Note: This document is an earnings call transcript. Please be aware that the content may contain errors.
Image source: The Motley Fool.
EARNINGS CALL DATE AND TIME
Friday, October 24, 2025 at 10 a.m. ET
KEY PARTICIPANTS IN THE EARNINGS CALL
Chief Executive Officer — Tim Flanagan
Chief Financial Officer — Rory O’Donnell
Need a quote from a Motley Fool analyst? Email [email protected]
IMPORTANT TAKEAWAYS FROM THE CALL
Sales Volume Growth — Achieved a remarkable 9% year-over-year increase in sales volume during the third quarter, reaching approximately 29,000 metric tons, marking the highest quarterly sales volume in twelve quarters.
Significant U.S. Market Expansion — The U.S. sales volume surged by 53% year-over-year, contributing to a 39% year-to-date increase compared to the prior year.
Production Volume Insights — Output totaled approximately 27,000 metric tons, with a capacity utilization rate of 63%, reflecting planned maintenance in European facilities.
Average Selling Price Trends — Recorded an average selling price of approximately $4,200 per metric ton, representing a 7% year-over-year decrease in the third quarter while remaining stable sequentially.
Geographic Mix Advantages — The higher U.S. volume mix contributed to an increase in the weighted average selling price by over $120 per metric ton.
Cost Performance Highlights — The cash cost per metric ton was $3,795, down 10% year-over-year, leading to an increased full-year 2025 cost reduction guidance of 10%, up from the previous 7%-9% expectation.
Significant Cumulative Cost Reduction — On track for over a 30% cumulative reduction in cash cost per metric ton for the full year 2025 since 2023.
Adjusted EBITDA Performance — Generated a positive adjusted EBITDA of $13 million, including an $11 million non-cash benefit from the resolution of a commercial matter.
Net Loss Improvement — Reported a net loss of $28 million, or $1.10 per share, an improvement from a net loss of million, or $1.40 per share, in Q3 2024.
Strong Cash Flow Generation — Achieved a net cash of $25 million from operating activities, with adjusted free cash flow reaching $18 million.
Robust Liquidity Position — Ended the quarter with total liquidity amounting to $384 million, which includes $178 million in cash, $107 million of revolver availability, and $100 million undrawn delayed draw term loan capacity.
Impact of Trade Policy Changes — Announced U.S. and EU tariffs, along with Chinese export controls, aimed at supporting domestic industry and reducing reliance on Chinese supply; however, it is premature to evaluate their long-term effects.
Sales Volume Guidance Update — Full-year 2025 sales volumes are now projected to increase by 8%-10%, a slight adjustment from the previous 10% guidance due to a disciplined approach to low-margin business.
Working Capital Management — Net working capital build during the first nine months of 2025 was reduced to $14 million as planned inventory build was unwound, thereby supporting a favorable cash flow outlook.
KEY SUMMARY OF MANAGEMENT INSIGHTS
Management emphasized a strategic shift in sales approach to prioritize geographic mix and margin, demonstrated by the substantial increase in U.S. sales volume (up 53% year-over-year) and a disciplined strategy regarding low-margin contracts. The call underscored significant progress in controlling production costs and optimizing working capital, which bolstered improved cash flow and liquidity metrics. Executives discussed the importance of trade policy changes in the U.S., EU, and China, anticipating these developments to influence global supply dynamics and affect future pricing and market share. Strategic initiatives focused on vertical integration in the needle coke sector and planned manufacturing flexibility aim to mitigate tariff impacts and capitalize on emerging demand within the energy storage and electric vehicle markets as global supply chains evolve. Investments in research and development and manufacturing efficiency were highlighted as crucial elements for future opportunities in both traditional electrodes and adjacent battery materials markets.
CEO Flanagan stated, “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.”
Management confirmed that no additional deferred revenue benefits are anticipated, with O’Donnell stating, “You should not expect any further. I mean, we do not have anything deferred left on the balance sheet.”
Active trade negotiations and recent tariff measures on foreign supply were indicated as positive signals for ongoing U.S. market share growth and pricing resilience.
Executives expressed optimism for a recovery in the structural steel market, referencing projections from the World Steel Association indicating a 1.8% steel demand growth in the U.S. and 3.2% in the EU for 2026.
Management projected a “meaningful mix shift towards EAF steel within the EU in the medium to longer term,” which could drive increased demand for electrodes in the region.
GLOSSARY OF INDUSTRY TERMS
LTAs (Long-Term Agreements): Multi-year customer contracts for graphite electrodes, typically set at higher price points compared to spot transactions.
COGS (Cost of Goods Sold): Direct production expenses associated with manufactured goods, including materials, labor, and overhead.
Graphitization: The process of heating carbon-based materials to extremely high temperatures to transform them into graphite, a crucial step in electrode manufacturing and battery applications.
Needle Coke: A premium-quality, crystalline carbon feedstock employed in the manufacture of graphite electrodes and battery anode materials.
EAF (Electric Arc Furnace): A steelmaking furnace that utilizes electrical energy to melt scrap steel, which requires graphite electrodes for operation.
CBAM (Carbon Border Adjustment Mechanism): EU policy implementing a carbon tariff on certain imported goods, including steel, to bolster domestic industry and mitigate emissions leakage.
FULL EARNINGS CALL TRANSCRIPT
Tim Flanagan: Good morning. Thank you for joining GrafTech International Ltd.’s third quarter earnings call. Today, we will provide a comprehensive overview of our third quarter performance, share key operational and commercial updates, and discuss our outlook for the remainder of 2025 and beyond. I am pleased to report that GrafTech delivered another quarter of substantial progress in 2025, reflecting our team’s commitment to disciplined execution and operational excellence amidst a challenging market environment. During the quarter, we achieved a remarkable 9% year-over-year increase in sales volume, reaching nearly 29,000 metric tons. To accomplish this, 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.
In fact, reflecting our revised full-year 2025 sales volume guidance that Rory will detail shortly, we are on track to achieve cumulative sales volume growth of over 20% since 2023. This represents impressive growth in any market, especially noteworthy given that graphite electrode demand has remained relatively flat for the past two years. It clearly indicates that our customer value proposition is compelling, and we are outperforming the broader market. Additionally, we continue to focus on optimizing our geographic sales mix, particularly in the U.S., where our sales volume has soared by 53% year-over-year in the third quarter.
This strategic transition towards the U.S. market, which remains the strongest region for graphite electrode pricing, is a direct outcome of our efforts to capture opportunities in areas with more favorable pricing dynamics and to strengthen our competitive position. On the cost side, we achieved a 10% year-over-year reduction in our cash cost per metric ton for the third quarter and increased our full-year guidance for cost reductions, which Rory will discuss. Consequently, for 2025, we are on track for more than a 30% cumulative reduction in our cash cost per metric ton since 2023. This accomplishment underscores our ability to control production costs and adapt our operations to varying levels of demand.
Regarding profitability, we generated positive adjusted EBITDA of $13 million for the quarter. We also reported $25 million in net cash from operating activities and $18 million in adjusted free cash flow, further enhancing our liquidity position to $384 million as of September. This performance in cash flow and ending liquidity surpassed our expectations for the third quarter. While we are encouraged by these reported results, as previously stated, we will never be satisfied with this level of performance. However, we view this as further evidence of growing momentum and constructive progress in the right direction, providing a solid foundation to build upon as the market recovers. Turning to the next slide.
Let me share our current insights on the broader steel industry. Globally, steel production outside of China reached approximately 206 million tons in 2025, reflecting nearly 2% growth compared to the third quarter of last year, culminating in a global utilization rate for the third quarter of about 66%. On a year-to-date basis, global steel production outside of China remains relatively flat. When examining some of our key commercial regions using data published by the World Steel Association earlier this week, North America’s steel production remained flat year-to-date compared to the prior year. Specifically, in the U.S., the World Steel reported a 2% increase in steel production on a year-to-date basis compared to 2024.
In the EU, however, steel output has declined by 4% year-to-date compared to the same period in 2024, remaining significantly below historical levels of steel production and utilization in that region. Although the overall steel sector continues to face short-term challenges, early signs of recovery in the steel markets have begun to emerge, providing additional reasons for optimism. Earlier this month, the World Steel published their latest short-range outlook for steel demand, projecting a 1.8% growth in steel demand for the U.S. in 2026, driven by factors including pent-up demand for residential construction and improved financing conditions. Favorable trade policies should also bolster domestic steel production.
In Europe, the World Steel forecasts a return of steel demand growth in the near term, predicting a 3.2% increase for 2026. This projection reflects some of the demand drivers we have previously discussed, including initiatives to boost investment in infrastructure and defense spending, which are key steel-intensive industries. To further support the European steel industry, earlier this month, the European Commission announced new trade protection measures expected to enhance production levels in this critical region for GrafTech. Specifically, the forthcoming measures will cut steel import quotas by 47%, significantly raise out-of-quota tariffs, and introduce melt and pour provisions to prevent circumvention.
These measures complement the provisions within the Carbon Border Adjustment Mechanism, or CBAM, which is anticipated to provide further support to the EU steel industry once implemented in 2026. Such developments represent a structural positive shift for the EU steel industry. Analysts project that these trade protections may reduce steel imports by over 10 million tons on an annualized basis, potentially boosting EU steel capacity utilization rates, which have averaged just over 60% for the past couple of years, to nearly 70%. Looking globally, the World Steel projects a 3.5% year-over-year growth in steel demand outside of China, supported by similar factors.
Improved geopolitical conditions and macroeconomic factors could foster additional growth. In this context, we are actively engaging in ongoing discussions with our customers regarding their needs for the upcoming year. While it is still early to draw definitive conclusions, our compelling customer value proposition positions us favorably to maintain the market share gains we have achieved over the past two years, including further growth in the U.S. market. Ultimately, we remain steadfast in our commitment to delivering exceptional service to our customers and being the most trusted, value-added supplier of high-quality graphite electrodes. Our focus on fostering long-term partnerships based on performance, reliability, and mutual success remains unyielding.
We look forward to sharing more insights on our 2026 outlook during our year-end call. I would like to take this opportunity to express my gratitude to our entire team worldwide for their extraordinary efforts, resilience, and commitment during this pivotal time. Their unwavering dedication continues to propel our progress and position us for long-term success. Most importantly, I want to thank our employees for their steadfast commitment to a culture of safety. This is a non-negotiable priority across our organization, and we are pleased to report strong momentum in this area, putting us on track for our best safety performance in years.
As we approach the end of the year and transition into the next, it remains critical to sustain and build upon this momentum. Our ultimate goal is zero injuries, and we relentlessly pursue that standard every single day. With that, let me hand the call over to Rory for further insights on our commercial and financial performance.
Rory O’Donnell: Thank you, Tim, and good morning, everyone. Let’s start with our operations. Our production volume for the third quarter was approximately 27,000 metric tons, yielding a capacity utilization rate of 63%. While this represents a modest sequential decline in production compared to prior quarters, it was planned as we conducted annual maintenance activities at our European manufacturing facilities during the third quarter, consistent with our historical practices. Over a full year, our expectation remains to balance production and sales volume levels. Turning to our commercial performance, in the third quarter, our sales volume reached approximately 29,000 metric tons, reflecting a 9% year-over-year increase and representing our highest sales volume performance in twelve quarters.
Notably, we have successfully shifted a significant portion of our volume to the U.S., as previously discussed. In Q3, our sales volume within the U.S. grew by 53% year-over-year. Year-to-date, we have increased sales volume in this region by 39% compared to last year. This is particularly impressive considering that year-to-date steel production in the U.S. has risen by less than 2%. On a full-year basis, we now anticipate our total sales volumes to increase by 8% to 10% in 2025. The slight adjustment from our earlier guidance of a 10% year-over-year sales volume increase reflects our commitment to disciplined growth by avoiding low-margin opportunities.
Regarding pricing dynamics, our average selling price for the third quarter was approximately $4,200 per metric ton, representing a 7% decline compared to the previous year, while sequentially remaining consistent with the second quarter. The year-over-year decrease was primarily driven by the substantial completion of higher-priced LTAs in 2024, along with ongoing challenges in market pricing that I previously mentioned. Our focus remains on mitigating these impacts in the near term, including the previously discussed shift in geographic mix towards the United States. Although average pricing in the U.S. is below 2024 levels, it remains our strongest region for graphite electrode pricing.
In fact, we estimate that the higher U.S. volume mix has boosted our weighted average selling price for the third quarter by over $120 per metric ton, contributing similarly on a year-to-date basis. Consequently, when comparing our year-to-date weighted average price of approximately $4,200 per metric ton to the non-LTA price of $3,900 reported in the fourth quarter of last year, we observed an increase of nearly 8%. Despite the challenging demand climate, our strong commercial progress underscores the effectiveness of our engagement with customers and demonstrates the significant value we deliver to them. Our value proposition rests on several essential pillars.
These include our unparalleled technical expertise associated with the architect furnace productivity system, further enhanced by the support of our exceptional customer technical service team. We also continue to make substantial investments in research and development, reinforcing GrafTech International Ltd.’s leadership in graphite electrode and petroleum needle coke technology and innovation. Another distinguishing factor is our unique vertical integration into needle coke, ensuring a reliable supply of this critical raw material. Additionally, our flexible and integrated global manufacturing network provides enhanced supply dependability, a crucial benefit given the evolving landscape of global trade regulations.
Ultimately, we are dedicated to fostering and enhancing lasting customer relationships, aiming to provide mutual benefits and shared success over the long term. Turning to costs, for the third quarter, our cash costs on a per metric ton basis were $3,795, reflecting a 10% year-over-year decline. We continue to exceed our expectations in this area and are raising our full-year cost savings guidance. In response to our revised sales volume outlook, we have implemented additional measures to enhance the efficiency of our production schedules and further optimize production costs.
We now expect an approximate 10% year-over-year decline in our cash COGS per metric ton for 2025 on a full-year basis, compared to our previous guidance of a 7% to 9% decline. Achieving a full-year 10% decline would translate into cash COGS per metric ton of approximately $3,860 for the full year. While this is above our year-to-date run rate, we have previously noted that we will experience periodic fluctuations in cash cost recognition from quarter to quarter due to timing impacts. Nevertheless, we are pleased to be outperforming our initial expectations for the year and that our cost structure continues to trend positively.
Remarkably, achieving our full-year cost guidance would represent a cumulative 30% decline in our cash COGS per metric ton over the full year of 2023. Our teams are diligently identifying and executing cost reduction opportunities across various components of our variable and fixed costs. Let me highlight a few examples. Drawing on our extensive experience in research and development and our commitment to innovation, we consistently work to reduce the consumption of specific raw materials while maintaining high product standards. Leveraging our recent investments in technology, we are also able to reduce our overall energy usage.
Additionally, we are optimizing our production schedules to capitalize on lower electricity rates available during off-peak periods. Our procurement initiatives have yielded impressive results, notably through expanding our supplier network, which helps us minimize our variable costs even further. Furthermore, our ongoing efforts to reduce fixed costs have positively impacted our production costs, while higher volume has enhanced our fixed cost leverage. Lastly, our team remains focused on effectively managing potential cost impacts stemming from evolving global trade policies, particularly the effects of U.S. tariffs.
To elaborate, as we have consistently emphasized, our integrated global production network provides us with flexibility regarding where we manufacture our products, enabling us to serve end markets efficiently and reliably. Moreover, we maintain strategically positioned inventories across key geographies, allowing us to fulfill customer demands, even amidst dynamic market conditions. Consequently, we are well-prepared to mitigate potential impacts imposed by current trade policies, and we continue to anticipate that the announced tariffs will have less than a 1% impact on our 2025 costs, as reflected in our updated cash COGS guidance.
Overall, through disciplined execution and a relentless focus on efficiency, we have made remarkable strides in reducing costs and enhancing the agility of our operations to control production costs at varying demand levels. Furthermore, we are achieving these results while maintaining our commitment to product quality and reliability, as well as upholding our responsibilities toward environmental sustainability and safety. Moving to the next slide, let us consider the financial outcomes. For the third quarter, we reported a net loss of $28 million or $1.10 per share.
This represents an improvement from a net loss of $36 million or $1.40 per share in the previous year, as cost reductions have more than offset the year-over-year decline in weighted average pricing. For the third quarter, adjusted EBITDA was $13 million compared to a negative $6 million in the prior year. As highlighted in our earnings release, our current quarter EBITDA included an $11 million non-cash benefit from recognizing previously deferred revenue following the resolution of a longstanding commercial matter. Regarding cash flow, we were pleased to report positive cash flow for the first time in four quarters.
For the third quarter, cash provided by operating activities stood at $25 million, while adjusted free cash flow reached $18 million, with both measures comparable to the previous year. Our positive cash flow performance in the third quarter reflected a favorable change in net working capital, as anticipated. Taking a broader perspective, we recorded a $45 million build in our net working capital during the first six months of the year, predominantly driven by inventory, as first-half production exceeded sales volume.
As previously noted, this was a planned initiative to build inventory in the first half of the year, reflecting one of our cost savings strategies to level load our 2025 production while balancing production and sales volume levels on a full-year basis. As we unwind this inventory timing impact, our net working capital build through the first nine months of 2025 has been reduced to $14 million, despite an $11 million impact in the third quarter from non-cash earnings related to the recognition of previously deferred revenue.
With strong working capital performance in the third quarter, we remain on track for favorable working capital outcomes for cash flow throughout 2025. This is being realized through a combination of production cost improvements and inventory management while maintaining adequate safety stock of pins and electrodes. Overall, we continue to track ahead of our initial cash flow projections for 2025 and remain optimistic about our momentum in this area. Transitioning to the next slide and expanding on this point.
We concluded the third quarter with total liquidity of $384 million, comprising $178 million in cash, $107 million in availability under our revolving credit facility, and $100 million in availability under our delayed draw term loan. As a reminder, this untapped portion of our delayed draw term loan is accessible until July 2026, and we expect to utilize this residual before its expiration. Regarding our $225 million revolving credit facility, which matures in November 2028, we had no borrowings outstanding as of the end of the quarter.
However, due to a springing financial covenant that considers our recent financial performance, borrowing availability under the revolver remains limited to approximately $115 million, after accounting for currently outstanding letters of credit, which were approximately $8 million as of the end of the quarter. Overall, we believe our robust liquidity position, along with the absence of significant debt maturities until December 2029, will support our ability to navigate near-term industry-wide challenges. In summary, our focused execution, operational discipline, and strategic positioning enable us to deliver results today while establishing a solid foundation for long-term growth.
I am proud of the progress we have made, and I am confident in our ability to continue generating value for our customers, shareholders, and all stakeholders. To that end, I would like to reiterate Tim’s sentiments and extend my gratitude for the exceptional commitment and hard work demonstrated by our global team members. I will now turn the call back to Tim for final comments.
Tim Flanagan: Thank you, Rory. In summary, we have laid out a disciplined plan in response to evolving industry dynamics and increasing macro uncertainty, and we are executing that plan effectively. Our objectives are clear: increase sales volume and market share, enhance average pricing, primarily by shifting the geographic mix towards higher-priced regions, reduce costs and working capital requirements, and ultimately improve liquidity and strengthen our financial foundation. Concerning our third quarter results, we are pleased that our efforts across these areas are beginning to yield improved bottom-line performance.
This indicates signs of progress and momentum towards accelerating our return to normalized profitability levels as the market recovers. Earlier, I mentioned various potential catalysts supporting a rebound in the steel industry in the near term. Looking further ahead, we remain optimistic about the structural tailwinds that favor the ongoing shift towards electric arc furnace steelmaking. Globally, based on data published by the World Steel Association, the EAF method of steelmaking further increased its market share in 2024, accounting for 51% of steel production outside of China. This trend reflects steady share growth that the EAF industry has experienced over several years.
Driven by decarbonization efforts, we anticipate this trend will 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 years, with further announcements expected as we move forward. This will drive additional share gains for electric arc furnace steel production in this key region. In the EU, while some European steelmakers have announced temporary delays in their EAF transition plans, other projects continue to advance, and we anticipate a meaningful shift towards EAF steel within the EU in the medium to long term.
Moreover, with graphite electrode inventories remaining low in Europe, an increase in European EAF steel production should lead to a significant rise in graphite electrode demand. Given the expected growth in demand and tariff protections affecting specific foreign graphite electrode producers, the U.S. and the EU remain strategically vital regions for GrafTech International Ltd. over the long term. Our strong commercial momentum in these regions, combined with our commitment to addressing the evolving needs of our customers, positions us well to capitalize on this demand growth. Briefly touching on trade protection, we continuously assess various potential tariff outcomes and their implications for steel industry trends and the broader commercial landscape for graphite electrodes and synthetic graphite.
Regarding the U.S., we are encouraged by the actions taken by the administration to establish a more equitable trade environment and protect critical industries. In relation to the steel industry, the expanded Section 232 tariffs on steel imports into the U.S. are expected to be more enduring than the broader tariff programs that have continued to evolve.
Concerning critical minerals, including synthetic graphite produced from petroleum needle coke, we foresee growing demand in this market driven by the expansion of EAF steelmaking and the establishment of Western supply chains for battery needs, whether for electric vehicles or energy storage applications. However, the development of these Western supply chains from raw material manufacturers to OEMs is still in its early phases, and we operate in an industry grappling with overcapacity in China. In light of the market dominance, earlier this month, China announced expanded export controls on synthetic graphite.
While it is too early to determine the long-term impacts of these measures, we believe that the potential for international trade disruptions underscores the strategic necessity for the West to reduce its reliance on China for critical minerals like synthetic graphite, to foster a domestic supply chain with supportive policymaking. Earlier this year, the Department of Commerce announced preliminary anti-dumping tariffs of 93.5% on imports of graphite active anode material from China. This adds to previously announced tariffs, resulting in a combined tariff of 160% on Chinese anode material imported into the U.S.
While further policy measures will be essential, we welcome this significant development, which, alongside recent announcements regarding sourcing initiatives for rare earths and other critical minerals, illustrates a strategic intent by the U.S. Government to cultivate a supply chain for these key materials independent of China. As it pertains to GrafTech International Ltd., given the fluid nature of global trade policy and the heightened focus on critical minerals, we are implementing proactive strategies to minimize risks to GrafTech, capitalize on emerging opportunities, and advocate for fair trade in our key markets.
All of this aligns with our approach to advocate for ourselves in order to optimally position GrafTech and its stakeholders for long-term success. In closing, this is a pivotal moment for GrafTech International Ltd. We have made significant strides in our strategic initiatives, and this progress instills confidence in our ability to leverage the long-term structural trends shaping the future of our industry. As a result, we are energized by the opportunities that lie ahead and remain fully committed to executing our strategy, delivering value to our customers, and driving sustainable long-term growth for our stakeholders. This concludes our prepared remarks, and we will now open the call for questions.
Operator: Thank you. We will now commence the question and answer session. If you are called upon to ask your question and are listening via speakerphone, please pick up your handset to ensure that your phone is not muted when asking your question. Again, press star one to join the queue. Our first question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open.
Arun Viswanathan: Great. Thanks for taking my questions. Hope you are all doing well. Firstly, should we expect any additional deferred revenue benefits, and where does that arise from? Is it one-time in nature?
Rory O’Donnell: You should not anticipate any further benefits. I mean, we do not have anything deferred remaining on the balance sheet. You will note this in the upcoming disclosures in our SEC filings. So, consider it a one-time occurrence. It relates to a long-standing receivable that will no longer affect results moving forward.
Arun Viswanathan: Sure. On the topic of pricing and volume, your average price came in slightly lower than expected, potentially due to mismatched contract roll-offs. What is your perspective on the current demand and price environment? It appears that global utilization rates may not support higher electrode pricing. Could you comment on that and incorporate any insights on needle coke as well?
Tim Flanagan: Sure, Arun. I will be cautious about discussing pricing too much, especially with ongoing negotiations with customers both in the U.S. and Europe. That said, we have noted that the market is currently oversupplied, making it challenging to increase pricing. However, we are starting to see positive momentum across the steel industry, whether due to infrastructure and defense spending in Europe or the trade actions that have been in place for several months in the U.S. and recently announced in Europe. We believe this momentum will lead to increases in both steel demand and production in those regions. Overall, while the market remains challenging, we are optimistic about seeing positive pricing momentum in the future.
Long-term, we firmly believe that an influx of additional EAF production will occur. I mentioned earlier the significant capacity we are seeing in the U.S. Regarding needle coke, pricing remains relatively stable globally. This reflects the current state of the electrode market. The ongoing trade case against active anode material from China, with a 93.5% tariff rate that we believe will be finalized in Q1 next year, is likely to bolster confidence among anode material producers, potentially tightening the needle coke market and improving pricing, which will have a cascading effect on the electrode market. So, while we are facing challenges today, we see a brighter future ahead.
Arun Viswanathan: Great. Thank you. Could I ask about the potential for supplying battery-related materials? Given the current oversupply of electrodes, is there a way to accelerate commercial applications? Where are you in that timeline? Considering the oversupply, are there limitations to pivoting some of your capacity into that market? You have around 180,000 tons of capacity, with approximately 130,000 tons used for electrodes.
Tim Flanagan: That is a fair question. As we have previously shared, we continue to develop our capabilities in this area. Our distinct advantage is our vertical integration with Seadrift, which allows us to supply needle coke and raw materials to that market. As you noted, there is excess graphitization capacity in both the U.S. and the EU, operating at around 60% to 65% utilization rates. However, to maximize this potential, we need battery producers to emerge that want to source from non-Chinese suppliers in those regions. Currently, battery material production is predominantly supplied by China, which emphasizes the importance of the trade case. This will enable broader aspirations for anode material production and battery factories in the U.S. and EU, supporting their financing activities and creating a competitive market.
We have consistently stated that we do not see ourselves as a standalone anode producer. We are somewhat constrained from that perspective, but we believe we could be an excellent partner for those looking for raw material supplies or interim graphitization capabilities and expertise. There are still opportunities in this space, but the market is still developing and will take time. The trade case finalization next year will be a critical milestone in unlocking this market to some extent. We are optimistic, not just for EV batteries but equally for energy storage systems, as global electricity needs continue to evolve.
Arun Viswanathan: That has been a hot topic lately. Thank you for your insights.
Tim Flanagan: Thank you, Arun.
Operator: Our next question comes from the line of Bennett Moore with JPMorgan. Your line is open.
Bennett Moore: Good morning, Tim and Rory. Congratulations on the solid quarter and thank you for taking my questions.
Tim Flanagan: Thank you, Bennett.
Bennett Moore: I wanted to start with the 50% tariffs on Indian material, which have been in place since August. Have you seen any material impact on imports into the U.S. as a result? Do you think these tariffs could facilitate share gains or influence your negotiations regarding 2026 commitments?
Tim Flanagan: Yes, we are confident, as previously stated, that we will continue to see gains in the U.S. We fully expect to grow volume overall as we head into next year, focusing a lot of energy on the U.S. market, which I believe customers recognize for the value proposition, technical services, and capabilities we offer. Therefore, we see these tariffs presenting a market opportunity. Any supplier facing a 50% tariff will encounter significant economic challenges, which should positively impact negotiations as we approach discussions in Q4.
As a broader commentary, both Chinese and Indian suppliers have significantly overbuilt their electrode capacities, far exceeding domestic EAF consumption. In 2022, India exported nearly 60% more material than previously, while lowering prices by 40%. Chinese suppliers have similarly reduced prices by more than 30%. This context, along with the ongoing conflict in Russia and its financing through oil purchases and electrode supplies to the Russian market, strengthens the case for maintaining these tariffs, which we hope will not merely become a bargaining tool during ongoing trade disputes. This situation presents a significant opportunity for us, and we look forward to the negotiations in Q4 within this framework.
Bennett Moore: That is valuable insight. Thank you. My final follow-up is regarding your previous comments about graphite being an attractive candidate for public-private partnerships. Since then, we have observed additional deals unfold, including government entities providing financial support for the graphite industry. Have there been any new developments or engagements in this area for GrafTech International Ltd. since the last quarter?
Tim Flanagan: Thank you for that question, Bennett. It is essential to consider the government’s initiatives surrounding critical minerals, trade policy, and their implications for fostering a robust domestic industrial base, particularly in steelmaking. Approximately 70% of steel in the U.S. is produced via electric arc furnaces (EAF), and 50% in Europe. Producing this steel requires electrodes, making it crucial to support a healthy electrode industry.
As we evaluate the recent announcements you mentioned, we continue to applaud the administration’s initiatives and the Department of Commerce’s actions to promote the development of critical mineral supply chains within the U.S. and with allies. We have discussed the 93% tariff, so I won’t delve into that further. However, the ongoing trade tensions between the U.S. and China regarding critical minerals highlight the importance of establishing a strategic supply chain. GrafTech International Ltd. is uniquely positioned as a 139-year-old industry leader, technical innovator, and the sole vertically integrated producer of synthetic graphite through Seadrift in Texas. We are confident in our critical role in supporting the domestic supply chain now and in the future. We will persist in our advocacy efforts to promote GrafTech’s interests moving forward. At this stage, it may not be appropriate for me to provide further commentary.
Bennett Moore: Understood. Thank you for the context and best of luck ahead.
Tim Flanagan: Thank you, Bennett. Have a great day.
Operator: Our final question comes from the line of Jay Spencer with Stifel. Your line is open.
Jay Spencer: Hi there. You mentioned an average selling price of $4,200 per ton and indicated that U.S. volumes boosted the average price by $120 per ton. Is it fair to conclude that U.S. pricing has improved sequentially from the prior quarter?
Rory O’Donnell: I would characterize it as flat to slightly up compared to the previous quarter. It is important to remember that U.S. contracts are typically negotiated on an annual basis, so price movements tend to be limited within a year.
Jay Spencer: Understood. As analysts seeking indicators of pricing, we have historically referenced the China graphite electrode prices on Bloomberg. Although that may not reflect your actual prices, it has provided directional insights. Given the recent increase in tariffs on active anode material and your focus on the U.S., is that Bloomberg metric still relevant, or how should we interpret it?
Tim Flanagan: The Bloomberg price has experienced considerable volatility over the past twelve to eighteen months. While it can serve as a directional indicator of market trends, it may not accurately reflect the precise levels due to the differences between domestic and export market conditions. However, Chinese pricing will always act as a proxy for pricing in regions that prioritize lower costs over quality, particularly in the Middle East, Turkey, Africa, and South America. In the U.S. and EU, trade protections against Chinese electrodes lessen the influence of those prices in those markets. The challenge lies in the volume exported by China, which has been substantial, putting pressure on Western suppliers to focus on markets with better pricing. This dynamic underscores the relevance of commentary on excess capacity and exports.
Jay Spencer: Thank you very much.
Operator: Thank you. That concludes the question and answer session. I would like to turn the call back over to our CEO, Tim Flanagan, for closing remarks.
Tim Flanagan: Thank you, Desiree. I appreciate everyone on this call for your interest in GrafTech International Ltd. We look forward to connecting with you next quarter. Have a wonderful day.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining, and you may now disconnect.
