HEG is probably at an inflection point. The manufacturer of graphite electrodes, a material used in electric arc steel furnaces, is set to benefit from a gradual turnaround in global steel demand. Increasing popularity of electric arc furnaces where the electrodes are used also augurs well for the company.
At present, 30% of steel globally is manufactured using electric arc furnace (EAF) method and the rest in basic oxygen furnace (BOF). But steel manufacturing is increasingly moving to the electric furnace method.
According to the management, EAF's share in crude steel making is likely to grow exponentially to eventually overtake BOF. "In the first half of 2014, electric arc furnace production has gone up by more than 8% (globally) while total steel output has gone up by only 2.5%," said R Rastogi, chief financial officer, HEG.
As a result, HEG's June 2014 operating profit nearly increased 140% yoy. The primary reason for this is China, which accounts for more than half the global steel production and consumption. The share of EAF in Chinese steel production is just 9.5% - it is more than 50% in developed economies - but is increasing at a rapid pace due to rising inventory of scrap iron.
At present, 30% of steel globally is manufactured using electric arc furnace (EAF) method and the rest in basic oxygen furnace (BOF). But steel manufacturing is increasingly moving to the electric furnace method.
According to the management, EAF's share in crude steel making is likely to grow exponentially to eventually overtake BOF. "In the first half of 2014, electric arc furnace production has gone up by more than 8% (globally) while total steel output has gone up by only 2.5%," said R Rastogi, chief financial officer, HEG.
As a result, HEG's June 2014 operating profit nearly increased 140% yoy. The primary reason for this is China, which accounts for more than half the global steel production and consumption. The share of EAF in Chinese steel production is just 9.5% - it is more than 50% in developed economies - but is increasing at a rapid pace due to rising inventory of scrap iron.
However, with the gradual but important shifts in the global economy, the worst seems to be over for the company. More than 75% of HEG's revenue is from exports. Its India revenue too could grow with a pickup in the domestic steel demand. All these could lead to sharp earnings growth for HEG.
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