GrafTech's Sales Volume drops by 24% y-o-y in Q1 20, revises Full Year Guidance for 2020

U.S. based Graphite electrodes (GE) manufacturer GrafTech's first quarter (Q1) 2020 (Jan-Mar) results are out. The key highlights of the company's results that was coupled with investors call are as below:

Sales volume for the quarter ended March 31, 2020 stood at 34,000 tonne out of which 29,000 tonne was shipped under the long-term agreements and 5,000 tonne were spot sales. The company's sales volume in Q1 2019 stood at 45,000 tonne.

Net sales for the quarter ended March 31, 2020 were USD 319 million compared to USD 475 million in Q1 2019. This drop in net sales was driven primarily by lower sales volumes, reflecting continued customer inventory destocking, lower steel production levels, and the preliminary impact of the COVID-19 virus on the economy.

Production: GrafTech's production volume also dropped from 48,000 tonne in Q1 2019 to 33,000 tonne in Q1 2020. The company's total plant capacity utilisation in Q1 2020 stood at 57% against 83% in Q1 2019.

Price: GrafTech's average spot price for non-LTA business stood at around USD 6,500 and amid the pandemic situation and poor demand, the company expects the spot prices to fall further. In the case of LTA, the average price in Q1 stood at USD 9,450/MT and is estimated to be in the range of USD 9,450 - 9,600/MT in the remaining quarters.

COVID-19 induces company to revise LTA volume

Amid the spread of COVID-19, the company undertook sufficient precautions at its production site and achieved a 96% on-time delivery rate for the first quarter of 2020.

However, the company has decided to reduce the operating level of its GE plants and will operate as per the customer demand. The company had expected that its customers' GE destocking process will be completed in 2020 but given the current situation now it is likely to continue in 2021 also.

Subsequently, the company has revised its long-term contract (LTA) volume estimates for 2020 from 130,000 tonne to 100,000 - 115,000 tonne.

GrafTech anticipates to have long-term impact of the pandemic in the coming months of 2020 and in 2021 also. This is because despite steel industry being deemed as an essential business in many countries, several company's customers have temporarily suspended their operations or have reduced their operations.

The impact of the virus has led to over 20 of the company's long-term contract customers to submit force majeure notices. Whereas other long-term contract customers have been impacted by plant closures and lower steel demand, and are struggling to take their committed electrode volume.

Subsequently, the company is experiencing some delays and non-performance from certain customers on their long-term agreements. Its GE price for spot sales is now below the long-term contract price and some customers are attempting to renegotiate their contracts or delay shipments.

Update on Seadrift facility

In case of needle coke, the company is continuing to operate its Seadrift plant at full capacity during this COVID-19 crisis. However, it has scheduled its planned biannual Seadrift maintenance outage for later in the second quarter this year. This outage will last about four weeks and the company has adequate needle coke inventory to cover this outage.

Cost control and capital expenditure

To reduce cost, the company's headcount at electrode plants is being reduced by 15% and fixed costs by 15%. Its variable costs are anticipated to be lower in 2020 as a result of the lower utilization rates.

Graftech's capital expenditure totaled USD 14 million in the first quarter of 2020, and the company has planned to reduce its capital expenditures for the full year by approximately one-half to a level of USD 30- USD 35 million.

Outlook

The company is confident of the long-term growth trajectory of electric furnaces steel production and so does the electrodes demand. EAF steelmaking produces 75% less carbon emissions than traditional blast oxygen furnace steelmaking. EAF growth is anticipated amid significant capacity additions being announced globally.