Overview of GrafTech’s Financial Performance

GrafTech International Ltd. is a leading manufacturer of graphite electrodes, a critical component used in electric arc furnace (EAF) steel production. In 2024, the company faced a challenging business environment, with global steel industry production remaining constrained by economic and geopolitical uncertainty. However, GrafTech was able to navigate these headwinds and deliver improved financial results compared to the prior year.

Total sales volume increased 13% in 2024 to 103,200 metric tons (MT), consisting of 13,000 MT from long-term agreements (LTAs) and 90,200 MT from non-LTA sales. This increase in volume helped offset a 22% decline in the weighted-average realized price for non-LTA sales, which fell to $4,200 per MT. The weighted-average realized price from LTAs was $8,100 per MT in 2024, down from $8,800 per MT in 2023.

Despite the lower pricing, GrafTech’s cost-cutting initiatives and increased production volume helped drive a 7% decrease in cost of goods sold compared to 2023. The company also recorded a $12.4 million favorable impact from lower-of-cost-or-market (LCM) inventory adjustments in 2024. As a result, GrafTech was able to narrow its net loss to $131.2 million in 2024, compared to a $255.3 million net loss in 2023.

Revenue and Profit Trends

GrafTech’s revenue declined 13% in 2024 to $538.8 million, primarily due to the lower weighted-average realized prices for non-LTA sales. However, the 13% increase in total sales volume helped offset some of this revenue decline.

On the profitability side, GrafTech reported an operating loss of $75.2 million in 2024, a significant improvement from the $214.4 million operating loss in 2023. This was driven by the lower cost of goods sold, as well as a $27.5 million decrease in selling and administrative expenses.

The company’s adjusted EBITDA, a non-GAAP measure that excludes certain one-time or non-cash items, was $1.6 million in 2024, compared to $20.5 million in 2023. While still positive, the decline in adjusted EBITDA reflects the persistent pricing pressures in the graphite electrode market.

Strengths and Weaknesses

One of GrafTech’s key strengths is its substantial vertical integration into petroleum needle coke, the primary raw material used in graphite electrode production. This provides the company with a stable supply of this critical input and helps insulate it from volatility in raw material prices. Additionally, GrafTech’s leading market position and long-standing customer relationships give it a competitive advantage in the industry.

However, the company’s financial performance remains heavily dependent on the cyclical steel industry. The persistent pricing pressures and global economic uncertainty have weighed on GrafTech’s profitability in recent years. The company’s high debt load, with total debt of $1.1 billion as of December 31, 2024, also presents a potential weakness, as it limits financial flexibility and increases interest expense.

To address these challenges, GrafTech has implemented a cost rationalization and footprint optimization plan, which includes the indefinite suspension of production activities at its St. Marys, Pennsylvania facility and the idling of certain assets within its remaining manufacturing footprint. These actions are expected to improve the company’s cost structure and align its production capacity with the current demand environment.

Outlook and Future Prospects

Looking ahead, GrafTech’s management expects a modest recovery in global steel demand in 2025, although significant geopolitical uncertainty remains. The company anticipates a low double-digit percentage point year-over-year increase in its sales volume for 2025, as it continues to regain market share.

However, the pricing environment is expected to remain challenging, prompting GrafTech to take further actions to improve profitability. These include initiatives to optimize its order book, shift the geographic mix of its business to regions with higher average selling prices, and inform customers of its intention to increase prices by 15% on volume that is not yet committed for 2025.

On the cost side, GrafTech expects a mid-single digit percentage point decline in its cash cost of goods sold per MT for 2025 compared to 2024, as it continues to execute its cost-cutting initiatives and benefit from increased sales and production volume levels.

Longer term, the company remains confident that the steel industry’s efforts to decarbonize will lead to increased adoption of the electric arc furnace method of steelmaking, driving long-term demand growth for graphite electrodes. Additionally, the growing demand for petroleum needle coke in the production of synthetic graphite for lithium-ion batteries in electric vehicles presents a potential opportunity for GrafTech.

Overall, while GrafTech faces near-term challenges, the company’s industry-leading position, vertical integration, and focus on operational efficiency position it well to navigate the current environment and benefit from the anticipated long-term growth in the graphite electrode market.