2 Smallcap stocks jump 12% after EU to impose carbon tax on steel and aluminium imports

Synopsis: HEG and Graphite India jumped after the EU’s CBAM tax is starting in January 2026. Steelmakers now face real pressure to shift toward electric arc furnace (EAF) steel, which relies on graphite electrodes. 

Shares of HEG Ltd and Graphite India grabbed everyone’s attention today after both stocks took off on the exchanges. HEG jumped by 12 percent, while Graphite India wasn’t far behind, jumping almost 10 percent. The surge came as investors digested global policy shifts that look set to ramp up demand for graphite electrodes, which are one of the key raw materials in cleaner steel production.

About the EU’s new Carbon framework tax

Starting January 1, 2026, the European Union plans to slap a carbon tax on steel and aluminium imports. The policy, known as CBAM (Carbon Border Adjustment Mechanism), comes down to this: the EU wants companies to pay for the pollution they generate while making steel. The more carbon a factory produces, the higher the tax bill.

CBAM isn’t just another regulation; it’s central to the EU’s climate agenda. The EU aims to cut greenhouse gas emissions by at least 55 percent by 2030 and hit climate neutrality by 2050. CBAM is the tool they’re using to get there.

Most of India’s steel exports rely on coal-based blast furnaces, which are big polluters. Once the new EU rule kicks in, this kind of steel will get pricier in Europe. Indian steelmakers wanting to stay competitive might have to reduce prices by 15-22 percent, squeezing their profits. In short, the old way of making steel will get more expensive.

So, why did HEG and Graphite India jump sharply today?

There’s a cleaner method for making steel, the Electric Arc Furnace (EAF). EAF technology emits 75 percent less CO2 than traditional blast furnaces. It runs on electricity and scrap metal instead of coal, resulting in much less pollution. But here’s the catch: EAF steelmaking relies on graphite electrodes.

That’s where companies like HEG and Graphite India come in. They manufacture these electrodes. As steel producers shift toward EAF to avoid the EU’s carbon tax, they’ll need more graphite electrodes. That spike in demand goes straight to the top line for both HEG and Graphite India.

With global demand climbing and supply staying tight, these companies hold a strong hand. HEG already exports about 70 percent of its output to about 35 countries, so it’s well-placed to ride this wave. As more steelmakers worldwide adopt EAF, the long-term prospects for graphite electrode makers look bright.

HEG currently has a capacity of 1,00,000 tons, which has made it the third largest graphite electrode manufacturer in the Western world. Not stopping there, HEG plans to expand by another 15,000 tons, aiming for a total of 1,15,000 tons by the end of 2027. Meanwhile, Graphite India stands as one of the largest Indian and global producers, with a total capacity of 98,000 tons per year spread across three plants, in Durgapur, Nashik, and Nurnberg.

Additionally, China dominates much of the world’s graphite supply. Recently, China has tightened its grip by restricting graphite exports, squeezing global supply even further. To add to the crunch, a major Japanese player (Japan’s Resonac) has shut its graphite electrode factories in China and Malaysia. Fewer sellers, just as more buyers enter the market, classic recipe for a rally.

In short, the EU’s new carbon tax punishes old-school steelmakers but gives a big advantage to companies supplying materials for cleaner steel, like graphite electrodes. Investors saw the shift coming, and that’s why HEG and Graphite India soared over 10 percent today.

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