EAF - NYSE

Good morning, ladies and gentlemen, and welcome to GrafTech First Quarter 2025 Earnings Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Mike Dillon. Please go ahead.

Thank you, Jenny. Good morning, and welcome to GrafTech International's first quarter 2025 earnings call. On with me today are Tim Flanagan, Chief Executive Officer; Jeremy Halford, Chief Operating Officer; and Rory O'Donnell, Chief Financial Officer. Tim will begin with opening comments. Jeremy will then discuss safety, the commercial environment, sales and operational matters. Rory will review our quarterly results and other financial details. And Tim will close with additional comments on our outlook. We will then open the call to questions. Turning to our next slide. As a reminder, some of the matters discussed on this call may include forward-looking statements regarding, among other things, performance, trends and strategies. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investor Relations section of our website at www.graftech.com. A replay of the call will also be available on our website. I'll now turn the call over to Tim.

Good morning, and thank you for joining GrafTech's first quarter earnings call. During the call this morning, we'll provide an overview of our first quarter performance, share key operational and commercial updates, and discuss our outlook for the rest of 2025 and beyond. But I'd like to begin with an update on the proactive steps that we've been taking in response to the current industry conditions and increased macro uncertainty. Just over a year ago, we began outlining a series of strategic initiatives. Our objective was to increase sales volume, regain market share, right-size our capacity, reduce our costs, decrease working capital levels, improve our liquidity, and strengthen our financial foundation, all the while maintaining flexibility to generate strong returns when the market recovers. I'm pleased to report that we continue to deliver on all fronts. While the near-term market conditions remain challenging, we have made enormous strides in our strategic initiatives and we're excited about the opportunities that lie ahead. Let me expand on this by noting a few recent highlights. We are leveraging our customer value proposition and capitalizing on our commercial momentum to drive further volume and market share growth. We grew sales volume by 2% year-over-year in the first quarter. More importantly, we remain on track to increase our sales volume by a low-double-digit percentage on a full year basis for 2025 compared to last year. This will result in cumulative sales volume growth of approximately 25% since 2023. This is impressive growth in any market, but is particularly the case as demand for graphite electrodes has been relatively flat for the past two years. However, weak demand and excess capacity have led to challenging pricing dynamics, which persist in nearly all of our regions. Simply put, the current level of graphite electrode pricing remains unsustainable. As we've consistently noted, a reliable supply of high-quality graphite electrodes is indispensable to EAF steel production. Therefore, a healthy and growing steel industry requires a healthy graphite electrode industry. Recognizing these challenges, we have taken and will continue to take significant actions to improve our overall financial performance. These include ongoing actions to shift the geographical mix of our business to regions where there's an opportunity to capture higher selling prices. And sometimes, this means walking away from certain volume opportunities where margins are unacceptably low and customers do not recognize our value proposition. A key goal is to grow our volume and market share in the United States, which remains the highest priced region in the industry, and we're doing just that. In the first quarter, we increased our sales volume in the United States by nearly 25% year-over-year, which also represents a step change in our US share, and we're not done. On a full year basis for 2025, we expect to outpace first quarter growth rate as we continue to increase our market share in this key region. While shifting the geographic mix of our business is important to optimize our order book, ultimately, the absolute level of pricing needs to increase. Earlier this year, we informed our customers of our intention to increase our prices by 15% on uncommitted volumes for 2025. This increase is the first step necessary on a path to restoring pricing and, therefore, profitability levels that will support our ability to invest in our business. As we head into customer negotiations related to volume for the back half of 2025, we look forward to discussing the incremental value we provide that supports a higher price point. This value proposition includes an extended portfolio of high-quality products, further enhancements to our world-class technical services and support, and providing our customers with reliable supply through our integrated and flexible production footprint. This is increasingly important given the current uncertainty around global trade. All of these and other elements of our value proposition support our customers' ability to produce high-quality steel without disruption to their operations or performance. Ultimately, our commercial approach reflects a customer-first mentality that permeates our organization. We are unwavering in our commitment to serve our customers and be the most trusted and value added supplier of high-quality graphite electrodes. Allow me to pivot to cost and operational excellence. Our team has done an incredible job of dramatically improving our cost structure. In early 2024, we laid out a plan to aggressively reduce all of the elements of our cost structure, from fixed and variable operating expenses to corporate overhead costs. The results have been significant. In 2024, we delivered 23% year-over-year reduction in our cash COGS per metric ton. For 2025, we remain on track to achieve our guidance of an incremental mid-single-digit percentage year-over-year decline in cash COGS per metric ton. Importantly, all of this is being accomplished without compromising our product quality and reliability nor our commitment to the environment or to safety. In fact, based on our year-to-date performance, we are on track for a third consecutive year of lowering our total recordable incident rate. These results are a testament of the hard work and attention to detail of our more than 1,000 global employees. Let me now expand on a topic that has been top of mind for many companies, including GrafTech, global trade policymaking and the impact of tariffs on our business. As this remains a fluid situation, our focus has been on continuously assessing a range of tariff outcomes and taking proactive measures to mitigate potential impacts. To illustrate this point, let me describe how we're approaching the situation regarding US tariffs. We're proud of our ability to serve our customers across a variety of markets through our world-class graphite electrode manufacturing facilities located in Mexico, France and Spain. In addition, we continue to have supplemental electrode and pin machining and shipping capabilities at our idle production facility in St. Marys, Pennsylvania. All of these facilities are enabled by our needle coke production facility located in Texas. Our integrated and global production network provides flexibility around where we manufacture our products and how we deliver them to the end markets in an efficient manner. In addition, we maintain inventories in various geographies around the world. Given the higher level of uncertainty related to the US tariffs and potential retaliatory tariffs, we staged additional inventory in St. Marys in anticipation of these announcements. This provides us with further flexibility in the near term. But more importantly, the materials coming from our facility in Mexico to the US are USMCA compliant and, therefore, are not subject to current tariffs. Further, to the extent that the current tariffs against EU remain in place or are increased, these tariffs would be reduced by the amount of content in the goods that originated in the US. Therefore, for our electrodes produced in our European facilities, the value of the needle coke produced in the US and the value-added activities conducted in the US will significantly reduce the impact of tariffs. As such, we believe we're well-positioned to minimize the potential impact imposed by the evolving trade policies and estimate that this will have less than a 1% impact on our full year cash COGS per metric ton. In addition to considering the direct impacts on our product flows, we also continue to assess how various tariff scenarios might impact steel industry trends and the commercial environment for graphite electrodes. For example, expanded Section 232 tariffs have been implemented on steel and aluminum imports into the US without exemptions. Our view is that such tariffs on steel and aluminum will have greater staying power than other tariff programs that have been implemented recently. To the extent that higher Section 232 tariffs result in increased steel production in the US, we view this as an opportunity. Approximately 70% of the steel produced in the US is manufactured via electric arc furnaces, which require a reliable supply of high-quality graphite electrodes. Given our market presence in the US, combined with newly introduced as well as increased tariffs that will impact certain foreign graphite electrode competitors, we're well positioned to compete for incremental demand from our US customers. Overall, we will continuously assess the trade policymaking environment and adjust our responses accordingly in order to minimize any potential impact and to capitalize on these potential opportunities. As always, our focus will remain on meeting the needs of our customers, and we're well positioned to do so. To briefly summarize my opening comments, we've laid out a plan to manage through the near-term industry headwinds, and we're executing. All of our achievement reflects our absolute focus on managing the things within our control to preserve our flexibility to capitalize on a future recovery of the market. To that end, I'd like to express my appreciation for the remarkable efforts of our entire team across the globe. With that, let me turn it over to Jeremy to provide more color on our operational and commercial performance.

Thank you, Tim, and good morning, everyone. I'll begin with an update on safety, which is a core value at GrafTech. We're pleased that our recordable incident rate improved further in the first quarter. Maintaining this positive trend will continue to be a point of emphasis with our teams as we proceed through the year. When it comes to safety, we remain among the top performers in the broader manufacturing industry, but we will not be satisfied until we achieve our ultimate goal of zero injuries. Let me now turn to the next slide to discuss the commercial environment. On a global basis, steel production outside of China was approximately 209 million tons in the first quarter of 2025, which was modestly below the first quarter of last year. The global utilization rate for the first quarter also declined year-over-year, but was in line with the fourth quarter of 2024. Looking at some of our key commercial regions using data published by the World Steel Association earlier this week. For North America, steel production was flat in the first quarter compared to the prior year. Specific to the US, World Steel reported a 1% reduction for the quarter, reflecting a modest decline in what has been an otherwise relatively stable steel region. In the EU, steel output decreased 3% year-to-date and remains well below historical levels of steel production and utilization for that region. With that background, let's turn to the next slide for more details on our results. Our production volume in the first quarter was 28,000 tons. This resulted in a capacity utilization rate of 63%, representing a more than 500 basis point increase from the prior year. For the quarter, production exceeded sales volume. This inventory build was planned and is a result of one of our cost savings initiatives, which is to level load our production for the year. On a full year basis, our focus remains on balancing production volume with our expectations regarding sales volume. As it relates to sales volume, in the first quarter, we sold 25,000 metric tons. This was a 2% year-over-year increase and was in line with our expectations for the quarter. Of particular note, was our success in actively shifting a significant portion of our volume to the US, as we have discussed. In fact, we grew sales volume in this region by nearly 25% in the first quarter versus last year, which we are particularly pleased with given the 1% decline in steel production in this region that I mentioned earlier. Our average selling price for the first quarter was $4,100 per metric ton, which represented a 20% year-over-year decline. This decline was largely driven by the substantial completion in 2024 of the higher-priced LTAs that we have spoken to previously. Additionally, the lower average selling price in the first quarter also reflected the persistent challenges with industry-wide pricing. Our focus remains on mitigating these impacts in the near term, including the previously mentioned geographic mix shift toward the US. Similar to all regions, average pricing in the US is below year-ago levels, but it remains the strongest region for graphite electrode pricing globally. In fact, we estimate that the increase in our US volume for the first quarter boosted our average selling price by nearly $100 per metric ton. But coming back to my earlier point regarding the completion of the LTAs, when sequentially comparing our weighted average price for the first quarter to the more comparable non-LTA price we reported for the fourth quarter, we're excited to have achieved a price increase of approximately 5%. As part of our initiative to actively shift the mix of our business, Western Europe is also a focus area. To that end, for the first quarter, we increased our sales volume in Western Europe by more than 40% year-over-year. As pricing remains soft in this market, this will not translate into immediate support for our average selling price. However, this is an important strategic market for the long-term, given tariff protections and growth expectations that Tim will speak to in a moment. Increasing our share in the EU will position us well for recovery in this region. Given the muted demand environment, our success in growing sales volume in the key US and EU regions reflects our customer engagement strategy aimed at increasing our market share. It also reflects our compelling value proposition. As we have noted, this includes: unmatched technical capabilities related to our ArchiTech Furnace Productivity System, which is further supported by our world-class customer technical services team; ongoing investments in our research and development capabilities, further expanding GrafTech's leading position in graphite electrode and petroleum needle coke technology; a growing product portfolio, most notably with the recent introduction of our new 800 millimeter product and our unique position of being vertically integrated into needle coke, providing surety of supply for our key raw material. Ultimately, we remain committed to strengthening our customer relationships for the long term to achieve mutual success for years to come. Let me now turn it over to Rory to cover the rest of our financial details.

Thank you, Jeremy, and good morning, everyone. For the first quarter, we had a net loss of $39 million or $0.15 per share. Adjusted EBITDA was negative $4 million in the quarter compared to adjusted EBITDA being flat in the first quarter of 2024. The decline reflected lower average selling prices, partially offset by a 21% year-over-year reduction in cash costs on a per metric ton basis. Let me expand on the cost favorability, which included a couple of timing-related accounting items that had an outsized benefit in the first quarter. First, inventory written down in prior periods due to lower of cost or market inventory valuation adjustments had a $7 million favorable impact on COGS year-over-year for the first quarter of 2025. Second, the first quarter of last year included the accelerated recognition of $10 million of fixed manufacturing costs related to low production levels that did not recur in the first quarter of 2025. Combined, these two factors accounted for approximately two-thirds of the year-over-year decline in our cash cost per ton for the first quarter. The remaining decline reflected the impressive ongoing efforts of our teams in identifying and executing against cost reduction opportunities across various components of our variable and fixed costs. In addition, our cost structure continues to benefit from improved fixed cost leverage, reflecting the increase in volume. All-in, this resulted in cash COGS per metric ton of approximately $3,650 for the first quarter of 2025. As we have noted previously, we will have periodic quarter-to-quarter fluctuations in our cash costs recognition as a result of timing impacts. However, the key point is that our cost structure continues to trend in the right direction. On a full-year basis, we remain on track to achieve our projected mid-single-digit percent year-over-year decline in our cash COGS per metric ton for 2025. This would translate in the cash COGS per metric ton of approximately $4,100 for the full year. Our ongoing ability to reduce costs while continuously enhancing our customer service, our product quality and our performance remains an impressive accomplishment. Turning to cash flow. For the first quarter, cash used in operating activities was $32 million. Adjusted free cash flow was negative $40 million compared to adjusted free cash flow of negative $11 million in the first quarter of 2024. The change primarily reflected timing-related items in working capital, including the planned inventory build in the first quarter that Jeremy discussed. For the full year, we continue to expect that working capital will be favorable to our cash flow performance in 2025. These working capital benefits will be realized through a combination of production cost improvements and inventory management, while maintaining adequate safety stock of pins and electrodes. Overall, our use of cash in the first quarter was in line with our expectations. For the full year, we remain on track with the cash flow projections that underpinned our thesis for our recent capital transactions. Turning to the next slide and expanding on this point. We ended the first quarter with total liquidity of $421 million, consisting of $214 million of cash, $107 million of availability under our revolving credit facility and $100 million of availability under our delayed draw term loan, which is available to be drawn until July of 2026. As it relates to our $225 million revolving credit facility, which matures in November of 2028, we had no borrowings outstanding as of the end of the quarter. However, based on a springing financial covenant that considers our recent financial performance, borrowing availability under the revolver remains limited to approximately $115 million less currently outstanding letters of credit, which approximated $8 million as of the end of the quarter. Overall, our strong liquidity position, along with the absence of substantial debt maturities until December of 2029, will support our ability to manage through near-term industry-wide challenges, which is, once again, consistent with our refinancing thesis. Let me turn the call back to Tim for some final comments on our outlook.

Thanks, Rory. In summary, we've built a plan and we're delivering against it. As a result, we're growing our volume and market share, particularly with key customers in the US and the EU, we're reducing our cost structure, and we're effectively managing our working capital levels and cash position. All of this reflects on our focus on controlling the controllable during a challenging time for our industry, while putting GrafTech in a strong position for future growth as the market recovers. To this last point, while much of our commentary today is focused on the US market, let me expand a bit on the EU. As Jeremy noted, steel production in the EU remains below historical levels. However, we're beginning to see initial signs that point towards potential recovery in near to medium term. These include: the EU Commission's recent announcements related to their steel action plan, which demonstrate the Commission is taking steps to create policy backdrop that is more supportive for the domestic steel industry; in addition, Germany's recently announced infrastructure investment plan as well as EU-wide initiatives to increase defense spending should significantly boost steel demand in Europe in the coming years; and last but certainly not least, the potential end to the war in Ukraine should lead to increased steel demand needed for reconstruction, while boosting market confidence across the continent. As it relates to these demand drivers, the impact could be meaningful. In fact, one analyst projected that these combined factors could lead to a low-double-digit percentage increase in annual steel demand within the EU in the coming years as compared to the current level of steel consumption. Further, with graphite electrode inventories remaining at low levels in Europe, an increase in European steel production should lead to an outsized increase in graphite electrode demand. This is an important strategic market for GrafTech for the long term and our current commercial momentum in the EU that Jeremy spoke to positions us well for recovery in this region. More broadly speaking, as it relates to both the EU and beyond, we believe that decarbonization efforts will continue to reshape steelmaking in the years ahead. We're confident that the electric arc furnace will continue to increase their share of total steel production over time, which will drive higher demand for graphite electrodes. And with demand for petroleum needle coke, our key raw material also expected to rise, our vertical integration puts us in an advantaged position. To this last point, the growth of needle coke market is expected primarily to occur to support the building of a Western supply chain for electric vehicles and energy storage applications. And we share the market's confidence that this will be -- this growth will be significant. The establishment of those Western supply chains from a raw material manufacturing through to the OEMs remains in its early stages. However, we believe that the uncertainty caused by tariffs and the potential for international trade disruptions highlights the need for the West to continue to reduce reliance on other countries for continued critical minerals, such as graphite, and to accelerate development of a domestic supply with the support of policymaking. While we're closely monitoring these developments, we have also continued to build out our technical capabilities and demonstrate those to the key market participants. Thanks to these efforts and our deep expertise in needle coke and synthetic graphite, we are confident we are well-positioned to be a valuable strategic partner in this space. In closing, this is an exciting time for GrafTech. We've set out a plan to manage the current market dynamics, and we're successfully executing against it. As a result, GrafTech is in a strong position to benefit from long-term favorable trends that will shape the future of our industry. For these reasons, we're confident in GrafTech generating long-term value for our customers, our employees, our shareholders, our communities and all of our constituents. This concludes our prepared remarks. We'll now open up the call for questions.

Thank you. [Operator Instructions] Your first question is from Bennett Moore from JPMorgan. Your line is now open.

Good morning, Tim and team, and thank you for taking my questions.

Bennett, good morning.

In the past, you've talked about the U.S. market having the highest pricing, but also facing the most downward pressure. I guess I'm wondering with India material now facing at least 10% tariffs, has that changed the pace of declines at all?

Yeah. So maybe as a little bit of a backdrop. So historically, we have not seen any sort of trade protection around the U.S. market from imports coming out of India. We have seen it from the Chinese. And certainly, I think over the last two years, we've seen an influx of material coming from India into the U.S. market, albeit a relatively small share still compared to some of the Tier 1 suppliers, but that percentage certainly has increased. Now, I would suspect that as we look out into the future to the extent that those tariffs remain in place, whether they're at the 10% or the announced 26% level that, that will dramatically impact the availability of this market to the Indian competitors, just given the incremental cost as well as the freight disadvantage. And I think that's where we look to capitalize the most in terms of our proximity to the U.S. and the service that we provide to our customers here. So, ultimately, that is something that could be a bit of a landscape changer for us in the U.S. market.

Thanks for that. And then, real quick, you've mentioned you've gained share in the U.S., which is great to see. I'm wondering how much more room you think there is to go? Or I guess, said another way, where does your share stand now relative to Monterrey temporarily coming offline back in 2022?

Yeah. So, I would say that we're -- while we won't give specific numbers, we're ahead of where we were previously. And certainly, we're very pleased with the effort that the commercial team has made that resulted in the 25% increase in volume in Q1. And as we stated in our comments, we expect to continue to grow that share throughout the year. I think the -- we're not limiting ourselves to a specific percentage. I think I said that on the year-end call as well. We'll continue to partner with our customers in the U.S. I think in the U.S., in particular, our value proposition with ArchiTech, CTS, the new product offering, the demands of the U.S. market from a furnace performance perspective really align well to what we're doing at GrafTech from a technical quality basis. So, I feel very good about where we're at in the U.S. and North America more broadly and think there's still room for us to grow in that market. And that's not even including the benefits of a growing 800-millimeter market in the U.S. I think we've commented in the past that we did trials last year. We're completing some additional trials here successfully in 2025, which gives us access to even a broader market of U.S. customers as well as just overall demand growth, whether it be from tariffs or just organic growth for growth in the U.S. market from steel consumption. So, I feel very good and think we have a lot of potential here in the U.S.

Thanks for that, Tim. Best of luck.

Thank you.

Thank you. Your next question is from Alex Hacking from Citi. Your line is now open.

Yeah. Thanks. Good morning. I guess a couple of things. I'm not sure if you're willing to, but could you quantify what percentage of sales are now coming from U.S. and Western Europe? Is that north of 50% now for you guys, closer to 75%? Just trying to get some sense of the big market share gains that you've seen in the first quarter. Thank you.

Yeah, sure. I mean we'll disclose as we do on an annual basis. But certainly now, if you look at Europe and the U.S., from a volume and revenue perspective, we're well over 50% in both of those markets combined.

Okay. And then in terms of your supply to the U.S., I assume the vast majority is coming from Monterrey, but I guess, what's the balance there of supplying the U.S. from Monterrey versus Europe?

Yeah. So, if you think about kind of our commentary on all our calls, we really look at all three plants as an integrated system, right? And certain plants have certain capabilities. And I know we've talked on past calls that we continue to produce pin stock out of Monterrey. So, as a result, Monterrey is supplying pins for our global production network. So, I would say a substantial portion of the material for the U.S. market is coming out of Monterrey, but we do bring material in from Europe to service U.S. customers as well and meet the needs of this market, and we'll continue to do so, right? And I think as we talk about tariffs and what we laid out, we've got a pretty good action plan as to how we mitigate that.

Okay. Thank you. So, then when you said that there would be less than 1% impact on COGS from all of this, that's inclusive of whatever tariff you're paying on the non-U.S. material from your European...

That's right. Yeah. So when you think...

Okay.

Yeah. So, when you think about the material coming out of the USMCA compliance, so Mexico to the U.S. as well as the material coming from Europe, we're bringing in semi-finished goods from Europe that ultimately are finished in the U.S. So there's a value add to that as well as the needle coke is all coming out of Seadrift. So with the structure of the tariff regime as it is today, that mitigates a substantial portion of the impact of those tariffs.

So, you -- this value add happening in St. Marys, that makes sense. And then sorry, one final one, if I may. Any commentary around like how successful that you've been with the 15% price hike on the noncontract customers? Is that something that the market seems to be accepting given that your peers are also looking to push prices up?

Yeah. I mean maybe I'll take an opportunity to provide a little bit of a broader comment here. I mean, we've consistently been saying we're in a tough part of the cycle, right? Demand is weak. I think pricing, I would still describe as unsustainably low across the market. Capacity utilization rates in the industry are, again, unsustainably low. It drives up costs. This is a high fixed leverage business. And I think if you look at -- at least most of the Western participants or the Tier 1 competitors are operating at a loss. So really is an unsustainable market if we stay in these pricing levels. We've taken a lot of action, first and foremost, around our costs, our balance sheet, our capacity with the idling of St. Marys and some other capacity around our network and still invest in R&D products and technical services. And we did all of that before we announced the price increase because it was important for us to show our customers who view as partners that we're taking steps in the same action to improve the overall health of this industry, and we led with that. Back in Q1, we did announce the -- sorry, the 15% increase on sales that weren't yet committed. And we'll get into those discussions for second half volumes here in the coming months. But I would say a number of our customers -- many of our customers certainly understand where we're coming from. They appreciate where we're coming from. They acknowledge that we are indispensable to their business and that they need us to be healthy and the market to be healthy for them to be successful long term. And also that we're a relatively small piece of their overall cost structure, but we're as important as every ton of scrap they put in their mill or every kilowatt of power that they pump into their furnaces. So, they get it, they understand it. But that's not to say that we won't have customers that push back or customers that it's a bit of a challenge. Not all markets are equal at this point in time. So, still optimistic that we'll be able to drive pricing in the back half of the year, but we think we've done the work necessary to set up the groundwork and set the landscape so that we can have these constructive conversations going forward with our customers.

Okay, thanks, Tim and team. Appreciate all the color. Best of luck. Thank you.

Thanks, Alex.

Thank you. Your next question is from Arun Viswanathan from RBC Capital Markets. Your line is now open.

Great. Good morning. Thanks for taking my questions. I hope you guys are well.

Good morning.

Yeah. I guess maybe first question would just be a quick update on the progress that you guys have achieved on some of the share recovery. Is there any way we can -- you can kind of frame that opportunity as far as maybe tonnage or volumes and what you expect kind of over the next year or so?

Yeah. I think probably the important metrics or data points to keep in mind, we're reiterating our belief that we'll have low double-digit growth in volume year-over-year. So, we continue to have good visibility into our order book and think that we have a strong path forward to continue to increase sales broadly. We've also grown our sales volume in North America or U.S. in particular, but North America as well and Europe as well. We always talk about our two most strategic markets and the two markets that historically have been the best end markets for our products that also very much mirror our operating footprint have been North America and Europe. And I think the team has done a fantastic job of growing sales in both of those regions, and we'll continue to see that mix. I think we'll be much heavier weighted into the Americas. If you think about our historic sales mix between the Americas versus Europe and the Middle East versus Asia Pacific, we've pretty much been 45%, 45% and 10%. I think you can expect us to be much more heavy weighted to the Americas, north of 50%. And Europe and the Middle East will hold drop a few points, but we'll also see a decline in Asia Pacific, again, just given the competitive nature of that market on an export basis.

Okay. Thanks for that. And then, it sounded like, obviously, the long-term outlook for graphite electrodes is still positive, driven by the long-term outlook for EAF steel production. But over the near term, I guess, where do you see kind of steel utilization rates going over the next, say, six to 12 months? I know there's a lot of uncertainty out there. But I guess -- and what are some of the drivers there? Would you say you're kind of feeling a little bit cautious just given kind of uncertainty on global industrial production and steel utilization? Or would you say that you're feeling a little bit more optimistic just given that you've gone through quite a bit of destocking and declines over the last few years already?

Yeah. I think broadly speaking, right, everybody, every business, regardless of the industry that you're in right now, has to have an eye or an ear to the ground, if you will, to understand where the markets are going. I think you see a lot of differing views on how the tariff and the trade policymaking is going to play out. And I think it's probably changed since we started this call. So I think we have to continue to remain diligent and continue to understand. I think we've put together a good cross-functional team organizationally to assess kind of all the potential ramifications. I think where they stand today, there certainly are opportunities for us, both in the U.S. and Europe that we'll look to capitalize on. But I think we're going to hear as we go through this earnings season, everybody is going to express some level of cautiousness or uncertainty. And I think we've heard that commentary already out of certain steelmakers that they're optimistic, order books are strong, but they're also foreshadowing at least a little bit of uncertainty as to what end customer demand is going to be. Right now, we feel good with who our customers are and what we're hearing from them in terms of our demand, and that gave us the confidence to reiterate our sales volume guidance for the year. And we do think there will be opportunities that come out of any sort of disruption. And that disruption could become from incremental demand or demand that materializes from the displacement of participants in the market. So, I think there's a number of ways we can benefit, and I think we're well positioned to take advantage of that.

Okay. And then, the other question I had was just on pricing. So, appreciating your comments on -- it seems like there's been some convergence in the market between spot and, say, maybe some other longer-term contracts, but how do we think about pricing going forward? I mean we have got oil prices kind of lower, which may drive needle coke lower, EV demand also lower, which may drive needle coke lower and that could ultimately result in lower graphite electrode pricing. We've got that uncertainty around demand, but then maybe there's some support from tariffs. I don't know if that's necessarily the case. So, is there any kind of guidance you can provide for us on how you think pricing for both electrodes and needle coke would evolve from here? I guess we've been bouncing along the bottom maybe on needle coke for a little while. And so maybe there's some optimism that things could get better there, but again, I don't know if it's feedstock driven or anything else. But yes, it's just so opaque for us. So, any guidance you can provide on some fair assumptions on price would be helpful. Thanks.

Yeah. I mean as we always do, I'm not going to get into particulars of what we see next quarter and the quarter after looks like as we're always negotiating contracts. But I think -- and breaking it down between needle coke and electrodes, on the needle coke side, I think we've been in the same trading range for probably almost a year to 18 months now. And I think you see some firm support at this level. So, any sort of incremental demand for needle coke or any sort of disruption in the market, I would suspect we'll start to see better needle coke pricing as we go forward. And as we've talked about on numerous calls, there's a direct correlation between needle coke pricing and electrode pricing. So, we do think there's still a lot of positive upside on that. But we will acknowledge, yes, there's uncertainty in the EV market. There's uncertainty around how that continues to develop. But I think if anything comes out of this current trade -- I won't call it a trade war, but this trade discussion or trade negotiation is that the Western governments are going to become less reliant on particular economies for critical minerals and supplies of essential items. So I do think we still have a very bullish outlook there. On the graphite electrode side, I think throughout '24, you saw a decline in spot pricing. And I would say that's fair to say that across every region globally, some held better than others. But from Q1 to Q4, prices were down. If we look Q4 to Q1 on a regional basis, I would say we're pretty flat. So while I won't necessarily say that that's a floor because you still have people that are maybe irrationally chasing volumes in certain regions or making decisions that we won't necessarily follow or make, we do start to see some price stability where we're at right now. And that's part of why we're announcing a price increase, part of why we're trying to shift our mix to those regions that all allow us to be positioned for a broader market recovery. We did see from Q3 -- end of Q3 through, I guess, end of Q1, an increase in Chinese electrode prices. Some of that was higher on the small diameter side, call it, 5% -- or 10% to 15% on the small diameter side, 5% to 10% on the large diameter, albeit still low and depressed from where they were in, say, 2022, that's a positive development because, again, that creates a little bit of a floor for the marginal volume that's picked up by the Chinese exporters. So, I think there are some things that are starting to provide some price stability. And I think we'll continue to focus on where we're selling, who we're selling to, emphasizing what we're selling, which isn't just an electrode that we drop at your gate and walk away until the next quarter and come back, the service we provide, the technology we provide, and we think all of those things will position us well.

Great. Thanks a lot.

Thanks, Arun.

Thank you. Our next question is from Kirk Ludtke from Imperial Capital. Your line is now open.

Hello, Tim, Jeremy, Rory, Mike. Thank you for the call and all the detail. With respect to the tariffs, could you remind us how much of the U.S. -- how much of the graphite electrodes sold in the U.S. are sourced from outside the U.S.? And if you can break that down by country of origin, that would be super helpful.

Yeah. So, we don't break down kind of plant-by-plant supply-demand dynamics, but I'd say, call it, roughly half, give or take, of the production coming into the U.S. is going to come out of Monterrey and the balance is going to come out of the two European facilities depending on the product.

Right. No, I was talking about the overall market. Like, I'm trying to think of how much of the U.S. market will be subject to U.S. tariffs, incremental U.S. tariffs. So, I'm just -- you mentioned India was...

Yeah. So, if you look at the predominance of suppliers, right, the largest shares are going to be held by GrafTech, the two Japanese competitors. They're both going to be subject to tariffs on material that they don't produce domestically. They do produce some in Europe, some in Southeast Asia as well as their pin stock that comes out of Japan. And then, you have the Indians who have a share of the market, call it, mid-teens percentage of the market, they would be subject and probably the biggest impact of the four biggest buckets of producers that sell into the U.S. market.

I missed the last part. So, the India about mid-teens, like 15% of the graphite electrodes [indiscernible] come from India?

Total graphite electrode -- yeah.

And then, how much comes from Japan?

So, I would say the remaining 85% is split between us and the two Japanese, and I would put us on the high end of that. I wouldn't just divide 85% by 3. I would put us on the high end of that.

Okay. You have the lion's share of that. Okay. That's super helpful. And of that -- of the graphite electrodes that are sourced from outside the U.S., to what extent can those graphite electrodes use U.S. needle coke, in other words, reduce the tariffs by sourcing U.S. needle coke? I know it's a tough -- probably a tough question.

Yeah. I mean, to the same extent that if we think about the global needle coke market, four major players, P66, us and then two Japanese producers. Some of P66's production is in the U.S. Some of it is in the U.K. So, to the extent that people are using P66 material out of the U.S., then they would be able to have the same benefit in terms of offsetting some of the tariff impact.

It sounds like most of those electrodes that are coming in from outside are using -- also using foreign sourced.

Yeah. I can't comment on what the actual splits are, but some are going to have some U.S. originated material and some aren't. But 100% of what we produce has domestically produced needle coke.

It sounds like these tariffs are going to be -- could be a pretty significant positive for you.

We very much think that it will be an opportunity for us to continue to increase our presence in the U.S. market for sure.

Got it. And to what extent do you think that trade negotiations are going to lead to capacity reductions?

I'm not sure how to speculate on that. What I would say is without an improvement in the overall economics of the graphite electrode market, people are going to start to make decisions around capacity because, again, while we were at 63%, we increased our capacity utilization here in the first quarter from where we were last year, us running our business at 63% isn't where we want to be. Others are facing the same or lower capacity utilizations. And so, everybody has to make the same kind of capital allocation decisions as they move forward. So, whether it's driven by tariffs, whether it's driven by dislocation of markets that people historically have served that can't serve any longer because of profitability or pricing in that region or whatever the driver is, I would expect that you'll continue to see discussion around capacity reductions as we continue to see and hear from others to balance out the market and try to not only push prices in regions, but also improve the overall profitability of the industry.

Got it. That's super helpful. Last question. So you mentioned that it looks like pricing is improving in the U.S. Have you noticed any change in the pricing outlook rest of world, particularly Europe since April 2?

Yeah. It's probably too early to say what pricing looks like from April 2. I would go back to what I said previously, I think pricing in all geographies declined year-over-year -- I'm sorry, from Q1 of last year to Q4, we're seeing stability from Q4 to Q1. But the U.S. market, the North American market still is a significantly higher priced market than the rest of the world. So, the $100 impact that Jeremy disclosed or discussed around that's being driven by our shifting more volume into the U.S. market and taking it out of less profitable markets.

Got it. Yes. You're benefiting from a shift in mix. I was just trying to think just apples and apples, how does the market look in Europe. You see that improving in Europe as well or...

Price stability -- kind of like when -- over the last couple of years, we've talked about inflation and the rate inflation is slowing versus not inflating. I think we're seeing price stability in Europe. I think the commentary we provided around Europe, whether it's the EU action plan, whether it's the incremental defense spending that is being announced by the respective governments, Germany's infrastructure bill, we're starting to see impetus in Europe to support their domestic steel and domestic industrial manufacturing. I think all of that will start to promote and give greater support for electrode pricing. Whether that manifests in Q2 or yet will be yet to be seen, but I think the backdrop and the opportunities are starting to present themselves.

Got it. I appreciate. Thank you very much.

Thank you.

Thank you. Your next question is from Ab Landa from Bank of America. Your line is now open.

Good morning. Thank you for taking my questions. How are you? Your sales volume in the first quarter was up 2.5%, and you also affirmed your sales volume guidance for up low double digits. I guess how does that sales volume, I guess, accelerate going forward? And then maybe embedded there, just how much of that volume for your double-digit guide is committed volume? And how much do you have to go out there and win?

Yeah. So, reaffirming our 10% or low double-digit increase year-over-year. I think Q1 is historically a lower or a seasonal timeframe as customers are managing Q4 inventory. So, you see a little bit of flux between what happens at shipments at the end of the year. So, there's always a little bit of inventory management that takes place. And just depending on the timing of when Q4 negotiations get wrapped, right, there's always a little bit of lag in terms of when you actually start delivering those volumes to those customers. So, we think that -- and the reason why we continue to produce on a level-loaded basis in Q1 is because we will be at that run rate as we move forward throughout the year. So, feel good about the volume prospects. I said before, we have good visibility into the order book. I would probably put us somewhere in the neighborhood of 75% plus committed at this point in time. So again, we have good visibility and on track with where we'd otherwise expect to be.

That's very interesting. Good color on the 75%. And maybe how kind of -- from my understanding, I think the U.S. has like been pretty much fully committed for this year. I guess if we're kind of thinking about Europe, I guess, how are discussions in Europe given just you have two of your big competitors are reducing capacity by midyear. I think one even talked about cutting additional capacity. Maybe how are discussions going in Europe?

Yeah. Maybe let me go back. I'm not sure I would say that the U.S. is fully committed at this point in time. I think we've described in the past that typically that annual buy that takes place in the back half of the year is about 80% of the need. So, we think there's always some opportunity for spot volume based on kind of normalized production levels. I do think there is potential for some upside as we think about the impact and where steel producers are running in the U.S. and again, both on increased demand, but also potential displacement of tons in the market. So, with respect to Europe, I think you're right, you continue to hear discussions around capacity. I think Europe is still well below historical levels from a steel demand perspective. But all of those factors that we've talked about a couple of times in terms of demand for steel in Europe, those are going to start to manifest themselves in customer conversations. And we are hearing -- I won't call it an overwhelming, but a marginally more positive tone from some of our European customers that are looking to lock in some volume and get ahead of some stronger production aspirations in the back half of the year.

And then, you kind of partially touched on this, but can you just maybe touch on this production volume disconnect and maybe tied to how your inventory went up. I think you kind of had some additional inventory in the U.S. And I guess if we're kind of thinking about going forward, should production volume kind of be a little bit more even. Just maybe how to think about kind of the cadence of those [two numbers] (ph)? That's it for me.

Yeah. Maybe just thinking about a couple of key facts here. The first one is that our goal is to minimize our production cost. And one of the ways that we can do that is by level loading our production so that at periods later in the year, we can avoid premium costs that we might otherwise be incurring. And so, we made the decision that it was worth investing in a little bit of inventory right now in order to keep our costs lower as we head into the back half of the year. And so, we have also said and we continue to be committed to that over the course of the year, our production will generally align with our sales rate. And so, the inventory build that we took in the first quarter of the year was planned and it was what we expected to do, and it's really just part of executing our annual plans. And that inventory will come out of the system over the course of the year as sales ramp in the back half.

Thank you very much.

Thanks.

Thank you. This concludes our question-and-answer session. I will now hand the call back over to Mr. Flanagan for closing comments.

Thank you, Jenny. I'd like to thank everyone on the call for your interest in GrafTech, and we look forward to speaking with you next quarter. Have a great day.