Graphite shares tumble, sweep over 40% wealth in just 1 month: Check what led to this slide

Graphite Industry is facing a tough time as shares like HEG Ltd and Graphite India tumbled around 40 per cent in last one month. The graphite electrodes manufacturing companies are continuously plunging over the last quarter. The constant fall in the prices of graphite electrodes is one of the major reasons why these stocks are dipping as these are the components of electric arc furnaces that turn scrap into steel. The average fall in the prices of graphite is down by 15-20% on a quarter on quarter basis (QoQ). 

Reasons for fall in prices of graphite stocks:

1. Iran sanction: Sanction on exports to Iran had a major contribution in the correction of graphite stocks over the last quarter. The sanction has impacted on the volumes of these companies. The graphite electrodes manufacturers have lost 8-10 per cent volumes in last 3 months.

2. Steel prices: Constant fall in steel prices is another reason, why the graphite industry is experiencing a setback. The companies are de-stocking the inventory due to continued weakness in steel. 

3. Anti-dumping duty: Removal of anti-dumping duty in September and higher imports from China has impacted the domestic demand of non-UHP (ultra-high power) graphite electrodes. 

4. The weak realisation and increased input cost: The continuous fall in realisations and increasing input cost has also impacted the weakening of these companies. The cost of the raw material has increased over the last quarter and has also impacted the margins of the companies. 

5. Increasing cost of needle coke: Increasing prices of Needle coke has also impacted on the margins as it is a raw material used for the manufacturing of graphite electrodes. The cost is likely to increase to Rs 3,250 crore in the upcoming annual results as compared to Rs 1,063 crore in the FY18. While the manufacturing cost was just Rs 706 Cr in the FY17.

The trend in Margin:

HEG Ltd: The third quarter of the FY19 has shown 62.6 per cent margins as compared to 76.9 per cent in the second quarter. While the first quarter of this financial year reported 74.84 per cent margins.

Graphite India: The third quarter of the FY19 has shown 61.24 per cent margins as compared to 69.9 per cent in the second quarter. While the first quarter of this financial year reported 73.07 per cent margins.

Current market scenario:

HEG Ltd closed at 1,980.30 on Tuesday, down by 10 per cent in the intraday trade. While it washed over 47 per cent wealth from the highest price of Rs 3,642 to Rs 1,980 in a period of just 1 month. 

Graphite India, on the other hand closed with a correction of 6.47 per cent on Tuesday at Rs 467.45.