As China marches towards becoming a developed nation soon, they have begun to take the essential next step of cleaning up the country of industries that are hugely polluting in nature. Traditional steel manufacturing is one such industry that is taking a massive hit in China.
China produces about 850 Million tonnes of steel and is the largest producer and exporter of the world’s steel. It was exporting 150 million tonnes to the global markets. This shutdown means that China’s requirements, and the world’s, are to be met by global players.
India only has 100 million tonnes of steel capacity, and a majority of the plants use the Electric Arc Furnace (EAF) technology, which is the best among the two methods as far as pollution impact goes. EAF uses electrodes as input material, leading to a huge demand now and going forward. The most significant global players for electrodes are HEG and Graphite, both from India, managing among them about 20% of global capacity. Both companies have become the biggest beneficiaries of China’s policy development, and their stock prices have risen manifold in the past six months.
Now, China is also replacing its existing facilities with EAF technology plants which will further require electrodes for their functioning. China has no expertise in setting up such plants and is thus expected to drive even more demand for electrodes from India.
One challenge the industry is facing is the shortage of needle coke, a raw material for manufacturing electrodes. Even though they have free cash flows, they are unable to expand further. The cash flow is now helping them become debt free and to increase shareholder value.
Due to high demand for coke, substitute products like PET coke and calcined coke are also getting used in the manufacturing process, which brings good growth potential for companies in the business of manufacturing them, such as Rain Calcining.
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