GrafTech International Ltd. 2026 Q3 Earnings Call

Please go ahead. Good morning, and welcome to GrafTech International's third quarter 2026 earnings call.

Thank you for joining us. Joining me on the call are Tim Flanagan, Chief Executive Officer, and Rory O'Donnell, Chief Financial Officer. Tim will begin with opening comments on our key strategic initiatives. Rory will then provide color on our quarterly results, outlook, and other financial matters. After closing comments by Tim, we will then open up the call to questions. Turning to our next slide. As a reminder, our comments today may include forward-looking statements regarding, among other things, performance, trends, and strategies. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations.

You can find these slides in the investor relations section of our website at www.graftech.com. A replay of the call will also be available on our website. I'll now turn the call over to Tim.

Morning, everyone, and thank you for joining us today. The third quarter marked another important period for GrafTech as we continue to advance the commercial, operational, and strategic initiatives designed to improve our long-term profitability and strengthen our competitive position. We are particularly encouraged by the progress we are making on the pricing front, as higher priced customer commitments reinforce our confidence that we've reached an inflection point in our realized pricing. During the quarter, we also announced a significant step in our strategy to improve the efficiency and competitiveness of our manufacturing footprint through the planned closure of our Monterrey, Mexico, facility. These actions, together with our ongoing efforts to improve our cost structure, advocate for fair trade, and capitalize on emerging market opportunities, reflect our commitment to taking decisive steps to strengthen GrafTech's financial performance.

We also remain confident in the longer-term fundamentals of our end markets, supported by improving steel industry conditions across many of our key regions, the continued transition towards electric arc furnace steelmaking, and the growing strategic importance of synthetic graphite. This morning, I'd like to begin with an update on our strategic priorities, followed by our perspectives on the steel market and broader industry environment. I'll then discuss safety before turning the call over to Rory for a review of our financial results. On the commercial front, our disciplined commercial approach is beginning to produce tangible results. During the third quarter and early in the fourth quarter, we continued to secure customer commitments at higher price levels than those secured in earlier periods this year, reinforcing our expectation for meaningful improvement in realized pricing in 2027.

Restoring graphite electrode pricing to more sustainable levels remains essential to supporting continued investment in high-quality manufacturing capacity and ensuring reliable supply for our customers. As we've seen in prior industry cycles, changes in the balance between supply and demand can result in relatively rapid and significant movements in graphite electrode pricing. While the timing and magnitude of any recovery will depend on market conditions, we believe the combination of improving commercial momentum and actions to better address industry overcapacity create the potential for meaningful price recovery. To put our recent pricing progress in perspective, market pricing continued to decline early in 2026 before beginning to recover during the second quarter on the heels of the price increase we announced in March. Since then, we have seen sustained improvement in prices reflected in new customer commitments.

However, because our realized pricing reported to date in 2026 reflects commitments that were primarily entered into in prior periods, those improvements have not yet translated into our quarterly results. Our weighted average realized pricing was approximately $3,900 per metric ton in the third quarter, essentially flat with the second quarter. However, based on our current order book and the timing of shipments against these higher priced commitments, we expect a mid-single-digit percentage increase in realized pricing in the fourth quarter. Looking ahead to 2027, we are seeing positive results in securing customer commitments at significantly higher prices than those reflected in our 2026 business. While a substantial portion of our anticipated 2027 volume remains to be committed, as is typical for this point in the year, these initial results reinforce our confidence in the pricing momentum we are building.

Importantly, our objective is not simply to achieve near-term improvement in pricing, but to establish a more sustainable pricing environment. We believe our efforts to better align production capacity with underlying demand, together with the value customers place on reliable, high-quality supply, provide important support for that objective. We remain focused on securing commitments that appropriately reflect the value of our differentiated products, technical capabilities, and reliable supply while maintaining discipline in how we allocate our available production capacity. We look forward to providing a more comprehensive update on our 2027 commercial position when we report our fourth quarter results early next year. Beyond our own commercial progress, we are also seeing positive industry developments. In China, graphite electrode prices have increased throughout the year, supported in part by higher raw material costs. At the same time, Chinese graphite electrode exports have declined approximately 10% year-over-year.

Taken together, we view these developments as further indications that the prolonged period of low industry pricing is beginning to change. We are also seeing strengthening conditions in the petroleum needle coke market. Needle coke prices have steadily increased throughout the year, reflecting a combination of high raw material costs and evolving supply and demand conditions. At the same time, interest in our own needle coke production capabilities is growing amongst potential customers serving various end markets. Historically, needle coke and graphite electrode pricing have been closely correlated with an average spread between the two of approximately $4,000 per metric ton over the past 20 years on an inflation-adjusted basis. Therefore, we believe the strengthening needle coke market provides another catalyst for higher electrode pricing, while our vertical integration positions GrafTech favorably as these market dynamics evolve. Second, with respect to our manufacturing footprint.

In the third quarter, we announced the planned closure of our graphite electrode manufacturing facility in Monterrey, Mexico. This represents an important step in our efforts to optimize our manufacturing network, improve operational efficiency, and better align production capacity with market demand. Over the past several years, the graphite electrode industry has faced persistent structural overcapacity, reflecting significant capacity additions in certain markets that have outpaced underlying demand growth. These conditions have contributed to a prolonged period of depressed pricing and have made it increasingly difficult to justify maintaining excess manufacturing capacity. We have taken meaningful actions over the past several years to improve our cost structure and operational efficiency. However, given the continued imbalance between industry supply and demand, we determined that further action was necessary.

Following the phased wind down of Monterrey, customer requirements currently served by that facility will transition to our manufacturing operations in Calais, France and Pamplona, Spain. The transition of connecting pin production capacity to Pamplona is also in process and on track. Upon the completion of this transition early in the second quarter of 2027, our annual graphite electrode production capacity is expected to be approximately 127,000 metric tons. Importantly, we are confident this consolidation will enable us to serve our customers more efficiently through a more competitive manufacturing footprint while preserving the differentiated product capabilities and technical expertise that are central to GrafTech's value proposition. We expect the initiative to strengthen our cost structure, improve operating efficiency, and reduce future capital requirements. We are managing the transition carefully with a focus on safety, maintaining supply continuity, and meeting our customer commitments.

I also want to reiterate our support for the employees impacted by this decision. The Monterrey team has made important contributions to GrafTech over many years, and we're committed to treating our colleagues with respect and supporting them throughout the transition. Taken together with our ongoing manufacturing productivity and cost reduction initiatives, this action represents another meaningful step towards establishing a more sustainable foundation for long-term profitability. Following the wind down of operations and permanent removal of graphite electrode production capabilities at Monterrey, we intend to pursue the sale of the property and have already begun preliminary activities in preparation for a potential transaction. Any proceeds from a future sale would provide additional opportunity to support our liquidity position and reduce our outstanding debt, consistent with the requirements of our loan documents. Third, with respect to trade policy.

We continue to advocate for fair trade and more balanced competitive conditions across the graphite electrode industry, including through our supportive trade proceeding in key commercial jurisdictions. As we discussed last quarter, the U.S. Department of Commerce has been investigating imports of large-diameter graphite electrodes from China and India. Since our last call, Commerce has issued its preliminary antidumping determinations. While we are disappointed with the preliminary outcome as related to India, it's important to emphasize that the investigation is not yet complete. The information submitted by the Indian respondents remains subject to verification by Commerce, and the final determination is expected during the first quarter of 2027. We will remain actively engaged throughout the remainder of this process and continue to support efforts to address unfair trade practices that undermine the competitiveness of domestic graphite electrode manufacturing.