Shares of Graphite India Ltd. and HEG Ltd. fell from their all-time highs today as the prices of graphite electrodes, used in steel production, continue to decline.
The two companies that account for about a quarter of global capacity fell 5 percent each. The stocks gained more than 400 percent so far this year as graphite electrode prices hit a record in August on a global supply crunch.
That changed this month. China’s benchmark graphite electrode prices fell 6 percent to $10,603 a metric tonne on Wednesday, according to Bloomberg data. It’s down over 30 percent so far in November.
Graphite electrodes are highly conductive and can sustain extremely high levels of heat during steel production—a reason why they are used in electric arc furnaces. Prices scaled $16,000 a metric tonne after China’s curbs on pollution hurt supply of needle coke, a key raw material. That came even as a fifth of global capacity outside China was shut in the last three years even as production through electric arc furnaces increased, said ICICI Securities in an August note.
A shutdown of induction furnace capacity—the other method of steelmaking—in China also pushed up demand, Jefferies said in its October 23 note.
Anti-pollution campaign and measures in the world’s second-largest economy is curtailing supply of most metals, including graphite, said Hitesh Jain, associate vice-president-research at IIFL Wealth Management. That’s behind the rise in metal prices and this “tightness is expected to persist till March 2018”, he said.