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HEG Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from HEG Limited (HEG) Q2 FY24 Earnings Concall

  • Steel Production Trends
    • Steel production outside China down 2-4% in 2022 vs 2021, but up 11.6% in India.
    • China exporting more steel, pressuring production in Europe and U.S.
    • World Steel Association revised 2023-2024 projections down for EU and U.S.
    • Electric arc furnace (EAF) steel accounts for 50% of steel outside China, up from 44% in 2015.
    • 85 million tonnes of new EAF capacity announced in past 12-15 months.
    • Projections of 535 million tonnes EAF steel production by 2030, up from 435 million tonnes currently.
    • No new graphite electrode capacity announced to meet rising EAF demand.
  • HEG Capacity Expansion
    • Expanded graphite electrode capacity to 100,000 tonnes now fully operational.
    • Around 90% in Q1, 85% in Q2.
    • Using latest, most modern and environmentally-friendly equipment.
    • Approved 20,000 tonne graphite anode plant for EVs in one phase.
    • Construction beginning soon, completion expected by mid-2025.
    • Expect around 75% in Q3 and Q4.
  • European Business
    • Antidumping duty of 7% in Europe for past 15-16 years.
    • HEG paying the duty but hasn’t lost market share.
    • Will continue selling current volumes and more in Europe.
  • Pricing Comparison
    • U.S. peer GrafTech has long-term contracts at high fixed prices.
    • HEG not selling electrodes cheaper than competitors.
  • China Anode Export Ban
    • China controls 92%+ of global graphite market.
    • Ban adds confidence in HEG’s 20,000 tonne anode plant.
    • Plant timing positive with ban in place.
    • Aims to start domestic anode supply chain.
    • Can source needle coke locally or import pitch coke.
  • Anode Plant Environment Approvals
    • Acquired land and obtained state clearances.
    • Conducting central environment study.
    • Can start some construction before full approval.
  • India Critical Mineral Auctions
    • Government inviting bids for 20 minerals including lithium and graphite.
    • HEG makes synthetic graphite, won’t bid on natural graphite mining.
    • Anode plant will use synthetic not mined graphite.
  • Competition
    • One competitor developing silicon-based anode in lithium-ion anode market.
    • However, graphite still 90% plus of lithium-ion batteries.
    • HEG does not expect 100% replacement of graphite before 2050.
    • Epsilon planning $650M plant in US, smaller one in India.
    • Similar product to HEG but different raw materials.
    • Himadri also announced anode plans.
  • Sustainability Initiatives
    • Anode plant designed for carbon neutrality.
    • Includes renewable energy, green belts.
    • Electrodes use hydro, solar power.
    • Similar to initiatives by global peers.
  • Anode Plant Capex and Margins
    • Capex of INR1,000 crores estimated for 10,000 tonnes.
    • 20,000 tonnes will be less than double due to savings.
    • Targeting 30% EBITDA margins.
    • 5-6 year payback period.
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