from 5% to 20% in the next five, six years, they have reached about 13% 14% by now. So China has more than doubled their share of electric arc furnace, but it still is very small at, 13%, 14% compared to the rest of the world, which was already at 40%. And now to complete the story, the rest of the world, which was 40% about five, six years ago, has already gone up to 50%. So in the world context where the growth is hardly 1%, 2%, 2.5% every year, a growth from 40% to 50% is like 25%.
So electric arc furnace in the last five, seven years minus China has gone up by 25%, 40% to 50%. And in the near future, it is likely to go to 60%, 65% as and when we are talking about that 75 million tons to 100 million tons of new capacity coming in. So the rest of the world will go up to 65%, 70%. And that is where we are hoping that the electrode demand should rise by anywhere in the region of 150,000 tons to 200,000 tons, which is exactly what our other two major international competitors from U.S. and Japan have been talking about.
I mean, these are all public information, it’s all on their website. Our numbers and their numbers are more or less matching. Everybody is saying that this 40 has become 50, 50 is going to become 60 so 40 to 60 in the world context is a huge number, you’re talking about more than 50%.
Dhaval Doshi
[Speech Overlap] is this 40 to 50 —
Ravi Jhunjhunwala
40 to 50 is already happened.
Dhaval Doshi
No, no what I’m trying to understand us this 40 to 50 and 50 to 60 is a function of the share or the absolute production on the blast furnace side is coming down, right?
Ravi Jhunjhunwala
Exactly, exactly.
Dhaval Doshi
It’s not to do with the absolute production of electric arc furnace going up. So while the percentage share does look good, what I am trying to understand is, will this mechanism actually lead to an increase in production from the electric arc furnaces? Because still the absolute production starts going up.
Ravi Jhunjhunwala
No, see, I understand what you’re saying. But if you see the steel production number minus China, it has declined by maybe 1%, 1.5%, 2%, 2.5%. In the last two, three years, it’s a very abnormal situation. I mean, we just got out of the COVID in 2022 — 2021, ’22, so that was a different reason. And then all the geopolitical scenario that we have seen in the last two, three years, it’s not going to be permanent like that. So coming from COVID and the last two years because of the Ukraine-Russia, and Israel, and Gaza and things like that, so it has to stabilize one day. I mean, it’s been four, five years now. So obviously, it’s not related to electrodes, but everything is impacted by the whole situation. But the only good part in our business is that 40 has become 50 and 50 is likely to go to 60. And in that context, as we are always speaking about that our expansion came from 80 to 100 at the same location, at 80,000 tons already we were having certain advantages of cost in India. So that cost has further been impacted positively for us in the last nine months or so since we have gone to 100,000 tons. So until last year, while we were speaking that our capacity utilization was 70%, 75%, 80%, that was based on a capacity of 80,000 tons. So in the last nine months and today, now we are talking of 80% on 100,000 tons. So if you look at the total tonnage, 80% of 80,000 versus 80% of 100,000. So we are able to produce more additional 10,000 tons, 11,000 tons, 12,000 tons and find a market for that in a situation in a world where the total electrode demand has gone down, total consumption has come down for the reason that we just spoke about. So we have been able to increase our market share basically. We are not talking of India, I’m talking of India plus the rest of the world.
Dhaval Doshi
Okay. So with regards to graphite and our investment —
Operator
Sorry to interrupt Mr. Dhaval, we request you to get in touch with the SKP Securities team to arrange an option call.
Dhaval Doshi
Yeah. Sure. Thank you.
Operator
Thank you. Our next question is a follow-up from the line of Pradeep Rawat from Last House. Please go ahead.
Pradeep Rawat
Yeah, thank you for the follow-up. I have only one question. So for 1 MTPA EF plant, how much graphite electrode would be required?
Ravi Jhunjhunwala
Hey, it’s depending on the kind of furnace they are putting up, depending on the size of the transformer that they use, it’s about 1.5 to 2 kilos per ton of steel. So let’s say 1 million tons will mean 1,500 to 2,000 tons per annum. So convert that 100 million tons, I mean, we are talking about 100 million tons. With that 100 million additional capacity is good — is built, then you’re talking of an additional demand of anywhere between 150,000 to 200,000 tons.
Pradeep Rawat
Yeah, that’s annually.
Ravi Jhunjhunwala
Annually, which is not small. I mean currently as we speak, the world demand minus China is about 0.5 million ton, 500,000 tons. So you’re talking about 150,000 to 200,000, so that’s a big number.
Pradeep Rawat
Okay, understood. Thank you. That’s all from my side.
Operator
Thank you. That was the last question in the queue. As there are no further questions. I would now like to hand the conference over to Mr. Jhunjhunwala for closing comments.
Ravi Jhunjhunwala
So thank you, friends. I mean, we had some very good discussion, very pointed questions and we try to be as much as frank and as detailed in our explanation. I hope that helps. Thank you, and I look forward to talking to you again.
Operator
[Operator Closing Remarks]