Executive Summary / Key Takeaways

• Strategic Momentum in a Challenged Market: GrafTech International Ltd. (NYSE:EAF) is executing a disciplined strategy to regain market share and improve profitability, demonstrating impressive volume growth (Q2 2025 sales volume up 12% year-over-year, highest since Q3 2022) despite flat global graphite electrode demand.
• Cost Discipline and Efficiency Gains: The company has significantly improved its cost structure, projecting a 7-9% year-over-year decline in cash cost of goods sold per metric ton for 2025, translating to approximately $3,950/MT, exceeding prior guidance. This reflects operational excellence and fixed cost leverage.
• Pricing Power Initiative: Acknowledging "unsustainably low" industry pricing, GrafTech has announced a 15% price increase on uncommitted 2025 volumes, coupled with a strategic shift of sales mix towards higher-priced regions like the U.S., which has already boosted average selling prices.
• Fortified Financial Foundation: Recent financing transactions have extended substantially all debt maturities to December 2029 and bolstered liquidity to $366.5 million as of June 30, 2025, providing crucial operational flexibility to navigate near-term challenges and invest in long-term growth.
• Long-Term Tailwinds and Strategic Optionality: GrafTech is uniquely positioned to capitalize on the secular growth of Electric Arc Furnace (EAF) steelmaking driven by decarbonization and the accelerating demand for petroleum needle coke for electric vehicle (EV) batteries, with its vertical integration and R&D efforts in anode materials offering significant future optionality.

The Indispensable Link in Green Steel's Evolution

GrafTech International Ltd., a company with roots tracing back to 1886, stands as a critical enabler of modern steel production. As a leading manufacturer of high-quality graphite electrodes, GrafTech is indispensable to the electric arc furnace (EAF) steelmaking process, a method increasingly favored for its lower carbon footprint compared to traditional blast furnaces. This foundational role positions GrafTech at the nexus of global decarbonization efforts within the steel industry. The company's unique competitive advantage stems from its substantial vertical integration into petroleum needle coke, a key raw material produced at its Seadrift facility in Texas, providing a crucial surety of supply that few competitors can match.

The global steel industry is undergoing a profound transformation. The EAF method accounted for 51% of steel production outside of China in 2024, a notable increase from 44% in 2015, a trend expected to continue. Projections indicate over 170 million metric tons per year of new EAF steel production capacity will come online outside of China by the end of this decade, potentially translating into an incremental 200,000 metric tons of graphite electrode demand annually—a 25% increase over current non-China manufacturing capacity. This structural shift is anticipated to drive graphite electrode demand at a compound annual growth rate (CAGR) of 3-4% through 2030, with approximately 80% of this growth concentrated in regions where GrafTech already has a strong presence.

GrafTech's journey has not been without its challenges. The temporary suspension of its Monterrey, Mexico facility in September 2022, while disruptive, served as a catalyst for a comprehensive strategic pivot. This involved aggressive cost rationalization, footprint optimization (including the idling of its St. Mary's, Pennsylvania facility in early 2024), and a renewed focus on customer engagement and market share recovery. These initiatives, born out of necessity, have reshaped GrafTech into a leaner, more agile organization, better prepared to capitalize on the long-term industry tailwinds.

Technological Edge and Innovation

GrafTech's competitive differentiation is deeply rooted in its technological prowess and commitment to innovation. The company's core offering is not merely a commodity; it's a highly engineered product supported by advanced technical capabilities. The ArchiTech Furnace Productivity System and a world-class customer technical services (CTS) team provide tangible benefits to EAF operators, optimizing furnace performance and steel quality. This integrated approach helps customers achieve higher productivity and lower overall operating costs, fostering strong, long-term partnerships.

The company's vertical integration into petroleum needle coke further enhances its technological moat. This control over a critical raw material ensures a consistent supply of high-quality inputs, translating to a 5-10% better consistency in electrode performance under extreme operating conditions for end-users. This reliability is a key differentiator in an industry where operational uptime and product predictability are paramount.

Beyond its core offerings, GrafTech is actively investing in research and development (R&D) to expand its product portfolio and explore new growth avenues. A notable development is the introduction of its new 800-millimeter electrode offering. Initial trials with a key North American customer in Q3 2024 were successful, and additional qualification trials are ongoing in 2025. While currently a niche market, demand for 800-millimeter and other supersize electrodes is expected to significantly outpace that of the overall electrode market in the coming years. This strategic expansion provides GrafTech access to a previously untapped, high-growth segment of the market, reinforcing its position as a value-added supplier in demanding regions like the U.S., where technical quality and furnace performance are highly valued.

GrafTech's R&D efforts also extend to the burgeoning electric vehicle (EV) battery market. The company is building out its technical capabilities and demonstrating its deep expertise in needle coke and synthetic graphite for use in lithium-ion batteries and energy storage applications. This strategic initiative includes investments in pilot-scale assets at its technical center. The U.S. Department of Commerce's recent preliminary antidumping tariffs of 93.5% (resulting in a combined 160% with previous tariffs) on graphite active anode material imports from China underscore the strategic intent to foster an ex-China supply chain for critical minerals. GrafTech, with its Seadrift facility, is well-positioned to be a valuable strategic partner in this space, potentially expanding its production capacity to serve this high-growth anode material market while maintaining its vertical integration for graphite electrodes.

Competitive Arena: Outperforming in a Challenged Market

GrafTech operates in a highly competitive global market, primarily contending with major players like SGL Carbon SE (SGLFF), Tokai Carbon Co., Ltd. (TKCBY), and Cabot Corporation (CBT). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, GrafTech holds an estimated 15-20% aggregate market share in graphite electrodes globally. However, its recent growth trajectory, while positive, has lagged the broader market's pace, which has been driven by overall steel demand.

GrafTech's competitive strategy is rooted in cost leadership and leveraging its unique vertical integration. Its electrodes offer a 10-15% lower upfront cost per electrode compared to some alternatives, making them highly attractive to price-sensitive steel producers. This cost advantage allows GrafTech to compete effectively against higher-cost products from rivals like SGL Carbon, potentially gaining 5-10% market share in key steel markets and improving its margins by approximately 5% in competitive bids. Furthermore, GrafTech's integrated supply chain for needle coke enables 20% faster delivery times (e.g., 4-6 weeks versus Tokai Carbon's 6-8 weeks), a crucial differentiator in urgent markets like North American steel production.

Despite these strengths, GrafTech faces challenges in profitability and innovation speed compared to its peers. Its gross margins (18-22%) and net margins (1-3%) are notably lower than SGL Carbon (25-30% gross, 4-6% net), Tokai Carbon Co., Ltd. (25-28% gross, 6-8% net), and Cabot Corporation (28-32% gross, 8-10% net). This disparity reflects higher production costs and a more leveraged balance sheet.

EAF's R&D investment, at approximately 2-3% of revenue in 2024, also trails SGL Carbon (4-5%) and Cabot Corporation (5-7%), leading to slower innovation cycles (12-18 months for new electrode variants compared to SGL's 9-12 months). Operationally, GrafTech's manufacturing processes exhibit 5-10% higher energy consumption per unit due to older facilities compared to more efficient rivals like Tokai Carbon Co., Ltd. .

The market remains characterized by persistent competitive pressures, including increased low-priced graphite electrode exports from China and India, contributing to excess capacity globally. GrafTech's strategic response includes making deliberate decisions to "walk away from volume opportunities where margins are unacceptably low" or where customers "do not recognize our value proposition." This disciplined approach aims to optimize its order book and shift its geographic sales mix towards higher-priced regions. For instance, the company has significantly increased its U.S. sales volume by 38% year-over-year in Q2 2025 and 32% year-to-date, representing a "step change" in its U.S. market share. This shift has already boosted its weighted average selling price for Q2 2025 by approximately $80 per MT.

The imposition of increased Section 232 tariffs on foreign graphite electrode competitors, particularly Indian suppliers (who hold a mid-teens percentage of the U.S. market and face 10% or announced 26% tariffs), presents a "tremendous opportunity" for GrafTech to capture incremental demand from U.S. customers. The passive investment by competitor HEG (HEG.NS), which has acquired just over 8% of GrafTech's shares, further underscores the perceived strength of GrafTech's assets and vertical integration within the industry.

Financial Performance: Signs of a Turnaround

GrafTech's recent financial performance reflects the challenging industry backdrop but also the tangible impact of its strategic initiatives. For the second quarter of 2025, net sales decreased by 4% year-over-year to $131.84 million, primarily due to lower weighted-average realized prices, despite a robust 12% increase in sales volume to 28.6 thousand metric tons (MT)—the highest level since Q3 2022. For the first six months of 2025, net sales were $243.68 million, an 11% decline year-over-year.

Despite the revenue headwinds, cost management has been a standout area of improvement. Cost of goods sold decreased by 2% year-over-year in Q2 2025, reflecting ongoing cost reduction initiatives and improved production volumes. The company achieved a 13% year-over-year decline in cash cost of goods sold per MT in Q2 2025. This impressive performance is driven by leveraging R&D for lower raw material usage, capitalizing on technology investments to reduce energy consumption, optimizing production scheduling, and diversifying its supplier base. GrafTech has revised its 2025 guidance for cash COGS per MT, now expecting a 7-9% year-over-year decline, exceeding its previous mid-single-digit forecast. This translates to an estimated $3,950/MT for the full year, with a long-term target to trend towards $3,700/MT.

Profitability, while still under pressure, shows signs of stabilization. Adjusted EBITDA for Q2 2025 was $3.47 million, marking the first positive adjusted EBITDA since Q2 2024. For the first half of 2025, adjusted EBITDA was $0.20 million. The company reported a net loss of $(86.89) million in Q2 2025 and $(126.24) million for the first half, significantly impacted by a $43 million non-cash income tax charge in Q2 to establish a valuation allowance against deferred tax assets. Management emphasizes that this accounting adjustment does not reflect a change in their confidence regarding future taxable income and recovery to normalized profitability.

Liquidity has been significantly strengthened, a critical factor in navigating the current cycle. As of June 30, 2025, total liquidity stood at $366.5 million, comprising $158.5 million in cash and cash equivalents, $108 million in availability under its revolving credit facility, and $100 million in availability under its delayed draw term loan. The company successfully extended substantially all of its debt maturities to December 2029 through recent financing transactions, providing a crucial runway. Cash used in operating activities increased by $48 million in H1 2025, primarily due to a planned $46.4 million inventory build to level-load production and manage costs, but working capital is expected to be favorable to full-year cash flow performance in 2025. Capital expenditures are anticipated to be approximately $40 million for the full year 2025, with interest expense projected around $90 million for the year.

Outlook and Strategic Trajectory: Fueling Future Growth

GrafTech's outlook for 2025 and beyond is grounded in a clear strategic trajectory aimed at capitalizing on long-term industry tailwinds while managing near-term volatility. The company anticipates an approximate 10% year-over-year increase in sales volume for 2025, reflecting its continued success in regaining market share. This growth is expected despite a near-term outlook for relatively flat graphite electrode demand in most regions, underscoring GrafTech's ability to outperform the broader market through its customer-centric approach and value proposition.

A key element of the forward strategy is to improve pricing. Recognizing that current industry pricing is "unsustainably low," GrafTech has informed customers of its intention to implement a 15% price increase on uncommitted 2025 volumes. This is viewed as a necessary step to restore profitability to levels that support ongoing investment in the business. The company's strategic shift to higher-priced regions, particularly the U.S., where it increased sales volume by 38% year-over-year in Q2 2025, is already contributing to a higher average selling price. Management anticipates second half 2025 adjusted EBITDA to be near breakeven, a significant step towards sustained profitability.

Longer term, GrafTech remains bullish on the structural tailwinds driving its industry. The ongoing decarbonization of the steel sector is expected to accelerate the global adoption of EAF steelmaking, directly fueling demand for graphite electrodes. Additionally, the demand for petroleum needle coke, GrafTech's key raw material, is projected to rise significantly, driven by its critical role in producing synthetic graphite for lithium-ion batteries in the rapidly expanding EV market. The recent U.S. Department of Commerce tariffs on Chinese anode material underscore the strategic importance of developing Western supply chains for critical minerals, an area where GrafTech's vertical integration and R&D in anode materials position it as a potential strategic partner. The company is actively pursuing partnership opportunities to expand its Seadrift facility's production capacity to serve this burgeoning market.

Risks to the Investment Thesis

Despite the positive momentum, GrafTech faces several pertinent risks that warrant investor attention. The most immediate challenge remains the "unsustainably low" pricing environment for graphite electrodes, exacerbated by excess capacity and low-priced exports from China and India. While GrafTech is implementing price increases and shifting its sales mix, sustained profitability hinges on broader market rebalancing and a more rational pricing landscape.

Geopolitical uncertainty, particularly concerning global trade and tariffs, poses an ongoing risk. While GrafTech's integrated global production network provides flexibility to mitigate impacts, potential retaliatory tariffs or shifts in trade policies could disrupt supply chains and affect profitability. The company is also involved in various legal proceedings, including Brazil Clause IV litigation and securities/derivative lawsuits, the ultimate disposition of which could have a material adverse effect on its financial condition, though the full extent of potential losses is currently unquantifiable.

Furthermore, GrafTech's common stock does not currently comply with the NYSE's minimum share price standard, necessitating a potential reverse stock split. While the company is seeking stockholder approval for this, there is no assurance that the stock price will remain above the $1.00 threshold post-split, and delisting remains a risk that could adversely affect capital raising and stock liquidity. The near-term flatness in the needle coke market, despite long-term optimism, also means that a significant catalyst for pricing improvement from this segment may not materialize immediately. Finally, management has acknowledged that its safety performance in 2024 was "not acceptable," highlighting an operational area requiring continued vigilance and improvement.

Conclusion

GrafTech International Ltd. is demonstrating a compelling narrative of strategic execution and resilience in a challenging industrial cycle. By aggressively managing costs, recapturing market share in key regions, and proactively addressing its capital structure, the company is building a solid foundation for future growth. The Q2 2025 results, marked by significant volume increases and improved cost efficiency, underscore the tangible progress of these initiatives.

While the graphite electrode market continues to grapple with pricing pressures and excess capacity, GrafTech's unique vertical integration, coupled with its technological advancements like the 800-millimeter electrode and its strategic positioning in the emerging EV battery supply chain, provides a distinct competitive edge. The company's ability to leverage its cost leadership and reliable supply against rivals, combined with the long-term tailwinds of EAF steelmaking and needle coke demand, paints a picture of a company poised for a significant turnaround. Investors should monitor the continued success of its pricing initiatives and the broader market's rebalancing, as GrafTech's disciplined approach and strategic optionality position it to generate substantial long-term value as the industry evolves.