Electrode availability has eased out in the first quarter of the year, says Manish Gulati, CMO & COO, HEG Ltd. In an interview with Swati Khandelwal, Zee Business, Gulati said, “non-UHP price, which is 20% part of our business, has faced high competition from China. Edited Excerpts:

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Q: HEG has posted weak numbers for the first quarter of the financial year 2019-20 in which the top line has declined by almost 50% and the net income has crawled down to Rs243 crores. What were the headwinds that you faced in this quarter?
A: Last year’s prices and margins were extraordinarily high due to an extreme shortage. But things have normalized a bit in the first quarter of fiscal 2019-20 and environment is stable as electrode availability has eased by now. We electric our furnace production last year where electrode demand emerges. We grew by 8.4% in 2017 and 4.7% in 2018 and now it stands at 0.4% level. This correction has helped in increasing the electrode inventory. In any case, when there was a shortage of electrode then every steel company has over purchased it. Thus, there are certain pockets, regions and customers where access inventory is lying. Earlier, we were expecting that those inventories will be out of the system in the first half of the year but changed circumstances has increased its periodicity and I think that it, inventory levels, will be normalised by the end of this year.

Q: Needle coke prices are important to understand the production cost. How were the realizations on this front?
A: First of all, I would like to talk about the realization in which the ultra-high-power (UHP) grade prices of last year has corrected and have normalized. Going forward, it is likely to be stable. The non-UHP prices, which is 20-25% part of our business, has faced more competition in terms of price with China. There is a continuous increase (month-on-month) in Chinese increase to India, since the removal of the anti-dumping duty on China, which is creating a pressure on prices. Prices of Chinese non-ultra-high-power grade has been quite aggressive for the last six months and this pricing has had an impact on our 20-25% business of HEG.

Q: Domestic steel companies have indicated a slowdown do you agree with this?
A: So far there has been no difference in their production level, still there is a growth in production. But yes, our customers have informed us that there is a decline in demand, and they are expecting that the government should take some steps and announce a few infrastructure projects. But production hasn’t decreased in India yet, but they say that there is a pressure on their margins. 

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Q: There were multiple tailwinds for HEG last year, which helped the company to achieve exceptional growth in a short span. Do you think that those tailwinds are over and there is a cyclical downside in Graphite electrode business?
A:  There was an extreme shortage of electrode in 2018-19 - you are aware of the reason – and this shortage created an extra-ordinary prices situation as well as margins. But this year we are entering stability, price-wise, and the spike is over. Going forward, margins will become stable as a major part of correction has already happened in this quarter.