Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GrafTech International Ltd (EAF, Financial) has implemented aggressive cost-cutting measures, achieving an 18% reduction in cash costs per metric ton in the first half of 2024 compared to the same period in 2023.
- The company is investing in technical capabilities and expanding its product offerings, including the introduction of an 800 millimeter supersize electrode.
- GrafTech has successfully resolved a long-standing LTA arbitration, removing a substantial risk to its financial position.
- The company is making progress in the EV space, receiving regulatory approval for potential expansion of Seadrift production capacity and investing in R&D for anode materials.
- GrafTech continues to focus on sustainability, publishing its latest sustainability report and making positive impacts through community engagement efforts.
Negative Points
- GrafTech International Ltd (EAF) is operating in a challenging part of the cycle with weak graphite electrode demand and low industry-wide capacity utilization rates.
- The company reported a net loss of $15 million for the second quarter of 2024, with adjusted EBITDA declining to $14 million from $26 million in the same quarter of 2023.
- Pricing pressures persist in most regions, with a 23% year-over-year decline in the weighted average price for non-LTA sales.
- The company expects continued weak demand and pricing pressures for graphite electrodes in the near term.
- Seasonally higher energy costs and planned production declines are expected to increase cash costs per metric ton in the second half of 2024.
Q & A Highlights
Q: How long are the planned outages, and how should we think about the cash costs in the third and fourth quarters?
A: The shutdowns are typically two to three weeks, done on a rolling basis to maintain some staff on-site. For Europe, expect two to three weeks, and for Seadrift, around three weeks. Financially, we maintain our full-year cost reduction estimate of a mid-teen percentage point decrease from 2023 levels. Seasonal higher energy costs and planned maintenance shutdowns will impact the second half, but overall, our cost structure is moving in the right direction.
Q: How does the spot pricing decline compare to the latest needle coke prices, and what are your pricing expectations?
A: The competitive market continues to pressure spot pricing, which we expect to persist. Needle coke prices are relatively stable, trading sideways in the $1,100 to $1,300 range. We hope to see needle coke prices trend upward with better steel demand numbers heading into 2025.
Q: Can you level set us on how we should think about SG&A for the third quarter and beyond?
A: SG&A will remain at the run rate seen in the first half of the year, excluding the $9 million benefit. The impact of our rationalization activities is starting to show, and we expect this run rate to continue for the rest of the year.
Q: Is it fair to assume that realized spot prices will be weaker in the second half of the year?
A: We continue to see challenges in pricing, and mix will play a role. While we don't expect a rosy outlook for pricing in the back half of the year, mix will influence the average realized price.
Q: Are there any measures or proposals to restrict imports from markets like China?
A: The US has trade restrictions on Chinese imports ranging from 25% to 150%, and the EU has restrictions on both Chinese and Indian electrodes. These restrictions work as they exist today, and we are always looking for opportunities to strengthen our domestic position.
Q: What is your view on the potential rollback of decarbonization initiatives and subsidies for EVs?
A: While political outcomes are unpredictable, we believe the decarbonization and electrification trends will continue. These trends are constructive for our business, and we remain optimistic about the long-term prospects.
Q: Do you expect to need additional liquidity for 2025, and when would you address this?
A: We feel good about our current liquidity position, with $230 million-plus of total liquidity. We continue to monitor economic indicators and customer conversations to inform our future liquidity needs.
Q: What is the impact of the lower cost or market inventory write-down on cash COGS, and what do you expect for the second half of the year?
A: The second quarter impact was about $230 per metric ton, and it was around $200 in the first quarter. For the second half, we expect roughly half of that benefit, around $100 per metric ton.
Q: What is your ability to improve from the current cash cost per metric ton level?
A: The biggest component is fixed cost absorption, which will improve with higher production levels. Our variable costs are making good progress, and we expect these improvements to stick into 2025. We continue to invest in projects that help improve our overall cost position.
Q: Do you see a path to higher EBITDA levels, and what are the key drivers?
A: We expect modest volume increases this year and continued increases into 2025. Our cost trend is moving in the right direction, and we expect this to continue. Pricing remains uncertain, but we will have a better read after customer negotiations in the third and fourth quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
