GrafTech's Third Quarter 2026 Earnings Conference Call and Webcast - GRAFTECH INTERNATIONAL LTD

Explicit Guidance:

• Realized Pricing: Expect mid-single-digit percentage increase in weighted average realized pricing in Q4 2026; anticipate a significant, step-change increase in 2027 driven by new customer commitments (September 30% increase and Q4 pricing actions) not yet fully reflected in 2026 results.
• Sales Volume: Expect full-year 2026 sales volume growth between 5% and 10% (YTD growth ~7% through Q3); production and sales volumes expected to be balanced on a full-year basis.
• Cost of Goods Sold (COGS): Expect low single-digit percentage decline in cash COGS per metric ton for full-year 2026 vs. 2025.
• Capital Expenditures (CapEx): Maintaining full-year 2026 expectation of approximately $35 million.
• Monterey Closure Financial Impact:
  • Anticipate one-time cash costs of $20–$25 million associated with closure (majority incurred by end of 2027), primarily classified as COGS.
  • Anticipate annual cash cost savings of $20–$25 million post-closure, with full benefit realized in 2028.
  • Anticipate reduction in annual CapEx requirements of approximately $5 million beginning in 2027.
  • Expect one-time release of $20–$25 million working capital, with majority occurring in 2028.
• Inventory/Working Capital: Expect reduction in working capital (including inventory) during Q4 2026; anticipate modest increase in working capital for full-year 2026; anticipate second quarter 2026 as highest quarterly cash requirement for working capital and interest payments.
• Liquidity: Ending Q3 2026 with $242 million total liquidity ($134M cash + $108M available credit); no debt maturities until December 2029.
• Capacity: Annual graphite electrode production capacity expected to be approximately 127,000 metric tons following completion of Monterey wind-down and transition (early Q2 2027).

Business-Segment Outlook:

• Graphite Electrodes: Expect pricing recovery supported by supply/demand rebalancing; transition of Monterey customer requirements to Calais, France, and Pamplona, Spain facilities; conversion of pin production capacity to Pamplona ongoing.
• Needle Coke: Prices expected to continue rising into Q1/Q2 2027; market range currently estimated at $1,700–$2,000 per metric ton (up from $1,000–$1,200 earlier in the year), providing margin accretion and strategic asset value.
• Adjacent Markets: Pursuing diversification into battery materials, energy storage, defense, and industrial applications via synthetic graphite; collaboration with Antora Energy (St. Mary's, PA facility) for thermal batteries to support AI data centers; exploring use of Seadrift excess capacity for non-electrode synthetic graphite applications.
• Trade: Monitoring final anti-dumping determination regarding China/India imports (expected Q1 2027); advocacy for fair trade and EU carbon border adjustments to support regional steel producers.

Market and Competitive Outlook:

• Demand Growth: Expect global steel demand growth outside China of ~1.5% in 2026, accelerating to 4% in 2027 (World Steel Association); long-term graphite electrode demand outside China projected to grow at ~3% CAGR.
• Supply/Demand Balance: Global industry utilization outside China estimated at ~65% (rising to ~70%+ with Graftech's capacity reduction); belief that industry overcapacity is beginning to correct, supporting price recovery.
• Pricing Environment: Confidence in reaching an inflection point for realized pricing; market pricing recovered in Q2 2026 after early-year decline; sustained improvement in new customer commitments; correlation between needle coke and electrode pricing expected to support higher electrode prices.
• Competition: Focus on differentiated products (supersized electrodes, low oxidation items, technical expertise) rather than price competition; belief that larger plants offer better cost leverage.

Macro / Industry Outlook:

• Steel Sector: Improved fundamentals outside China; US steel capacity utilization at 80% for two consecutive quarters; European market supported by carbon border adjustments and trade protections.
• Economic Drivers: Infrastructure investment, defense spending, energy transition (electric arc furnace steelmaking), and AI/data center infrastructure identified as key catalysts for steel demand.
• Raw Materials: Decant oil costs managed via blending capabilities and byproduct hedging; European energy costs anticipated to rise in 2027 as fixed-price contracts reset (partially mitigated by hedging strategies up to two years).
• Geopolitics: Recognition that geopolitical tensions easing could aid construction and manufacturing investment; ongoing monitoring of US Department of Commerce trade investigations.

Strategic Initiatives:

• Manufacturing Consolidation: Planned closure of Monterrey, Mexico facility (high cost, smallest asset); transition of production to France and Spain; potential sale of Monterrey property to support liquidity/debt reduction.
• Cost Structure Optimization: Ongoing productivity initiatives, procurement optimization, and energy efficiency improvements; vertical integration into needle coke providing supply security and margin support.
• Commercial Discipline: Allocation of capacity to higher-value customers and differentiated products; aiming for 60–65% order book confirmation for the following year by February.
• Partnerships: Collaboration with Antora Energy to commercialize thermal battery technology; continued engagement with potential partners for needle coke diversion.

Risks and Headwinds to Outlook:

• Pricing Recovery: Timing and magnitude of price recovery depend on broader market conditions and pace of capacity rationalization; current guidance assumes continued momentum.
• Cost Inflation: Exposure to rising energy costs in Europe (2027) and potential decant oil cost increases; hedging coverage resets may reduce insulation.
• Trade Policy: Final anti-dumping determinations remain uncertain; preliminary outcome regarding India was lower than anticipated.
• Execution Risk: Monterey closure transition must maintain safety and supply continuity; delays in capacity transitions or customer commitments could impact financial timing.
• Market Volatility: Rapid movements in supply/demand balance could reverse pricing trends; steel industry demand could underperform if macroeconomic conditions deteriorate.

Management Tone on the Future:

• Confidence: Strong confidence in the "inflection point" for pricing and the long-term fundamentals of the steel industry; expressed "encouragement" regarding commercial momentum and cost structure improvements.
• Strategic Clarity: Emphasis on "decisive steps" (Monterrey closure) and "disciplined commercial approach" to build a sustainable pricing environment; focus on long-term profitability over short-term metrics.
• Financial Discipline: Commitment to preserving liquidity, managing capital expenditures prudently, and reducing leverage as operating performance improves; view current financial performance as temporary lag behind commercial progress.
• Sentiment: Positive outlook on the structural transition to electric arc furnaces and the strategic importance of domestic/regional supply chains; tone is optimistic but cautious regarding the pace of industry-wide capacity reduction.

Miscellaneous:

• Safety: Total recordable incident rate for first nine months of 2026 was 0.47 (slightly above 2025 but substantially below multi-year historic levels); safety remains highest priority.
• Non-GAAP Measures: Adjusted EBITDA for Q3 2026 was $9 million; Q3 net loss was $47 million ($1.76/share), including $14 million restructuring/exit charges for Monterey.
• Investor Relations: Full Q3 results, non-GAAP reconciliations, and call replay available at graftech.com; 2027 commercial update expected in Q4 2026 earnings release.