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Earnings Call Analysis
Q2-2025 Analysis
HEG Ltd
For the quarter ended September 30, 2024, HEG Limited reported a revenue of INR 568 crores, a decrease from INR 614 crores during the same quarter last year. Despite this decline in revenue, the company achieved an EBITDA of INR 140 crores, showing an increase from INR 130 crores in the previous year. The stand-alone net profit stood at INR 62 crores, slightly up from INR 60 crores a year prior. On a consolidated basis, however, net profit saw a drop to INR 82 crores from INR 96 crores of the previous year.
The global market scenario remains challenging, particularly influenced by a decline in steel production in major regions including the US, Japan, and South Korea. However, India's steel production has continued to rise, supported by government infrastructure projects. HEG expects to see demand recover in the second half of 2025, anticipating a notable increase due to the announcement of approximately 100 million tonnes of new electric arc furnace capacities globally. Of these, about 70 million tonnes are expected to be operational by 2026.
HEG’s expansion from a capacity of 80,000 to 100,000 tonnes has made it the largest plant of its kind in the western world. With a current capacity utilization of 80%, HEG is outperforming many global competitors, who are averaging around 50-65% utilization. This strategic advantage allows HEG to remain competitive despite existing margin pressures.
The company is currently facing near-term margin pressures due to reduced electrode prices, driven by weaker demand and increased competition, particularly from Chinese manufacturers. The narrowing spread between electrode prices and needle coke prices has also contributed negatively to margins. The executives expect EBITDA margins to remain in the range of 17% for the upcoming quarters, consistent with the current outlook.
Looking ahead, HEG's management is optimistic about future growth prospects, particularly with the anticipated increase in demand from the new electric arc furnaces. An estimated additional demand of 150,000 to 200,000 tonnes is anticipated as a result of the new capacities becoming operational. The company is also gearing up for its demerger, planned to be completed by mid-2025, which is expected to enhance shareholder value considerably.
HEG is committed to creating long-term value for its shareholders through technological advancements and operational efficiencies. They have expressed confidence in their ability to navigate current market challenges, leveraging their competitive positioning as they adapt to the evolving landscape of global steel production and decarbonization trends. The focus will also remain on expanding their market share as global production dynamics shift.
HEG is currently long-term debt free with a treasury size of approximately INR 923 crores. This strong financial foundation positions the company well to invest in future growth initiatives and weather short-term market fluctuations. For investors, while current trends indicate volatility, the expectation of demand recovery and HEG's operational strength underscore a potential for future profitability.
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Good day, ladies and gentlemen. Welcome to the HEG Limited Q2 FY '25 Results Conference Call organized by SKP Securities Limited. [Operator Instructions]. Please note that this conference call is being recorded. I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. I'm pleased to welcome you on behalf of HEG Limited and SKP Securities to this financial results conference call with the leadership team at HEG Limited. We have with us Mr. Ravi Jhunjhunwala, Chairman, Managing Director and CEO; and Mr. Riju Jhunjhunwala, Vice Chairman; along with their colleagues, Mr. Manish Gulati, Executive Director; Mr. Om Prakash Ajmera, Group CFO; Mr. Ravi Tripathi, CFO; and Mr. Puneet Anand, CSO. We'll have the opening remarks from Mr. Jhunjhunwala, followed by a Q&A session. Thank you, and over to you, Ravi ji.
Thank you, Siddhant. Friends, good afternoon, and welcome to our financial results conference call for the second quarter of fiscal year '24, '25. As per the recent data published by the World Association of Steel, global crude steel production for the first 9 months of 2024 declined by about 2% to 1,394 million tonnes, while production for the previous quarter in July, September saw a larger drop of 5.5%, compared to the same period last year. The decline in trends shows notable differences across major steel producing regions. While U.S. saw a decline of 1.6%, Japan decreased by 3.3%, South Korea by about 5% and Russia by about 6%. In contrast, India steel production went up by 5.5%, reaching 110 million tonnes supported by government's push on infrastructure projects. Germany and Turkey also experienced some small increases of 3.8% and a large one in Turkey, 12.1%, respectively.
Meanwhile, China by far is the largest steel producer of the world, declined by about 4.8%. It is important to highlight here that China produces a little over 55% of the total world steel in the first half of the current year. Chinese steel exports have surged to around 81 million tonnes till September, which is on track to reach close to 100 million tonnes by the end of the year. This impact the demand of graphite electrodes worldwide, which brings pressure on sales prices and production obviously.
Operationally, our performance was more or less similar to past 2 quarters. Now coming to the outlook. As you are aware, our expansion from 80,000 tonnes to 100,000 tonnes is now fully operational and stabilized. And this makes us by far, the single largest plant in the entire western world, leading to certain cost advantages over all the other large producers. For Q2 '24, '25, capacity utilization for the quarter was about 80%, which is highest amongst all other producers around the world. We expect this to continue for the rest of the year. The electrode pricing continues to remain under pressure due to reduced demand...
[Technical Difficulty]
Ladies and gentlemen, the line from the management seem to have disconnected. Please hold while we reconnect.
Ladies and gentlemen, thank you for patiently holding. The management is back on line with us. Sir, I'd like you to resume your presentation.
I'm sorry, we had some technical glitch on our side. So now coming to the outlook. As you are aware, our expansion from 80,000 to 100,000 is fully operation, and this makes our plant by far the single largest plant at any location in the entire western world, leading to certain cost advantages over all other producers. For Q2 '25, our capacity utilization for the quarter was 80%, which is highest amongst all other producers around the world, and we do expect this to continue for the rest of the year. The electrode pricing continues to remain under pressure due to reduced demand.
The needle coke prices kept correcting through the past year due to difficult market conditions, but the spread between electrode prices and needle coke prices narrowed -- narrowed down bringing pressure on margins. While we are currently facing some near-term margin pressures, but we are positive that -- about our industry in the mid to long term. Decarbonization has now become an irreversible process. We are consistently tracking more and more announcements as they happen for new greenfield electric arc furnaces from different parts of the world. Already more than 100 million tonnes of new capacities have been announced, which would be in operation between now and 2030.
As we had been exporting about 2/3 of our production to more than 25 to 30 countries for a very long time, we are in a good position to meet this increase in demand all over the world. We remain one of the most competitive plants due to our large capacity at a single location. The next few quarters may see margins remaining under pressure but we are hoping that the demand would come back sometime from second half of 2025 and we are fully equipped to take advantage of that. We have all the technological capabilities, operational efficiencies and market reach to take our company forward to succeed and thrive in all emerging situations to create long-term value for our shareholders.
Now friends, coming to our quarterly performance. As you have seen from our results, our profit before tax has been much higher in this quarter as compared to the previous one. I would like to mention about the impact of one of our treasury-related investments in the equity shares, where we have taken a mark-to-market gain due to increase in stock price of that company, and booked it under the head of other income, while in the previous quarters, we had a mark-to-market loss due to fall in its stock price.
With this, I'll now pass on the floor to our CFO, Ravi Tripathi, who will take us through the financial figures. Following that, our vice Riju, Executive Director Manish, Chief Strategy Officer Puneet and I will be delighted to address any queries that you may have. Over to Ravi.
Good afternoon, friends. I will now briefly take you through the company's operating and financial performance for the quarter ended 30th September, 2024. For the quarter ended 2024, SEG recorded revenue from operations of INR 568 crores as against INR 614 crores in the corresponding quarter of the previous financial year. During the quarter ended 30th September 2024, the company delivered EBITDA of INR 140 crores as against INR 130 crores in the ...
[Technical Difficulty]
Ladies and gentlemen, the line for the management has been disconnected, please hold while we reconnect.
Ladies and gentlemen, thank you for patiently holding, the line for the management is reconnected. Sir, please go ahead.
Yes. I'm continuing my speech. For the quarter ended 30th September 2024, HEG recorded revenue from operation of INR 568 crores as against INR 614 crores in the corresponding quarter of the previous financial year. During the quarter ended 30th September 2024, the company delivered EBITDA of INR 140 crores as against INR 130 crores in the corresponding quarter of the previous year. The company on a stand-alone basis recorded a net profit after tax of INR 62 crores in Q2 FY '25 as against similar amount of INR 60 crores in the corresponding quarter the previous year.
And on a consolidated basis, the net profit after tax is INR 82 crores in Q2 FY '25 as against INR 96 crores in the corresponding quarter of the previous financial year. The company is long-term debt free and had a treasury size of nearly about INR 923 crores as on 30th September 2024. Now to take more questions from the participants, a detailed presentation has been uploaded on the company's website and on the stock exchange. Now we would like to address any questions or queries you have in your mind. Thank you. Over to you, Navin.
Thank you very much, sir. [Operator Instructions]. Our first question is from line of Saumil Shah from Paris Investments.
Sir, on consolidated basis, our EBITDA margin is in the range of 17% for this quarter. So where do we see the range settling for the remaining half of this year?
Yes. We are expecting the similar range in the coming quarters too, sir.
Okay. Okay. And sir, I mean, considering the current demand scenario, any guidance you would like to give for FY '26?
As I read in my opening remarks, we don't see much of a difference in the next couple of quarters. But as I said, something like 20 million, 25 million tonnes of new capacities, which we talked about out of 100 million tonnes. We expect about 20, 25 of them to be operational, let's say, sometime in the second half of next year. So that will obviously increase the demand.
Okay. Okay. And sir, my final question, sir, any update on this demerger of HEG GreenTech? .
I'll ask Puneet, our Chief Strategy Officer, who is pursuing that.
Good afternoon. So our scheme of arrangement is today with the stock exchange. I think in a couple of weeks, it will go to SEBI for the approval. Once SEBI approves it, then if we go to NCLT, we feel that by the -- by October or September '25 with the -- the entire process will be completed, and the company will be listed, HEG.
This is what we had originally said. I mean we are more or less on track.
So there was a big delay of 1 month, due to the split which we have done in between, but everything is track.
On track..
And sir, in one of the interviews, we had mentioned that we are looking at an EBITDA of INR 1,000 crores in the next 2, 3 years for HEG GreenTech tax. So I mean, anything you would like to say about that?
So we -- it is too early to say because the annual projects, which we are envisaging and we are portraying, it has some lag for a quarter or 2. So we expect that by next conference call we will give you the better timeline on the EBITDA for the coming years for the new company. But the business is on track. .
So as of now, is there any -- I mean, sales from this company, HEG GreenTech, I'm sorry, I'm not tracking this.
If you ask me about HEG GreenTech, today it holds the hydro assets, which has the business and they are generating the revenue and the EBITDA, which is being shown in the HEG books also. Apart from this, our battery storage company is also doing very well, and we have won a couple of contracts here. So we are expecting to have a good turnaround in our company. Apart from this, we have some wind assets, which are generating the EBITDA. The future revenue and EBITDA will be coming from the anode part which is the major asset we have here.
Okay, so as of now, GreenTech EBITDA would be how much?
As of now, the EBITDA will be -- it will be in a range of -- at a consolidated business, you are asking?
Yes, yes. Consolidated.
It will be around INR 125 crores, the dividend that you receive from the hydro assets today.
On a consolidated basis, the EBITDA is between INR 275 to INR 300 cores.
That is once the scheme is approved and 100% of Bhilwara Energy shares belong to the GreenTech.
Correct, correct. So yes, post the consolidation of the entire hydro asset and the HEG GreenTech, the EBITDA is between INR 275 to INR 300 crores seeing the numbers today.
[Operator Instructions]. Our next question is from the line of Aryan Sharma from B&K Securities.
Actually, I had a question about the pricing scenario. So since we saw one of the major global players, Resonac, increased pricing around 20% in September. So we are still saying that margins will remain subdued. So what would be your outlook on spread of the rest of the year and what do you think about this price hike, which the global players came out with?
We've seen that announcement that you are talking about. But we have been seeing that on the ground. But the obvious question is with the demand, there is a pressure on demand, there is extra capacity worldwide. So we are basically not seeing any impact of that 20% increase. They are -- everybody is attempting to do that, but it is not going through.
Okay. Okay. Sir, final question. You mentioned that you have the highest capacity utilization globally currently. Sir, could you mention what is the average global capacity utilization in GE right now?
We are at about 80%, and some of the major foreign players are more or less at about 50%, 55% and probably the other Indian companies at about 60%, 65%.
These are all public data. This is all available. They're all listed names.
[Operator Instructions] Our next question is from the line of Pradeep Rawat from [indiscernible].
So sir, can you name some of the major global player in graphite electrode business?.
Basically, there are only 4, 5 of us apart from us and Graphite India in our country, there are 2 large competitors of ours who have more less 1.8 to 2x of our capacity, but they are several plants and then one is called GrafTech International, which used to be using carbide about 20 years ago. And about -- till recently, it was part of Brookfield and now its a professionally-run independent company. They have about 180,000 tonnes and then there's a Japanese company called Showa Denko. It's a very large conglomerate where graphite business is a very, miniscule kind of percentage. They have about 200,000, 210,000 tonnes, but again at 4 different locations. And all these locations are in Europe, America and Japan. So obviously, over these locations, we have certain advantage of costs.
Okay, sir. And what is the status for our graphite anode plant?
The status of our anode plant is as follows and I'll be as candid as I can be. So the global battery prices, the cell prices for which we will supply this product have sharply come down as you may know, from around $85 to $100 -- $0.85 to $1 per kWh. And now they've come down to around the level of $0.55 to $0.60 per kWh. Now this obviously depends on different applications like energy storage or EV cars. So for the sake of prudence, we are taking our top line, which we were expecting 2 years back, let's say, at 9,000 to 10,000, we are doing all the project planning at 6,000. So we are going back to the state government, trying to get some subsidy on power, because power will be the major component in this around 15,000 units of power per kg of production in this particular product. .
So while we have the land in place, we've leveled the land, we are ready to place the machinery order, but we are still fighting with the different state governments for giving us slightly more subsidy to make the project commercially viable from day 1.
So that is the status right now. We are ready to break ground tomorrow. I mean after this call, technically, we can break ground but we are purposely holding back. And I think at the end of December, middle of January, we'll have 2 very good letters from 2 different state governments giving us different power rate, the deficit power rate, and capital subsidy that will help us make this project even more successful at $6,000 per ton also. So after doing all the sensitivity of $7,000, $8,000, or $5,000 [indiscernible], $6,000 is a very conservative number that we've taken. And we are going to start construction of this plant as soon as we get the extended benefits from the state government and ...
Our next question in from Dhawal Doshi from Dymon Asia.
Just continuing on the previous question, if we can just elaborate a bit more in terms of the kind of return expectations that we have assuming status quo, which is no incremental subsidies that the government -- any of the state governments are offering how would that be and what would change with the state subsidies coming in? And secondly...
I'll tell you in terms of simple, very simple words. If we get no subsidy from the state government, then also our project payback on paper becomes 9 to 10 years. But if we get those subsidies from the state government, the project payback goes back to around 6 years which is basically a higher rate of results. At 6 years, we are looking at more than 20% return on equity, which is what we desire at this point in time. Having said that, all the cell companies also, which were putting up their cell capacities in India, they've all kind of seen the decline in prices. They also are doing the same kind of what that we are doing. And with our pilot plant, we are already working with those companies and seeing a lot of success as to how much we'll be able to sell the product at and the quality.
Sir, in terms of the product approvals, at what stage are we and...
So in terms of product approvals, fortunately, our pilot plant is fully up and running since the last 1 year. And we are working on at least 28 different permutations and combinations of raw material that we need. And we are working very closely with all the cell companies, whether they are in India or abroad. And on the technical front, I can assure you that on almost all parameters, we are not only achieving the global standard but we are also beating them.
So this plant is definitely coming, whether 3 months here 3 months there, I cannot say and whether we sell in the domestic market or export market and once again from the point of view that you are -- I mean, we are assuming 45% capacity utilization in year 1, going up to 60%, then going up to 75% and going up to 90% because this is not a commodity products 90% is right, but we have to work very closely with the cell makers so that there is complete standardization of that product. But the pilot plant is greatly helping us to kind of resolve that provlem. So once the plant is up and running, we want to run it at least at 45% utilization from day 1.
So our assumption in terms of the payback is assuming what kind of utilization is 45%, 60%, 70% and 90% what you mentioned..
Yes. 45%, 60%, 75%, and 90%, and that is all included in the payback calculation and taking $6,000 as the most pessimistic price for selling of the product.
And how long do you think, sir, will the construction take once we break down?
So let's say if we start tomorrow, this will take around 18 months. The longest lead time in this is the 220 kVa line, but we can start production, you look at because you would be operating at 100% capacity utilization.
In short -- I mean, right now, we've taken INR 6 as the power cost, but we are trying hard to negotiate with the government, to get us power at INR 4.5 per unit. When that happens, there is absolutely 0 problem in this project.
So given we have [indiscernible] plant, can't we use them as in terms of restructuring PPAs or because Bhilwara energy plants will be part of the demerged company, right?
No, no, no, but that company, the Bhilwara Energy, we have a -- it's a run of the river plant and it has its own reservoir, which basically produces 60% of its energy at peak power, so we are able to sell that power at INR 8, INR 9 to the state government and the average cost of selling that power becomes around INR 6. So I mean, keeping this at arms length why should we take that power, which we are able to sell tomorrow to the state government at INR 6 and make more money there.
We'd rather negotiate with the state governments to give us cheaper power over here. Or also, at the same time, looking at solar PPAs, captive power, et cetera, et cetera, as all the actions. So when I speak to you, I mean, before the last con call and this call, a lot of work has actually happened on the ground in terms of trying to work with the different companies. But we have the captive power plant that we're talking about for Bhilwara Energy which will be part of the company. We don't want to make the 2 things up because there we are already getting an advantage selling the power at an average of easily more than INR 6 per unit.
So it will be foolish for us to use that power for this particular project. And moreover, sending this power from Himachal to, let's say, Madhya Pradesh, is more or less impossible. It's too expensive. Because green power the government has exempted like you can put the power in Karnataka, power plant in Karnataka and sell the power to your, but that is only limited to solar power. Because as the Chairman just mentioned that getting this power from Himachal Pradesh to Madhya Pradesh or Orissa, wherever we set up this plant, there will be so many government surcharges, et cetera, et cetera, that INR 1, INR 1.5 will actually going into that.
So instead of selling the power straight at INR 6 and getting that advantage to Bhilwara Energy, we are not even looking at that option of kind of selling that power to this particular plant. But we are very confident. I mean, Orissa as a state let's say, already has a policy of INR 4.5 power. But again, that would mean going and buying new land, doing an entire setup, environment approval. So as I talk to you today, we are in a position tomorrow to open LCs for all the machines, give out all the civil costs. But we are just holding back on that for 3 more months, so that we can get cheaper rate from the government.
And having said that, all the cell capacities also that were coming up in India, they are coming, but they are also well delayed by a year or 2. So we don't see a problem in each kind of a 3- to 6-month delay on this project. And no money has been spent except for buying the land here. So you don't have stuck money which is going into kind of making the project not viable.
And what is the project cost that we're looking at total?
We are looking at INR 1,750 crores, which is including INR 100 crore unnecessary cost of 220 kVa line that we have to build over 52 kilometers. So that is the long lead item actually. But the total project size for the 20,000 tonnes is around INR 1,750 crores.
Okay. Just one more question with regards to the electrode pricing. So the Chairman did mention that the prices aren't getting absorbed on the ground despite of the announcement by Resonac for a 20% hike. Is it to do with the Chinese electrodes still coming into the market and coming at much lower pricing? Or it is to do with the overall weak demand environment as well?
Let me take this question. It's a combination of both. So Chinese electrodes are coming, and they are coming quite a lot in India, especially. But as we have always maintained that we also produce about 25%, 30% of our products, which are what we call non-ultra-high power. So in that segment, China -- we do compete with China. And to that extent, I mean, Chinese prices are crazily low. So you don't even want to compete with that.
Okay. Sorry I'm Riju this side. Sorry I'm just commenting in between, like Iran is completely kind of blocked from our market right now because of all the sanctions. So all the Chinese products are getting dumped in Iran. Now with all the geopolitics changes happening, et cetera, et cetera, we don't know what's going to happen tomorrow. If that market reopens for us, then obviously, it takes a lot of pressure off our head in terms of volumes. 4 years back, Iran used to be a major market for us.
Yes, that's correct.
So right now, I think when the Chairman is talking about 80% capacity utilization, et cetera, it is all without Iran. Tomorrow if Iran actually comes on the global map by any chance, we don't know what's going to happen 3 months, 4 months down the line, then definitely, our supplies will increase to that region also because we were always very strong over there.
And Iran is a hot market. I mean they consume about 40,000, 45,000 tonnes every year. And they used to buy practically everything from India 7, 8 years ago till the sanctions were put on them.
Okay. So right now, if you were to touch a bit more on the realization part. The current realizations and do we see any bit of an improvement or practically no more improvement?
It's very difficult to put a number. I mean, basically, if I were to guide it, I would say more or less similar numbers.
Okay. So the global plants operating at below cash cost, we need to see how long do they take to blink. Is that the correct understanding?
And that is exactly what I said when I said we have the single largest plant and that plant happens to be in India versus most of the major plants in Japan, Europe and U.S. So we do have that advantage. And that is why you see the difference between our capacity utilization versus others.
[Operator Instructions]. Next is a follow-up question from Dhawal Doshi from Dymon Asia.
Sir, if you can just elaborate how do you see the CBAM mechanism changing the industry dynamics going into CY '25 and '26?
No, we are very bullish. I mean, as I said, about 100 million tonnes of new electric arc furnace capacities have already been announced. And when I'm saying 100%, I mean, 100 million tonnes has been announced. Out of that 100 million tonnes, we believe that somewhere in the region of 70 million tonnes are such where the grounds have been broken. The orders have been placed for all the equipment. Because as you know, electric arc furnaces of large capacities of 1 million, 1.5 million, 2 million tonnes, they take about 2.5 to 3 years to build. And these are all greenfield plants.
So our confidence is coming from the fact that out of that 100 million tonnes, which have been announced till now, about 65 to 70 million tonnes are due to start operations between 2025, '26 and let's say, first half of '27. So our confidence is coming from that number, that 65, 70 million tonnes are definitely coming. I mean the grounds have been broken. Obviously, the construction has started, the equipments have been ordered. And I don't want to publicly give the number -- the breakup of that 65 million tonnes, but we do have certain numbers for '25, '26 and '27 separately.
So we are pretty confident there. And we have an advantage that we have been in exports for more than 30, 35 years. And from 30, 35 years, our exports have been more or less in the region of 2/3 and 1/3. So 1/3 Indian market, 2/3 exports. So our -- we have relationships. We have been selling to all these customers for the last 30, 35 years. We have been exporting 2/3. So it's only a matter of time. I mean -- and obviously, these existing customers are the ones who are adding all these 100 million tonne capacity. There are not too many total newcomers, so to say. So it's only a question of building these new capacities of electric arc furnace, needing more electrodes. So even if we continue to sell the same market share that we today have with them, running at 80%, 85% is not a problem.
Sir, my question was more to do with how China is likely to react and also to do with the pricing. I completely understand in terms of the overall volume game that you're trying to say, but that was a similar story probably a few years back as well before China actually started ramping up their electrode production into the global market. So...
No. Just to remind you, I mean, see, any steel producers, electric arc steel producer who buys electrode, he buys more or less 3/4 of his electrodes, which is called ultra-high power. And 25%, 30% is the small ladle furnace as they call. So while we do compete with China, but our competition is limited to that 25%, 30% of the non-UHP. Most of these new furnaces, which are coming up in the western world, they are all going to be 1 million tonnes, 1.5 million tonnes, 2 million tonnes kind of furnaces, which will require 65%, 70%, 75% ultra-high power. So we don't compete with China in that segment. And it is not just us, but all the other 4, 5 international graphite players. So...
correct me if I'm wrong, sir, but China is gaining acceptance even in the UHP segment?
It's a very loose term. I mean it's not easy to explain on a call, but we can have a one-to-one call and I can explain to you in detail. It's a very, very loose term, what is UHP, what is non-UHP. But yes, I mean, if you go literally, then China can produce something which is on the very low end of UHP. But beyond that, China cannot. And one thing, again, I'll remind you, the cost of electrode for a steel company is less than 1.5% to 2%. So they don't want to take any chance on a product where it costs them only 1.5% to 2%. They want to be very sure about the quality. And they don't want to take that chance that to save that 1.5%, 2% if they buy an inferior product, then what they use is much, much more than that 1.5% that they say.
Okay. Sir, secondly, with regards to China, once again, when I said CBAM mechanism and its impact on China, this time I'm referring more to the mode of steel production. Do you see China shifting more towards its electric arc furnace production despite of a higher cost probably running into the second half of next calendar year?
I'll tell you, you see until about 4, 5 years ago, if you remember the electrode boom, which came in 2018, '19, China was at that time also producing more than 50% of the world's steel. And while rest of the world was producing 40% of their total steel through electric arc furnace, China, which was the other half, China was only producing 5%. So the difference between China and rest of the world, in which I'm literally taking each country, North America and everybody. So that part of the world was producing 40% through electric arc furnace and China was producing 5% and today and when that boom happened, it basically happened because China announced on a particular day 5 years, 6 years ago, that they want to close 140 million, 150 million tonnes of blast furnaces simply to control their pollution and replace it by 150 million tonnes of electric arc furnace again, to control the environment and the pollution and all those things.
So while they had announced their intentions to go from 5% to 20% in the next 5, 6 years, they have reached about 13%, 14% by now. So China has more than doubled their share of electric arc furnace, but it still is very small at 13%, 14% compared to the rest of the world, which was already at 40%. And now to complete the story, the rest of the world, which was 40% about 5, 6 years ago, has already gone up to 50%. So in the world context where the growth is hardly 1%, 2%, 2.5% every year, a growth from 40% to 50% is like 25%.
So electric arc furnace in the last 5, 7 years minus China has gone up by 25%, 40% to 50% and in the near future, it is likely to go to 60%, 65% as and when we are talking about that 75 to 100 million tonnes of new capacities coming in. So the rest of the world will go up to 65%, 70%. And that is where we are hoping that the electrode demand should rise by anywhere in the region of 150,000 to 200,000 tonnes, which is exactly what our other 2 major international competitors from U.S. and Japan have been talking about. I mean these are all public information. It's all on their website. Our numbers and their numbers are more or less matching. Everybody is saying that this 40% has become 50%, 50% is going to become 60%. So 40% to 60% in the world context is a huge number. You're talking about more than 50%.
Correct me if I'm wrong. But this 40% to 50% is...
40% to 50% has already happened.
No, no. What I'm trying to understand is this 40% to 50% and 50% to 60% is a function of the share or the absolute production on the blast furnace side coming down, right?
Exactly.
It's not to do with the absolute production of electric arc furnace going up. So while the percentage share does look good, what I am trying to understand is will this mechanism actually lead to an increase in production from the electric arc furnaces because till the absolute production starts going up...
I understand what you're saying. But if you see the steel production number minus China, it has declined by maybe 1%, 1.5%, 2%, 2.5% in the last 2, 3 years, it's a very abnormal situation. I mean we just got out of the COVID in 2022 -- 2021, '22. So that was a different reason. And then all the geopolitical scenario that we have seen in the last 2, 3 years, it's not going to be permanent like that. So coming from COVID and the last 2 years because of the Ukraine, Russia and Israel and Gaza and things like that. So it has to stabilize one day. I mean it's been 4, 5 years now.
So obviously, it's not related to electrode, but everything is impacted by the world situation. But the only good part in our business is that 40% has become 50% and 50% is likely to go to 60%. And in that context, as we are always speaking about that our expansion came from 80,000 to 100,000 at the same location. At 80,000 tonnes already, we were having certain advantages of cost in India. So that cost has further been impacted positively for us in the last 9 months or so since we have gone to 100,000 tonnes.
So until last year, while we were speaking that our capacity utilization was 70%, 75%, 80%, that was based on a capacity of 80,000 tonnes. So in the last 9 months and today, now we are talking of 80% on 100,000 tonnes. So if you look at the total tonnage, 80% of 80,000 versus 80% of 100,000. So we are able to produce more additional 10,000, 11,000, 12,000 tonnes and find a market for that in a situation, in a world where the total electrode demand has gone down, total consumption has come down for the reason that we just spoke about. So we have been able to increase our market share basically. I'm not talking of India, I'm talking of India plus the rest of the world.
Okay. Sir, with regards to graphite, our investment...
Sorry to interrupt, Mr. Dhawal. We request you to get in touch with the SKP Securities team to arrange an offline call.
Our next question is a follow-up from the line of Pradeep Rawat from [indiscernible].
I have only 1 question. So for 1 MTPA ES plant, how much graphite electrode would be required?
See, depending upon the kind of furnace they are putting up, depending on the size of the transformer that they use, it's about 1.5 to 2 kilos per tonne of steel. So let's say, 1 million tonnes will mean 1,500 to 2,000 tonnes per annum. So that 100 million tonnes, I mean, we are talking about 100 million tonnes. If that 100 million additional capacity is built, then you're talking of an additional demand of anywhere between 150,000 to 200,000 tonnes.
Yes, that's annually, correct?
Annually, which is not small. I mean, currently, as we speak, the world demand minus China is about 0.5 million tonnes, 500,000 tonnes. So you're talking of 150,000 to 200,000. So that's a big number.
That was the last question in the queue. As there are no further questions, I would now like to hand the conference over to Mr. Jhunjhunwala for closing comments.
So thank you, friends. I mean we had some very good discussions, very pointed questions, and we tried to be as much as frank and as detailed in our explanation. I hope that helps. Thank you, and I look forward to talking to you again.
Thank you very much, sir. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you.