GrafTech continues to bleed red on weak demand

“Industry-wide demand for graphite electrodes has remained weak, with challenging pricing dynamics persisting in most regions,” GrafTech COO Jeremy Halford said on a first-quarter earnings call on Friday.

The Brooklyn Heights, Ohio-based electrode producer reported Q1 net sales of $136.6 million, down 2% from a year earlier. This was due to lower pricing from short-term agreements and spot sales, and a shift from take-or-pay agreements to short-term deals or spot sales.

However, sales volumes were up significantly, offsetting those factors, the company said. Volumes rose 43% year over year (y/y) to 24,100 metric tons. GrafTech noted that its volumes were severely impacted in the year-ago quarter by the temporary suspension of its operations in Monterrey, Mexico.

Production volumes of 26,000 mt were 65% higher y/y. GrafTech’s capacity utilization improved to 58% vs. 31% a year earlier and 47% in the prior quarter. “We continue to proactively align our production volume with our evolving demand outlook,” the company noted.

GrafTech’s net loss widened from $7.4 million in Q1’23 to $30.9 million in Q1’24. Rationalization charges and inventory valuation adjustments comprised nearly $9 million of that loss.

Competitors “have also acknowledged near-term industry-wide headwinds,” Halford commented on the call, but GrafTech was “the first and thus far only industry participant to announce definitive actions to reduce capacity.”

The company expects graphite electrode demand to remain weak in the near term, with sales volumes expected to be in line with Q1’24 levels.

“While it’s prudent to remain cautious on near-term industry trends, we can’t lose sight of the fact that all cyclical downturns eventually come to an end,” noted interim CFO and treasurer Catherine Hedoux-Delgado.

“Longer term, we remain confident that the steel industry’s accelerating efforts to decarbonize will lead to increased adoption of the electric-arc furnace method of steelmaking, driving long-term demand growth for graphite electrodes,” the company said.

CEO Tim Flanagan said on the call that the company estimates the shift to EAF steelmaking will translate to 3-4% growth in graphite electrode demand globally, ex-China, over the next five years.