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.