EAF - NYSE

Good morning, ladies and gentlemen, and welcome to GrafTech Second Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference call over to Mike Dillon, Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, Jenny. Good morning, and welcome to GrafTech International's Second 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 second quarter's earning call. Today, we'll provide an overview of our second quarter performance, share key operational and commercial updates and discuss our outlook for the remainder of 2025 and beyond. But before we dive into the details, I'd like to begin with an update on the proactive steps we are taking as it relates to the evolving industry dynamics and heightened macro uncertainty. We have outlined a series of strategic initiatives to meet our key commercial, operational and financial objectives. Our objectives are clear and include increasing sales volume and regaining market share, improving our average pricing through a combination of price increases and shifting the geographic mix of our volume to higher-priced regions, reducing costs and working capital requirements and ultimately to improve our liquidity and strengthen our overall financial foundation. Our initiatives have been designed to strengthen our competitive positioning, enhance our resiliency and ensure we remain well positioned to generate strong returns as the market recovers. The team is delivering on all fronts, and the results have been impressive. Allow me to highlight a few examples from our second quarter performance. We grew sales volume by 12% year-over-year in the second quarter and 16% sequentially compared to the first quarter. In fact, our sales volume in the second quarter was our highest level since the third quarter of 2022. Likewise, our capacity utilization rate increased to 65%, also the highest level in nearly 3 years. We achieved a 13% year-over-year decline in our cash COGS per metric ton, and we expect to exceed our initial cost reduction guidance for the full year. We generated positive EBITDA for the first time since the second quarter of last year. And lastly, our cash flow performance and quarter end liquidity position exceeded our expectations. Overall, we're very pleased with these second quarter results. However, I want to be clear, that doesn't mean we're satisfied with the current level of performance. However, we do view these results as a positive step in the right direction. These are signs of progress and momentum, providing a solid platform to build upon for continued improvement. As market conditions recover, we will remain well positioned to accelerate our path back to normalized levels of profitability. With that introduction, let me expand on our initiatives and performance in a few of these areas, starting with the commercial efforts. We are actively leveraging our strong customer value proposition and capitalizing on the commercial momentum we have built to expand our market share and drive continued volume growth. With the second quarter performance I referenced earlier, our year-to-date sales volume is up 7% compared to 2024. Further, we remain on track to increase our sales volume by approximately 10% on a full year basis for 2025 compared to last year. This will result in cumulative sales volume growth of approximately 25% since the end of 2023. This is impressive growth in any market, but is particularly noteworthy given the graphite electrode demand has remained relatively flat for the past 2 years. It's a clear indication that our strategy is working and that we're outperforming the broader market. However, we continue to face challenging pricing dynamics in nearly all of our regions. While this is partially attributable to the flat market demand, it further reflects the increased level of low-priced graphite electrode exports from China and others that we've spoken to previously, which has resulted in excess electrode capacity in the rest of the world. To navigate these headwinds, we are closely monitoring market developments and remain focused on disciplined execution across all areas within our control. To that end, we have taken and will continue to take decisive actions to improve our overall financial performance. These efforts include ongoing actions to strategically shift the geographic mix of our sales volume towards regions where we see opportunities to capture higher selling prices. In some cases, this means making deliberate decision to walk away from volume opportunities where margins are unacceptably low and we're not being compensated to the value proposition we provide. This is consistent with our commitment to a disciplined value-focused growth, not volume for volume's sake. A key element of this strategy is to grow our volume and market share in the United States, which remains our most profitable region. In the second quarter, we increased our sales volume in the United States by 38% year-over-year. This represents another step change in our U.S. market share and is providing significant support to our average selling price. For the second quarter, our weighted average price was approximately $4,200 per metric ton. Comparing this to the fourth quarter of 2024, where our average selling price for non-LTA volume was approximately $3,900 per metric ton, this represents an increase of nearly 8%. As overall market pricing has remained relatively flat over this period, the growth in our average selling price is attributable to the successful execution of this strategy. While optimizing the geographic mix of our sales volume is an important step towards improving the quality of our order book, the reality is the absolute level of pricing across the industry must increase to more accurately reflect the underlying cost, the value delivered and the essential nature of graphite electrodes. Earlier this year, we informed our customers of our intention to increase prices by 15% on uncommitted volume for 2025. This increase is the first necessary step on the path to restoring pricing and therefore, profitability to levels that will support our ability to invest in our business. Our customers recognize that graphite electrodes are a relatively small piece of their overall cost structure, but are just as important as the scrap they put in their mill or the electricity that powers their furnace. They appreciate the significant steps taken by GrafTech to improve the health of our business before coming to them with a price increase. While capturing higher pricing in a soft commercial environment is never easy, we're encouraged that we're starting to see price stability across many of our key regions. As we finalize customer negotiations related to volume for the balance of 2025 and head into discussions with our customers on their needs for 2026, we look forward to discussing the unmatched value we provide to our customers beyond just supplying electrodes of the highest quality. This includes the reliability of supply and our world-class technical services, all which support a higher price point. We are unwavering in our commitment to serve our customers with excellence and be the most trusted value-added supplier of high-quality graphite electrodes, consistent with our focus on nurturing long-term partnerships built on performance, reliability and mutual success. Allow me to pivot to cost. I want to acknowledge the outstanding work our team has done to significantly improve our cost structure from fixed and variable operating expenses to corporate overhead costs. Through disciplined execution and a relentless focus on efficiency, we've made remarkable progress in driving down costs and enhancing the overall agility of our operations. Further, our team continues to effectively manage the uncertainty caused by the evolving global trade-making policy and specifically the impact of U.S. tariffs. As we've consistently noted, our integrated global network of production gives us flexibility around where we manufacture our products, allowing us to serve end markets efficiently and reliably. In addition, we maintain strategically positioned inventories across key geographies, allowing us to meet customer needs even in dynamic market conditions. As a result, we are well positioned to minimize the potential impacts of those imposed tariffs. As we noted in Q1, we expect the impact of the announced tariffs to have less than a 1% impact on our 2025 cash cost, which is reflected in our updated cash COGS guidance. The current trade announcements also present opportunities for our business. We're closely monitoring how various tariff scenarios could influence steel industry trends and shape the commercial environment for graphite electrodes. For example, with the expanded Section 232 tariffs that have been implemented on U.S. steel or steel imports into the U.S., we continue to expect those tariffs will be stickier than the broader tariff programs that have continued to evolve. Further, we expect higher Section 232 tariffs will support an increase in steel production within the United States, and this presents a tremendous opportunity for GrafTech. Based on the latest statistics from the World Steel Association, nearly 72% of the steel produced in the U.S. in 2024 was manufactured using the electric arc furnace steelmaking approach, an increase of approximately 350 basis points compared to 2023. And as we'll discuss later in our comments, we expect this positive mix shift will continue. Given our strong momentum in this key region, combined with an increased tariffs impacting certain foreign graphite electrode competitors, we are well positioned to compete for incremental demand from our U.S. customers. Overall, given the fluid nature of global trade policy, we are continually assessing the range of potential tariff outcomes and taking proactive measures that seek to address the following: minimizing the risk for GrafTech, capitalizing on emerging opportunities and promoting fair trade in our key regions. Above all, our focus remains on meeting the needs of our customers, and we are confident in our ability to do so. Taking a step back regarding our second quarter performance, we're pleased that our efforts across all of the areas that I've discussed are beginning to translate into improved bottom line performance. This reflects signs of progress and momentum towards our objective of accelerating our path back to normalized levels of profitability. To that end, I want to sincerely thank our entire team around the world for their remarkable efforts, their resilience and commitment during this pivotal time. Their dedication continues to drive our progress and position us for long-term success. With that, let me turn it over to Jeremy to provide more color on our operational and commercial performance.

Thanks, Rory. To summarize our comments, we've laid out a clear, disciplined plan to navigate the near-term industry headwinds, and we're executing against that plan. Our objectives are to increase sales volume, regain market share, increase our average price, reduce costs, lower our working capital and strengthen our financial foundation. We are making meaningful progress across all of these areas. Our recent achievements reflect our unwavering focus on the factors within our control, allowing us to preserve flexibility and remain well positioned to capitalize on a future market recovery. To this last point, we remain bullish on the structural tailwinds that will support the ongoing shift towards electric arc furnace steelmaking. Globally, based on any data -- based on data recently published by the World Steel Association, the EAF method of steelmaking further increased its market share this past year, accounting for 51% of steel production outside of China in 2024. This is a continuation of the steady share growth that the EAF industry has experienced for a number of years. And driven by decarbonization efforts, we expect this trend to continue. In the U.S., which produces approximately 80 million tons of steel annually, over 20 million tons of new EAF capacity has either recently come online or is planned for the coming year, with further announcements expected as we move ahead. Given our strong commercial momentum in the U.S. and our focus on meeting the evolving needs of our customers, we are well positioned to capitalize on this demand growth. In the EU, as Jeremy noted, steel production remains below historical levels. However, we continue to see signs that point towards potential recovery in the near to medium term. As we've spoken to previously, these include actions being taken by the EU Commission to create a policy backdrop that is more supportive for the EU steel industry, as well as announced initiatives regarding investments in infrastructure and defense spending that should significantly boost steel demand in Europe in the coming years. Specific to EAFs, while some European steelmakers have announced temporary delays in their EAF transition plans, other projects continue to move forward. And we expect -- and we continue to expect a meaningful mix shift towards EAF steelmaking within the EU in the medium to longer term. Further, with graphite electrode inventories remaining at low levels in Europe, an increase in European EAF steel production should lead to an outsized increase in graphite electrode demand. Given the expected growth in demand and tariff protections already in place, the EU remains an important strategic region for GrafTech and has been another key aspect of our initiative to actively shift the mix of our sales volume. In fact, on a year-to-date basis through June, we increased our sales volume in Western Europe by approximately 27% year-over-year despite the year-to-date decrease in European steel production that Jeremy referenced. This increase in our European market share positions us well for recovery in this region. More broadly speaking, as it relates to both the EU and beyond, we remain confident 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. The growth of needle coke market is expected to primarily 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 growth will be significant. The establishment of those western supply chains from raw material manufacturing through to the OEMs remains in its early stages. However, we believe the uncertainty caused by tariffs and the potential for international trade disruptions highlights the strategic importance of the West reducing its reliance on other countries for critical minerals such as graphite and to accelerate the development of domestic supply chains with the support of policymaking. At this last point, a week ago, the U.S. Department of Commerce preliminary ruling in a trade case that began late last year regarding graphite active anode material being imported into the U.S. from China. As a result of this ruling, preliminary antidumping tariffs of 93.5% have been imposed on anode material imports from China with the final ruling expected in December. This stacks on top of previously announced tariffs resulting in a combined tariff of 160% on Chinese anode material imported into the U.S. We welcome this important development, which, along with recent announcements related to initiatives on sourcing of rare earths, demonstrates strategic intent on part of the U.S. government to foster an ex-China supply chain for critical minerals. While we are closely monitoring these developments, we have also continued to build out our technical capabilities and demonstrate those to 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 a pivotal time for GrafTech. We've made tremendous progress on our strategic initiatives, and that progress gives us confidence. We're in a strong position to benefit from the long-term structural trends that are set to shape the future of our industry. As a result, we're energized by the opportunities that lie ahead and remain fully committed to executing our strategy, delivering value for our customers and driving long-term sustainable growth for our shareholders. This concludes our prepared remarks. We'll now open the call for questions.

And our first question is from Bennett Moore from JPMorgan.

It's nice to see the continued share gains in the U.S. Does this still stand at around 50% for the company's overall exposure? And is there any room to gain further share this year potentially from Indian suppliers? Or is this more of a 2026 contract opportunity?

Yes, Bennett. So, I would say U.S. or the Americas as a whole represent a little bit more than 50% of our overall revenue. And certainly, as we continue to look to grow our share, which is up 31% year-over-year in the U.S., that will continue to drive that percentage higher as we move out forward. I think as we look at the back half of the year, I think we'd expect demand in the U.S. to remain robust given the tariff landscape and those 232 steel tariffs that are already in place. How it impacts the supply side on electrodes is still yet to be seen as the reciprocal tariffs and all of those kind of work through the system and continue to evolve. But net-net, I think we feel very good about our position, both with what we've done thus far and also how we think about the value proposition and what we offer our customers as we look forward. So, look forward to continued growth in this market.

Great. And then my quick second one here relates to the Chinese antidumping duties. Do you feel this is potential to lift local needle coke prices and ultimately cost support for U.S. pricing? Or is this kind of a further dated opportunity just given how immature the Western supply chain still is?

Yes. I mean I'll start, and I'll let Jeremy chime in as well. But I think the way you asked the question kind of answered it in some respects, right? There isn't any anode production of material note within the United States right now. But I think the backdrop of the previous ITC ruling and now the most recent Department of Commerce ruling on the 93.5% really sets a foundation that will allow for more confidence in moving forward with these projects and the development of the supply chains in the West, which, again, I think we feel good about where we sit in terms of a raw material supplier and our technical capabilities, both on the raw materials, but the graphitization as well, which is an important kind of first step to get the supply chains established. So, I think it will support medium to long-term, but it's not an immediate impact to pricing in the short run. Jeremy, anything you want to add?

Yes. No, I think you hit the key points there, Tim. The only other thing that I would note is that while there is a variety of announced projects that we hope come online for additional anode production domestically, there's been no announced new projects for needle coke other than, of course, our permitted expansion at our Seadrift facility. And so we do think that this will lead to an eventually -- an eventual tightening up of that market, but that's still quarters into the future, as Tim mentioned.

And your next question is from Arun Viswanathan from RBC Capital Markets.

Congrats on the EBITDA improvement and the cost reductions as well. So, I guess maybe the first question would just be on pricing and the pricing environment. It looks like there was a tick up in your production and volumes. So -- and the utilization rate may be slightly better as well in the U.S., especially. So, would you say that overall kind of pricing expectations have bottomed and maybe kind of very, very small room for improvement? Or how would you kind of characterize the pricing environment as you look into, say, the next 6 months or so for electrodes?

Yes and appreciate that, and thanks for the comments. Listen, the pricing environment remains very competitive, right? We've talked about the oversupply, especially coming out of China, which has put pressure on the rest of the world and the global demand environment with some puts and takes in certain regions outperforming other, but overall, global demand is pretty flat. I think though, despite this, we are growing our volume, and we did grow our ASP by 8% over the fourth quarter last year. So I think we are starting to see price stability globally, but it's still not at a level where we think it's sustainable for the long term, right? So whether it's our actions to change our mix and focus our energies on those markets that again will compensate us for the value we provide in our healthier production markets as a whole or if it's through the continued pressure of raising our prices and driving higher prices and getting compensated again for the services and the value provided to our customers, we're going to keep pushing the envelope to drive prices higher. It's a challenging market, but we're starting to see some success. We've seen some flattening out of the pricing curves, which throughout all of 2024 were downward sloping. So, we hope that we've hit bottom and we'll now start to see some recovery in the back half of this year, but then more importantly, as we get into 2026.

Okay. And could you also offer any thoughts on needle coke? There was a lot of oil-based volatility in the quarter, especially from a geopolitical standpoint. But does that affect needle coke? And then what is kind of the outlook? We've had somewhat slightly good EV demand in China, but not necessarily that great outside of China. And so I'm not sure if that's been a drag on needle coke supply-demand? Or how would you characterize the needle coke supply-demand and pricing outlook as well?

Yes. So, thanks for that, Arun. Really, we're seeing continued flatness in the needle coke market. Pricing remains pretty consistent with where it has been for the last several quarters. And as we look forward, we're not seeing a large catalyst in the near-term as we get -- as we look out a little bit further and start to see some of these catalysts, particularly some of the Western supply chain developments come online, we think that, that should start driving some improvements. But as of right now, things are still pretty flat with where they've been.

Yes, Arun, I would just add, if we go back to prior to the Trump administration, you had a lot of support, EV mandates and such. Now you're seeing it more on standing up the EV industry through trade and tariff actions and even more so as you think about the recently announced deal with MP Materials from the Department of Defense, right, where you've seen a creative and very transformational public-private partnership that really is going through kind of the government or Washington's efforts to stand up domestic production and onshoring kind of the production of these critical minerals. So, like those were the things that I think we'll see start to drive needle coke pricing and the demand in the West, which will ultimately help us beyond just the growth of EAF consumption of electrodes as we look out going forward. So, all in all, I think those are 2 really positive developments that we're seeing in the market right now as it relates to needle coke.

Arun, I would just, sorry, I was just going to add. I mean, I think what Rory has outlined is 100% accurate in the sense that next 6 months are what they are. This is all about us stacking quarter-after-quarter of improved performance. And the team has been doing that now for a number of quarters in a row. It's not always going to be a straight line up and to the right, but we think we've started to develop the momentum. We're seeing stickiness in our cost reduction efforts. The commercial efforts, again, are paying dividends. And we think as we head into '26, we're happy with the momentum we're creating.

And your next question is from Alex Hacking from Citi Research.

I just wanted to follow-up on the potential opportunity in anode materials. I feel like we've been -- or you've been talking about this for many years, right, probably at least 5 years and nothing's really happened so far, like nothing has been announced. How would you categorize the state of discussions at the moment? Are they active? Because we've obviously seen others move forward, right? T66 has got together with NOVONIX and they got some money from the DOE. So, I'm just curious, like where do things stand? And yes, so where do things stand?

Yes. Thanks, Alex. Listen, we have been talking about the anode opportunity for a while. And we've also been consistent in saying this isn't something that we necessarily will do on our own or have the balance sheet to go alone and have outlined a number of areas and ways that we think we can participate in this market and think those still exist, whether it be a raw material supplier, whether it be a graphitization supplier to the market given the capacity that we have. But I think as we've also gone through this last, call it, 3 or 4 years, we've also continued to develop our capabilities to kind of go soup to nuts on the production of anodes and think we have opportunities. So, I think the change potentially that's coming and the way I would think about it is what I mentioned before with what we just saw last week with MP Materials, right? Again, fairly transformative public-private partnership, kind of a very creative use of federal dollars from the Department of Defense to unlock value. And also, I mean, they're generating returns for taxpayers. So they're kind of going about it in different ways where they're not just handing out money to whoever has the best application, but they're really looking for those that are well positioned to be cornerstones in the industry. And again, I think as GrafTech, our existing capabilities, the fact that we're vertically integrated could potentially position us to be an attractive partner with the Department of Defense. So, we are continuing our efforts. We're not going to slow down. We'll continue to probe and look for all [Technical Difficulty]. I think this is a bit of a game changer from a sense of the government is putting real dollars behind standing up businesses in an industry versus trying to pull demand through tax incentives and such like that. So, I think that's where you start to see this change.

Tim, like not to put you on the spot, I'm not sure what you could say. But based on those comments, I would interpret that to mean that you are in active discussions with the government over potential partnership type opportunities. Would that be fair?

Yes, Alex, I'm not going to comment other than saying we are -- we do think we're well positioned. We welcome the opportunity to continue to advocate on all fronts, whether it's for funding opportunities, whether for its trade protections, whether it's for our position with our customers to improve our position. We're -- the MP Materials deal was just announced last week, and this is all very new and very recent to the market. So, we'll continue to explore it as we see appropriate.

[Technical Difficulty]

[Technical Difficulty] at the end of the first quarter, you saw a transaction to move one of the plants to a financial fund or a strategic fund or whatever. We'll see how that plays out in terms of what their intentions are to do that plant. I don't think necessarily that capacity has gone away in its entirety. But I think all of the European capacity is running at fairly low utilization rates, which is why I think we're happy that we've increased ours to 65% and think we're starting to build some momentum there.

There are no further questions at this time. I will now hand the call back over to Tim Flanagan, CEO and President, for the closing remarks.