What changed in this filing

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Item 1. Business

2024-02-14 compared with 2023-02-14 · 77 added, 69 removed, 163 unchanged (47% of the section changed)

GrafTech International Ltd., founded in 1886 and incorporated in Delaware, is a leading manufacturer of high-quality graphite electrode products essential to the production of electric arc furnace ("EAF") steel and other ferrous and non-ferrous metals.

We believe that we have the most competitive portfolio of low-cost ultra-high power (“UHP”) graphite electrode manufacturing facilities in the industry, including three of the highest capacity facilities in the world.

GrafTech International Ltd., founded in 1886 and incorporated in Delaware, is a leading manufacturer of high-quality graphite electrode products essential to the production of EAF steel and other ferrous and non-ferrous metals.

We believe that we have a competitive portfolio of low-cost ultra-high power (“UHP”) graphite electrode manufacturing facilities, with some of the highest capacity facilities in the world.

We have graphite electrode manufacturing facilities in Calais, France, Pamplona, Spain, Monterrey, Mexico and St.

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Based on the high-quality of our graphite electrodes, reliability of our petroleum needle coke supply and our excellent customer service, we believe that we are viewed as a preferred supplier to the global EAF steel producer market.

Our production capacity is approximately 200 thousand metric tons ("MT") 1 through our primary manufacturing facilities in Calais, Pamplona and Monterrey.

As of December 31, 2023, our stated production capacity was approximately 202 thousand metric tons (“MT”) 1 through our primary manufacturing facilities in Calais, Pamplona and Monterrey.

On February 14, 2024, the Company announced a cost rationalization and footprint optimization plan, in response to persistent softness in the commercial environment.

This includes an indefinite suspension of production activities at our St.

Marys facility, with the exception of graphite electrode and pin machining.

We are also indefinitely idling certain assets within our remaining graphite electrode manufacturing footprint.

As a result of these initiatives, beginning in 2024, our stated production capacity will be approximately 178 thousand MT 1 .

Our principal executive offices are located at 982 Keynote Circle, Brooklyn Heights, Ohio 44131 and our telephone number is (216) 676‑2000.

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Graphite Electrodes

Graphite electrodes are an industrial consumable product used primarily in EAF steel production, one of the two primary methods of steel production and the steelmaking technology used by all “mini‑mills.” Electrodes act as conductors of electricity in the furnace, generating sufficient heat to melt scrap metal, iron ore or other raw materials used to produce steel or other metals.

Graphite electrodes are an industrial consumable product used primarily in EAF steel production, one of the two primary methods of steel production and the steelmaking technology used by all “mini‑mills.” Electrodes act as conductors of electricity in the furnace, generating sufficient heat to melt scrap metal, iron ore-derived products or other raw materials used to produce steel or other metals.

We estimate that, on average, the cost of graphite electrodes represents less than 5% of the total production cost of steel in a typical EAF, but they are essential to EAF steel production.

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As a result, EAF steel manufacturers require a reliable supply of high-quality graphite electrodes.

Graphite electrodes are also used in steel refining in ladle furnaces and in other processes, such as the production of titanium dioxide, stainless steel, silicon metals and other ferrous and non‑ferrous metals.

Graphite electrodes are also used in steel refining ladle furnaces and in other processes, such as the production of titanium dioxide, stainless steel, silicon metals and other ferrous and non‑ferrous metals.

With the growth of EAF steel production, graphite electrode production has become focused on the manufacturing of UHP electrodes, which have low electrical resistivity and strong durability to maximize efficient use of electricity in the EAF and minimize electrode consumption.

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We manufacture graphite electrodes ranging in size up to 30 inches (750 millimeters) in diameter, over 11 feet (3,400 millimeters) in length, and weighing as much as 5,900 pounds (2.6 MT).

In 2024, we anticipate expanding our product offerings to include the addition of an 800-millimeter super-sized electrode to our portfolio to serve a small but growing segment of the UHP electrode market.

We also manufacture corresponding sizes of graphite connecting pins, which are used by customers to connect and fasten graphite electrodes together in a column for use in an EAF.

For the past several years, all of our connecting pin production was performed at our Monterrey, Mexico facility.

However, we are pursuing alternatives with respect to the production and sourcing of connecting pins to reduce our reliance on one production location for this critical component.

However, we recently added pin production capabilities at our Pamplona, Spain

1 Production capacity reflects expected maximum production volume during the period through our Calais, Pamplona and Monterrey facilities depending on product mix and expected maintenance outage.

Actual production may vary.

facility to provide alternative sources, if needed, for this critical component.

The total manufacturing time of a UHP graphite electrode and its associated connecting pin is, on average and except for special requests, approximately six months.

The size of the electrodes used in EAF steel production varies depending on the size of the furnace, the size of the furnace’s electric transformer and the planned productivity of the furnace.

In a typical furnace using alternating electric current and operating at a typical number of production cycles per day, three UHP graphite electrodes are fully consumed (requiring the

1 Production capacity reflects expected maximum production volume during the period depending on product mix and expected maintenance outage.

Actual production may vary.

addition of new electrodes), on average, every eight to ten operating hours.

UHP graphite electrodes are consumed at a rate of approximately 1.7 kilograms per MT of steel production in EAF facilities.

In a typical furnace using alternating electric current and operating at a typical number of production cycles per day, three UHP graphite electrodes are fully consumed (requiring the addition of new electrodes), on average, every eight to ten operating hours.

UHP graphite electrodes are consumed at a rate of approximately 1.7 kilograms per MT of steel production, on average, in EAF facilities.

The actual rate of consumption and addition of electrodes for a particular furnace depends primarily on the efficiency and productivity of the furnace.

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Supply trends

We estimate that as of the end of 2022, the graphite electrode industry globally (excluding China) had capacity to produce approximately 800 thousand MT of graphite electrodes.

The industry is fairly consolidated, with the five largest global (excluding China) producers in the industry, GrafTech, Resonac Holdings Corporation (previously known as Showa Denko K.K.), Graphite India Limited, Tokai Carbon Co., Ltd.

and HEG Limited, collectively, representing approximately 80% of global (excluding China) graphite electrode production capacity.

Our graphite electrode production facilities, with production capacity of approximately 200 thousand MT (excluding St.

Marys), represents one-quarter of the global (excluding China) graphite electrode production capacity.

We believe that no new graphite electrode production facilities have been built outside of China for approximately ten years.

We estimate that as of the end of 2023, the graphite electrode industry globally (excluding China) had nameplate capacity to produce approximately 810 thousand MT of graphite electrodes.

The industry is fairly consolidated, with the five largest global (excluding China) producers in the industry, GrafTech, Resonac Holdings Corporation, HEG Limited, Tokai Carbon Co., Ltd.

and Graphite India Limited, collectively, representing over 80% of global (excluding China) graphite electrode production capacity.

As of December 31, 2023, our stated production capacity was approximately 202 thousand MT through our Calais, Pamplona and Monterrey facilities and represented approximately one-quarter of the global (excluding China) graphite electrode production capacity.

On February 14, 2024, the Company announced a cost rationalization and footprint optimization plan, in response to persistent softness in the commercial environment.

As a result, beginning in 2024, our stated production capacity will be approximately 178 thousand MT.

We believe that no new graphite electrode production facilities have been built outside of China for several years.

In recent years, additional production capacity has been generated by optimization and debottlenecking of existing assets and limited brownfield expansion.

Although graphite electrode production capacity within China exceeds that of the rest of the world combined, the production landscape in China is fragmented, and the quality of Chinese graphite electrodes varies greatly.

We believe that a significant portion of the electrodes produced in China do not meet the quality standards needed to be utilized in the most demanding EAF applications.

In addition, the imposition of customs duties and other tariffs in key EAF steelmaking regions, including the United States and the European Union ("EU"), have further limited the quantities of graphite electrodes exported from China.

We primarily compete in the UHP segment of the graphite electrode market.

We estimate that, as of the end of 2023, global (excluding China) UHP graphite electrode capacity was approximately 690 thousand MT, or approximately 85% of the global (excluding China) graphite electrode capacity.

After factoring in practical utilization rates (e.g., accounting for product mix and expected maintenance outage), this capacity is insufficient to meet the global (excluding China) demand for UHP graphite electrodes (see “Demand Trends” section below).

As a result, exports from Chinese electrode producers that meet the technical performance standards required by EAF steel manufacturers typically provide the balance of UHP graphite electrode needs.

We estimate that as of the end of 2023, total production capacity within China for the UHP segment of graphite electrodes was approximately 825 thousand MT.

However, we believe that a significant portion of the UHP electrodes produced in China do not meet the quality standards needed to be exported for use in the most demanding EAF applications.

In addition, the imposition of customs duties and other tariffs in key EAF steelmaking regions, including the United States and the European Union (“EU”), have further limited the quantity of graphite electrodes exported from China.

Demand trends

We estimate that global (excluding China) UHP graphite electrode demand was approximately 680 thousand MT in 2022.

UHP graphite electrodes are primarily used in the EAF steelmaking process, and long-term global growth of EAF steel production has driven increased demand for graphite electrodes.

We estimate that annual global (excluding China) UHP graphite electrode demand has been approximately 660 thousand MT, on average, over the past three years.

UHP graphite electrodes are primarily used in the EAF steelmaking process, and long-term global growth of EAF steel production has driven increased demand for graphite electrodes over time.

EAF steelmaking has historically been the fastest-growing segment of the global steel market.

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As a result, the EAF method of steelmaking accounted for 49% of the global (excluding China) steel production in 2022, compared to 44% in 2015, with share growth in nearly every region.

EAF steelmaking is more energy efficient and is advantaged in terms of its environmental footprint, compared to steel produced through the blast oxygen furnace (“BOF”) steelmaking model.

EAF steelmaking is more energy efficient and is advantaged in terms of its environmental footprint, compared to steel produced through the basic oxygen furnace (“BOF”) steelmaking model.

According to the Steel Manufacturers Association (“SMA”), EAF steelmaking produces 75% fewer carbon dioxide emissions compared to BOF steelmaking.

Further, SMA notes that the EAF process is a sustainable model for recycling scrap-based raw materials into new steel, which is 100% (and infinitely) recyclable at the end of its useful life.

Further, SMA notes that the EAF process is a sustainable model for recycling scrap-based raw materials into new steel, which is 100% (and

infinitely) recyclable at the end of its useful life.

In addition to these advantages, EAF steel producers benefit from their flexibility in sourcing iron units, being able to make steel from either scrap or alternative sources of iron, such as direct reduced iron and hot briquetted iron, both made directly from iron ore.

Reflecting these and other competitive advantages, we believe EAF steel production will continue to grow at a faster rate than BOF steel production.

Based on industry announcements of planned incremental EAF capacity additions, we estimate this could result in global (excluding China) EAF production capacity increasing at approximately 3% compound annual growth rate from 2022 to 2030.

We expect this to result in a similar increase in demand for UHP graphite electrodes over this same period to support EAF capacity expansion, before factoring in further potential UHP graphite electrode demand from production increases at existing EAF steel plants to support overall expected growth in steel demand.

Combined, we believe these factors could result in global (excluding China) UHP graphite electrode demand growing at approximately 3% to 4% compound annual growth rate through 2030.

Based on industry announcements of planned incremental EAF capacity additions and factoring in further production increases at existing EAF steel plants, we estimate this could result in global (excluding China) UHP graphite electrode demand growing at a compound annual growth rate of approximately 3% to 4% through 2028.

Petroleum Needle Coke

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In addition, we believe the quality of Seadrift’s petroleum needle coke is superior for graphite electrode production compared to most of the petroleum needle coke available to our peers on the open market, allowing us to produce high-quality electrodes in a cost‑efficient manner.

Seadrift sources all its decant oil requirements from reputable U.S.-based suppliers.

Seadrift sources all of its decant oil requirements from reputable U.S.-based suppliers.

Seadrift has developed a well-diversified pool of suppliers, which we believe is sufficient to meet our needs.

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(a subsidiary of Sumitomo Corporation) and ENEOS Holdings, Inc.

Our Seadrift facility, with production capacity of approximately 140 thousand MT, represents nearly one-fifth of the global (excluding China) petroleum needle coke production capacity.

Our Seadrift facility, with nameplate capacity to produce approximately 140 thousand MT of calcined petroleum needle coke, represents nearly one-fifth of the global (excluding China) production capacity.

Petroleum needle coke production capacity outside of China has remained relatively flat for many years due to the capital intensity, technical know-how and long permitting lead times required to build greenfield needle coke production facilities.

Furthermore, we believe that brownfield expansion opportunities are generally limited as petroleum needle coke manufacturing is a continuous process with significant costs associated with shutting down and restarting facilities for maintenance or capital investment.

Chinese petroleum needle coke production capacity is expected to grow significantly in the coming years, with a primary focus on serving the EV market, as China is currently the largest producer of EV batteries.

Although this may provide sufficient capacity to meet global petroleum needle coke needs for the next several years, as demand from emerging non-Chinese EV battery producers continues to increase, we believe that regional supply-demand imbalances will occur, particularly in North America and Europe.

Demand Trends

We estimate that global (excluding China) needle coke demand for use in UHP graphite electrode production was approximately 584 thousand MT in 2022, with the majority being petroleum needle coke.

With demand for UHP graphite electrodes expected to increase at approximately 3% to 4% or more compound annual growth rate from 2022 to 2030 (see “Graphite Electrode” section above), we expect this to result in a similar increase in demand for needle coke used in graphite electrode production.

We estimate that global (excluding China) needle coke demand for use in UHP graphite electrode production has been approximately 550 thousand MT, on average, over the past three years with the majority being petroleum needle coke.

With demand for UHP graphite electrodes expected to increase at a compound annual growth rate of approximately 3% to 4%

through 2028 (see “Graphite Electrode” section above), we expect this to result in a similar increase in demand for needle coke used in graphite electrode production.

While the vast majority of petroleum needle coke produced globally (excluding China) is currently used in the production of graphite electrodes, its use in lithium-ion batteries for the EV market is expected to grow with the increased production of these vehicles.

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Although both natural and synthetic graphite are used in anodes for lithium-ion batteries, EV manufacturers prefer synthetic graphite, which is produced using needle coke, because of its advantages in terms of charging rate and capacity, providing batteries with longer driving ranges and longevity.

Based on the International Energy Agency’s estimates for growth in EV sales and battery pack sizes, we estimate this could result in global needle coke demand for use in EV applications increasing at a 20% or more compound annual growth rate from 2022 to 2030.

Based on Benchmark Mineral Intelligence estimates for growth in battery anodes, we estimate this could result in global needle coke demand for use in EV applications increasing at a 20% or more compound annual growth rate through 2028.

While synthetic graphite can be produced from either petroleum needle coke or pitch needle coke, petroleum needle coke has superior characteristics for EV battery applications, as it does with graphite electrode applications.

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Our customers include major steel producers and other ferrous and non-ferrous metal producers in Europe, the Middle East and Africa (collectively, “EMEA”), the Americas, and Asia-Pacific (“APAC”), which sell their products primarily into the automotive, construction, appliance, machinery, equipment and transportation industries.

We sell our products under short-term purchase agreements, LTAs and spot purchase orders.

We sell our products under short-term purchase agreements, multi-year purchase agreements (which includes our take-or-pay agreements with initial term of three-to-five years (“LTAs”)) and spot sales.

Our short-term agreements are either annual, semi-annual or quarterly.

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Spot purchase orders are entered into with deliveries usually starting three or more months later.

Pricing has historically been cyclical, reflecting the demand trends of the global EAF steelmaking industry and supply of graphite electrodes.

The price of our short-term agreements is determined through contract negotiations with our customers and is influenced by the then-prevailing price on spot purchase orders as well as the anticipated supply-demand situation at the time of the planned deliveries.

There is a lag between the time we negotiate prices for our short-term agreements and when our electrodes are delivered and recognized in revenue.

Our LTAs were entered into between the end of 2017 and early 2019.

There is no widely accepted graphite electrode reference price.

Pricing has historically been cyclical, reflecting the demand trends of the global EAF steelmaking industry and supply of graphite electrodes.

Moreover, as petroleum needle coke represents a significant percentage of the raw material cost of graphite electrodes, graphite electrodes have typically been priced at a spread to petroleum needle coke.

Over the period from 2004 to 2023, the average graphite electrode spread over petroleum needle coke was approximately $3,900 per MT, on an inflation-adjusted basis using constant 2023 dollars.

In tight demand markets, this spread has increased, resulting in higher graphite electrode prices.

Historically, between 2004 and 2023, our weighted-average realized price of graphite electrodes, excluding volume sold under LTAs, was approximately $6,000 per MT, on an inflation-adjusted basis using constant 2023 dollars.

Our LTAs were entered into between the end of 2017 and early 2019, which coincided with a period of elevated market prices for graphite electrodes.

As graphite electrodes are an essential consumable in the EAF steel production process, the LTAs provided certainty of supply of reliable, high-quality graphite electrodes in an at-times volatile market.

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Sales from our LTAs represented 41%, 68% and 77% of our net sales in 2023, 2022 and 2021, respectively.

As our LTAs are nearing the end of their terms, our mix of business has begun to shift towards short-term purchase agreements and spot purchase orders.

We will continue to offer multi-year agreements as an important part of our commercialization strategy and value proposition.

As our LTAs are nearing the end of their terms, our mix of business has shifted towards short-term purchase agreements and spot purchase orders (“non-LTAs”).

We will continue to offer multi-year agreements, also known as electrode supply agreements, as an important part of our commercialization strategy and value proposition.

Our substantial vertical integration into petroleum needle coke supports our ability to offer contracts with varying durations, providing our customers with flexibility and surety of supply.

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Approximately 89% of our graphite electrodes were purchased by EAF steel producers in 2023.

The remaining portion is primarily used in various other ferrous and non-ferrous melting applications, fused materials, chemical processing, and alloy metals.

The remaining portion is primarily used in various other ferrous and non-ferrous melting applications, fused materials, chemical processing, and alloy

We sell our products in every major geographic region globally.

Sales of our products to buyers outside the United States accounted for approximately 73% of net sales in 2022 compared to 79% in both 2021 and 2020.

Sales of our products to buyers outside the United States accounted for approximately 67%, 73% and 79% of net sales in 2023, 2022 and 2021, respectively.

Overall, in 2023, we generated 89% of our net sales from EMEA and the Americas.

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We believe that our intellectual property, consisting primarily of patents and proprietary know-how, provides us with competitive advantages and is important to our growth opportunities.

Our intellectual property portfolio is extensive, with over 127 U.S.

Our intellectual property portfolio is extensive, with approximately 100 U.S.

and foreign patents and pending patent applications.

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Furthermore, we establish accruals for environmental liabilities when it is probable that a liability has been or will be incurred, and the amount of the liability can be reasonably estimated.

We adjust the accrual as new remedial actions or other commitments are made, as well as when new information becomes available that changes the prior estimates previously made and we believe our existing accruals are reasonable.

We adjust the accrual as

new remedial actions or other commitments are made, as well as when new information becomes available that changes the prior estimates previously made and we believe our existing accruals are reasonable.

Human Capital Resources

As of December 31, 2023, we had 1,249 employees (excluding contractors), 758 of which were hourly employees.

A total of 519 employees were in Mexico, 455 were in Europe, 329 were in the United States, 37 were in Brazil, five were in the Asia Pacific region and two were in South Africa.

A total of 435 employees were in Mexico, 414 were in Europe and the Middle East, 358 were in the United States, 37 were in Brazil and five were in the Asia Pacific region.

As of December 31, 2023, approximately 440 employees, or 35% of our worldwide employees, were covered by collective bargaining or similar agreements that expire, or are subject to renegotiation, at various times through December 31, 2024.

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Diversity and Inclusion

As a global enterprise, we believe diversity is foundational to maintaining a competitive workforce in our industry.

Unique perspectives promote business innovation and excellence.

Therefore, we seek out individuals with different backgrounds and experiences, and we aim to foster an inclusive community that celebrates these differences.

Our affirmative action plans, recruitment policies, and hiring practices support our diversity and inclusion objectives and we assign responsibilities for upholding policies, procedures, and practices for diverse and inclusive hiring and talent management at both the corporate and site levels.

Diversity and inclusion are foundational to our culture, and all employees are expected to uphold these values in their day-to-day work.

Our recruitment policies and hiring practices support our diversity and inclusion objectives.

At both the corporate and site levels, we assign responsibilities for upholding policies, procedures, and practices for diverse and inclusive hiring and talent management.

GrafTech affirms its position as an Equal Opportunity Employer and is committed to recruiting, employing, and promoting qualified veterans and disabled individuals, and we aim to ensure our people have equal opportunities related to job promotions, compensation and benefits, and personal development.

Our global footprint lends itself to organic diversity, and our employee base has varied educational backgrounds and life experiences.

However, we strive to go beyond this organic diversity and be more intentional through our talent acquisition, retention, and development practices.

However, we strive to go beyond this organic diversity and we are currently developing a strategy to better measure our ability to do so.

As of December 31, 2023, 40% of our senior leadership team and 14% of our Board members were female.

We are committed to intentional talent acquisition, retention, and development practices to support our diversity initiatives and to build a competitive workforce.

Compensation and Total Rewards

We provide competitive compensation programs to help meet the needs of our employees.

We aim to attract and retain top talent from a diverse pool of skilled workers by providing competitive compensation and benefit programs to help meet the needs of our employees.

Our programs are designed to support the profitable growth of our business;

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In addition to base compensation, we offer individual and group-based performance bonuses.

Benefits packages include medical, dental, prescription, vision, group life insurance, short- and long-term disability, paid vacation and holidays, and tuition reimbursement.

Benefits packages include, depending on the country, medical, dental, prescription, vision, group life insurance, short- and long-term disability, paid vacation and holidays, and tuition reimbursement.

The tuition reimbursement program, in particular, helps employees who want to continue their education or seek specialized job training, and illustrates our commitment to continued learning and focus on professional development.

Employee Retention

We seek to retain the best people by providing them with opportunities to grow, build skills and be appreciated for their contributions as they work to serve our customers.

Our employees are critical to our success and are the reason we are able to execute at a high level.

We believe a continuous focus on employee engagement will help us provide high quality products to our customers.

In October 2022, we completed our first global employee engagement survey that requested feedback from our employees on important issues on a variety of topics, including safety, pay, communication, and training.

The majority of our employees participated in the survey.

The responses to the survey helped us identify opportunities to further engage with our employees.

Employee Engagement

Employee engagement is a priority at GrafTech because we believe that engaged employees help us provide high-quality products and services to our customers.

We conducted our last employee engagement survey in October 2022.

We expect the next survey will be distributed in 2024 and we intend to conduct our employee engagement surveys every other year moving forward.

Approximately 56% of full-time GrafTech employees participated in the October 2022 survey.

The survey requested feedback from our employees on a variety of important topics, including safety, pay, communication and training.

Employee Training and Development

Through our training programs, we help employees grow, innovate, and impact our business and industry.

We have defined detailed profiles for each role at GrafTech that identify job-specific competencies to measure performance.

performance management system allows employees to work with their supervisor or the human resources department to create a GrafTech career and growth path using these profiles and to direct them to job-specific professional development training and continuing education opportunities.

We conduct mid-year performance reviews, as well as annual reviews, for all employees to assess both job competencies and GrafTech's five core competencies of health, safety, and environment;

customer focus;

drive for results;

ethics and values;

and peer relationships.

In annual performance reviews specifically, we discuss progress towards personal career goals, refine career aspirations, and connect employees with specific pathways to achievement.

As committed stakeholders in the professional development of our employees, we look for opportunities to help employees grow, innovate, and impact our business and industry.

Each role within our organization has a detailed job profile, including job-specific competencies.

These profiles help us measure performance, and they work in conjunction with our performance management system, which enables employees to create individualized career and growth paths.

The performance management system connects employees with job-specific professional development training and continuing education opportunities to help them progress along their career and growth path.

We conduct mid-year and annual performance reviews for all salaried employees to assess both job competencies and performance relative to GrafTech’s core competencies.

During annual performance reviews, we discuss progress towards personal career goals, refine career aspirations, and connect employees with specific pathways to achievement.

Employees are encouraged to work with their manager or human resources to further refine their career and growth paths at each annual review.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business