GrafTech International(EAF) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net loss of $23 million, or $0.9 per share, with adjusted EBITDA of $1 million compared to $129 million in Q3 2022, reflecting lower sales volume and higher costs [47][40] - Cash costs per metric ton were approximately $5,860 for Q3 2023, exceeding projections due to lower sales volume and fixed costs from idled production [48][30] - The company generated $51 million in cash from operating activities and adjusted free cash flow of $43 million, supported by a $50 million reduction in inventory during the quarter [49][50] Business Line Data and Key Metrics Changes - Production volume for Q3 was approximately 23,000 metric tons, with a capacity utilization rate of 47%, down from 49% in Q2 [25][16] - Sales volume was approximately 24,000 metric tons, a modest decline compared to Q2, with net sales decreasing 48% year-over-year [26][25] - The shift in business mix from long-term agreements (LTA) to non-LTA sales contributed to the decline, with LTA sales averaging $8,650 per metric ton and non-LTA sales at $5,400 per metric ton [45][26] Market Data and Key Metrics Changes - Global steel production outside of China was approximately 201 million tons in Q3 2023, a 4% sequential decline, with capacity utilization rates outside of China at 65% [16][23] - In the U.S., steel industry utilization rates ticked down to 76%, with a forecasted 1% decline in year-over-year steel demand for 2023 [24][23] - Export prices from China have fallen below $3,000 per metric ton, impacting pricing in non-tariff protected regions [17][16] Company Strategy and Development Direction - The company remains focused on managing near-term market disruptions while positioning for long-term opportunities, particularly in the graphite electrode market and the EV battery supply chain [21][14] - GrafTech is exploring participation in the development of a Western EV battery supply chain, leveraging its assets and technical know-how [35][63] - The company anticipates a 30% increase in global annual graphite electrode demand outside of China by 2030, driven by planned electric arc furnace (EAF) capacity additions [61][62] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing global economic uncertainty impacting steel industry demand and graphite electrode pricing, with expectations of continued market weakness [40][44] - The company expressed optimism about long-term growth opportunities in the graphite electrode market, despite current challenges [14][64] - Management highlighted the importance of maintaining liquidity and managing costs to navigate the current market environment [50][51] Other Important Information - The company has idled its Seadrift facility for the entire third quarter, with plans to restart it in Q4 [31][115] - The net debt to adjusted EBITDA ratio increased to 6.4 times as of September 30, reflecting a year-over-year decline in EBITDA [51][40] - The company is developing a carbon-neutral graphite electrode offering, aimed at meeting the growing demand for environmentally responsible steelmaking [110][96] Q&A Session Summary Question: What is the electrode market outlook? - Management noted continued price pressure in the electrode market, with spot pricing around $3,000 per ton, primarily due to weak seasonality and market conditions in China [53][67] Question: Update on needle coke prices? - Recent spot pricing for super premium needle coke is around $1,700 per ton, reflecting further softening, but long-term demand is expected to tighten as EV demand grows [55][67] Question: How much production could be diverted to the EV market? - The company has dual-use assets that can produce needle coke for both graphite electrodes and battery anodes, allowing flexibility in production based on market conditions [75][67] Question: How does utilization compare across regions? - Utilization rates in North America are higher than in Europe, with customer inventory levels varying significantly between regions [81][78] Question: Competitive landscape in the U.S. and EU markets? - The company maintains confidence in its value proposition despite competition from lower-priced imports, emphasizing quality and ancillary services [83][82] Question: What is the outlook for working capital in 2024? - Management anticipates some use of working capital as production ramps up, but aims to maintain manageable inventory levels [91][90]