An employee wears protective clothing as he removes slag from molten spheroidal graphite (SG) iron in the foundry at Specialised Castings Ltd. in Denny, U.K. (Photographer: Paul Thomas/Bloomberg)

Graphite India Allays Concerns About Bengaluru Plant 

Graphite India Ltd., among the biggest beneficiaries of the rising prices of graphite electrodes, downplayed concerns after reports suggested that its Bengaluru plant faces a potential shutdown on pollution concerns.

The Karnataka State Pollution Control Board recommended shutting down the unit after an inspection, the Times of India reported quoting the board’s chairman. It found emissions beyond the permissible limits, according to the report.

Graphite India, in an exchange filing, said the company got a favourable ruling in June 2013 from the Karnataka State Appellate Authority and it filed a consent application with the pollution control board well in time. The matter is pending at the National Green Tribunal and the plant will remain operational till it decides the case, the company said.

Shares of Graphite India opened 4 percent lower but soon recovered to trade 0.30 percent higher. The stock has surged 32 percent since January last year as demand for graphite electrodes, a key raw material for steel making through electric arc, furnaces soared. That came after China’s crackdown on polluting units as the electrodes are made of needle coke, a highly polluting fuel.

The Bengaluru plant contributes 13 percent to Graphite India’s consolidated capacity but operations have been scaled down since 2013.

Making graphite electrodes comprises six steps: forming, baking, impregnating, re-baking, graphitisation, machining. Since the earlier Karnataka State Appellate Authority order in 2013 , only graphitisation, a power-intensive process, is done at the Bengaluru plant due to lower electricity costs. The rest of the processes have been shifted to Nasik, Maharashtra and Durgapur, West Bengal plants.

The average power cost for Bengaluru plant is less than Rs 5 a unit due to a captive hydel plant of 18 megawatts compared with more than Rs 8 a unit at Nasik, Jefferies said in a research note.

Sumangal Nevatia, an analyst at Macquarie, said in the worst-case scenario, the graphitising operations will need to be shifted to the Nasik plant, which can impact the ongoing financial year's earnings per share by less than 1 percent. The 0.3 percent impact on FY19 profits could be offset by monetising 22 acres of Bengaluru land, he wrote.

Jefferies analyst Rahul Murkya expects a less than 0.5 percent impact on operating income if graphitisation is shifted to the Nashik unit.