Back in 2017-2018, Beijing’s strict environmental push forced many graphite‑electrode plants to shut down. That crackdown didn’t just clear China’s skies, it created a major supply shock in the global electrode market.
HEG, one of India’s leading graphite electrode manufacturers, emerged as a huge beneficiary. With exports accounting for around 60 percent of its production, the company was perfectly positioned to fill the gap left by Chinese capacity cuts. Its profitability exploded, and investors riding the wave saw extraordinary returns. However, this was more of a cyclical, one-time bonanza than a long-term growth story.
China’s “Blue Skies” Drive
China’s environmental crackdown, part of its “blue skies” push, went beyond rhetoric. Authorities shut down highly polluting induction-furnace steel plants and numerous graphite electrode units. According to HEG’s Q1 FY18 investor presentation, up to 50 percent of China’s graphite capacity was affected. At the same time, there was another bottleneck: needle coke, a key raw material for electrodes, was in limited supply, which constrained the rapid addition of new capacity.
Meanwhile, demand from steelmakers using electric-arc furnaces remained robust. This mismatch of high demand with sharply reduced supply helped open a rare window for non-Chinese electrode makers like HEG, allowing them to sell at record prices and generate extraordinary margins.
From Losses to Record Profits
HEG leveraged this window brilliantly. Its financial journey shows how dramatic the swing was. In March 2017, the company reported a net loss of Rs. 44 crore. By March 2018, net profit had jumped to Rs. 1,099 crore, and it peaked at Rs. 3,026 crore in March 2019. During the boom, HEG’s EBITDA margin reportedly reached 64.6 percent, making it one of the most profitable graphite electrode producers globally. During this period, the stock also surged, reaching its all-time high of Rs. 991.80 on 1st October 2018, an increase of almost 3,000 percent in just two years, reflecting how Dalal Street rewarded the company for the sudden boom.
When the Shock Faded
As China gradually restarted or restructured graphite capacity, and new supply entered from other regions, the pricing tailwinds began to fade. Over time, HEG’s profits normalized and investor enthusiasm cooled. The stock mirrored this decline, tumbling to Rs. 79.72 by 2nd March 2020, highlighting the extreme volatility tied to the supply-driven boom. The Net Profit Slid to Rs. 68 crore by March 2020 from Rs. 3026 Crore in March 2019, marking a decline of almost 98 percent.
Why It Was Accidental
HEG’s extraordinary run on Dalal Street wasn’t the result of a long-term growth story, technological edge, or a game-changing business model. Instead, it was largely driven by a temporary global supply disruption triggered by Chinese environmental policy. This is why HEG can be called an accidental multibagger. While the company executed well and captured the opportunity, it also highlights a key lesson for investors, relying on geopolitical or policy-driven commodity shocks can produce enormous returns, but the moment the tailwinds reverse, profits can drop sharply.
Written by Manan Gangwar
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