HEG Expects Healthy Q4 As Export Duty On Graphite Electrodes Remains On Paper
HEG Q4 financials to be stronger than the third quarter performance, said Chairman.
Graphite electrodes manufacturer HEG Ltd. expects fourth quarter earnings to remain healthy after returning to black in the October-December period.
An up to 20 percent duty on exports of graphite electrodes introduced in the Union Budget 2018 has not yet been implemented, Ravi Jhunjunwala, chairman of HEG told BloombergQuint in an interview. Besides, the company will benefit from strong demand and pricing, he added.
While there is no export duty on graphite electrodes as of now, the Budget proposal allows the government to check on exports by imposing a tariff of up to 20 percent.
“We are exporting two-third of our production for the last 20-25 years,” Jhunjunwala said, questioning the government’s decision to impose an export duty. “The rest one-third is total demand of this country. So what is anybody going to achieve by putting in export duty? Spare capacity which we have created over the last 30 years has to be exported.”
Watch the full conversation here:
Here are the edited excerpts from the conversation:
Does the tariff rate of 20 percent change the dynamics?
They have not imposed any tariff. After the budget was passed, we resumed our exports in the normal manner without any duty. The government has put it (levy of duty) on a Schedule which has 62 other items where import duties could be placed. I am emphasising on the word ‘could’ signifying that they could place import duty as and when they like. So, that is all that they have done. Also, the Union Budget terms say up till 20 percent. So,the duty could be levied at anywhere between 0-20 percent. Today, it is at 0 percent. But putting this on that list doesn’t mean much. In any case, the government has the power at all times, whether they put it today or tomorrow. That power rests with the government.
How is business shaping up as your third quarter numbers released recently were robust?
We expect this to continue. Nearly half of this quarter is already over. We are seeing strong demand, we are still looking at strong pricing. So, current quarter looks better than the third one.
Does it look good only because of volumes or also there is natural trickle-down for operating level too as it is looking magnified? Is there a scope for improvement here?
There is no substantial volume growth. It is a combination of volume and price, but mainly price instead of volume expansion.
Does it augment your operational picture more than what it is right now? Q3 was 66 percent.
It would be higher than that.
Are there any expansion plans on the annual that you have?
Given the strong market, we believe that current situation in the graphite market worldwide is likely to stay for some time because it’s an issue of consolidation and technology. Ever since we have come into this business 42 years ago, there has been no new company or player which has emerged in this business worldwide. So, the entry barriers are strong. When the markets are robust, the only people who could expand would be the current 4-5 players. There are five players in the world including few of us in India. In last 20-22 years every incremental ton of demand which was generated for electrodes anywhere in the world has been 100 percent captured by the few Indian companies.
So, it is the background of where the Indian industry of electrodes is. From a small capacity of 25,000-30,000 tons between us and Graphite India Ltd., currently we stand about 1,60,000 tons. So, the additional 1,30,000 tons which the two companies have created in India is more or less equal to the incremental demand in the world. Between two Indian companies, we export nearly 75 percent of our total production. So, there is no logic. We have been exporting two-third of our export production since the last 20-25 years and rest 25 percent or one-third is the total demand of this country. What will anybody achieve by imposing export duty? We cannot sell more than 25 percent which is 100 percent demand in this country. So, if we have spare capacity which we have created over last 30 years, that has to be exported.
Do your capacity utilisation levels allow you to increase production if there is a dearth of graphite electrodes in the country?
There is no shortage. The total demand of this country is one-third of our total production.
If there is an increase in demand, do you have the capacity to increase production and meet that demand?
We are operating at 80-90 percent. So, it is a healthy utilisation of business. There is serious shortage of raw materials worldwide. What is stopping us to go beyond 90-92 percent is shortage of this needy coal that we keep talking about.