The recovery in GE demand expected in H2 2020: GrafTech

The negative sentiments in global graphite electrodes market seems to have taken toll on the performance of U.S. based GE manufacturer GrafTech also in 2019.

Sales down by 3% y-o-y: According to the financial statements released by GrafTech, company's net sales for the year ended December 31, 2019 totalled USD 1.8 billion compared to USD 1.9 billion in the prior year. Net sales for the quarter ended December 31, 2019 were USD 415 million compared to USD 533 million in the fourth quarter of 2018.

Lower net sales were driven primarily by lower sales volumes, reflecting demand as influenced by lower crude steel production levels. The company's sales volume plunged from 176,000 tonne in 2018 to 171,000 tonnes in 2019. In the fourth quarter (Sep-Dec'19), the company's sales volume plunged to 41,000 tonnes against 50,000 tonnes in the corresponding period of previous year. The average contract price of GrafTech in CY19 was USD 9,900/MT and for last quarter Q4, it was at the similar levels.

Profits down by 13% y-o-y: Net income for 2019 stood at USD 745 million compared to USD 854 million in the prior year. Whereas net income for the fourth quarter of 2019 was USD 175 million, compared to USD 230 million.

The company's earnings for the fourth quarter and full year of 2019 were impacted by lower net sales and higher raw materials costs related to third party petroleum needle coke. The company's total capacity utilisation in 2019 stood at 77% against 86% in 2018. The capacity utilization was reduced to manage production in-line with reduced shipments.

Approximately 80% of the company's fourth quarter revenues were from customers with long-term agreements (LTA). In case of non-LTAs the pricing was down in Q4 as against Q3 CY19 and the management expects additional decline in the first quarter of 2020.

Hopes in H2 2020: In its investors call held recently, the company's management highlighted that graphite electrode inventories had remain elevated for many customers, but de-stocking is happening slowly and that the inventory de-stocking will continue through the first-half of the year. The GE demand is expected to rebound somewhat in the second half of 2020, in line with a typical steel market cycle as customers work through inventories. The company's management also added that the vertical integration into petroleum needle coke offers a competitive advantage to it as needle coke demand from electrodes and electric vehicle batteries continue to support long-run needle coke pricing.

GrafTech's Key Operating Metrics

GrafTech's Financial Performance Y-o-Y

Source: Company Financials