Good morning, ladies and gentlemen, and welcome to the GrafTech Second Quarter 2022 Earnings Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we'll conduct a question-and-answer session. This call is being recorded today, Friday, August 5th, 2022. I would now like to turn the conference over to Mike Dillon. Please go ahead, sir.

Thank you. Good morning, and welcome to GrafTech International's second quarter 2022 earnings call. On with me today are Marcel Kessler, Chief Executive Officer; Jeremy Halford, Chief Operating Officer; and Tim Flanagan, Chief Financial Officer. Marcel will begin with a few opening comments, after which Jeremy will discuss safety, sales, and operational matters. Tim will review our quarterly results and other financial details. Marcel will close with comments on our outlook. We will then open the call to questions. Turning to our next slide. As a reminder, some of the matters discussed on this call may include forward-looking statements regarding, among other things, performance, trends, and strategies. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations. You find these slides in the Investor Relations section of our website. A replay of the call will also be available on our website. I'll now turn the call over to Marcel.

Thank you, Mike. Good morning, everyone. Thank you for joining our second quarter earnings call. Starting on a personal note, I am excited to have joined GrafTech at this important time, and I am honored to have the opportunity to lead the company through its next phase of evolution. I was attracted to GrafTech because I see a set of distinctive assets and capabilities that give me confidence in our ability to deliver shareholder value over the long term. I believe that we are well-positioned to participate in the growth of the graphite electrode market and have a promising foundation to potentially pursue other avenues of growth in the future. During my first few weeks at GrafTech, I've had the opportunity to get to know many of our associates, and I'm very impressed by their level of know-how, energy, and dedication. Turning to the second quarter, we are pleased to have delivered results in the period despite the challenges brought on by geopolitical conflict and economic uncertainty. Our ability to sustain key operating and financial metrics comparable to prior year levels is a testament to our operational execution and competitive advantages. I would like to thank the entire GrafTech team for their hard work. I will now turn the call over to Jeremy for an update on safety, sales, and operational performance.

Thank you, Marcel, and good morning, everyone. I'll start my comments with a brief update on health and safety excellence, which is a core value at GrafTech as people are our most important asset. We remain encouraged that our overall performance in this area continues to place us in the top quartile of operators in the broader manufacturing industry. However, our year-to-date reportable incident rate through the end of the second quarter compares unfavorably to the past two years, and we are not satisfied with this result. Going forward, we will continue to emphasize that safety must be fundamental to everything we do and that key safety initiatives must be prioritized. We will remain steadfast in working toward our ultimate goal of sending every employee home safely every day. Turning to slide five, let me provide a few data points on second quarter steel industry performance as context for our results. Global steel production, excluding China, declined 6% in the second quarter compared to the same period in 2021. Commensurate with that lower production, global capacity utilization rates also declined, but remain in line with the industry average for the past several years. We are increasingly seeing diverging steel industry trends in different geographic regions. This includes softness in steel markets such as Western Europe, reflecting, among other things, the economic and supply chain impact of the conflict between Ukraine and Russia. Conversely, the U.S. steel market has shown more resilience as evidenced by utilization rates that remain elevated compared to the global industry. Turning to our second quarter performance, starting on slide six. Our second quarter production volume increased 1% year-over-year to 44,000 metric tons as our plants continue to operate at high levels of capacity utilization. We sold 42,000 metric tons of graphite electrodes in the quarter, representing a slight decline both year-over-year and sequentially, reflecting the volume impact of the Ukraine/Russia conflict. Our second quarter electrode shipments were comprised of 24,000 metric tons sold under our LTAs at a weighted average realized price of $9,600 per metric ton and 18,000 metric tons of non-LTA sales at a weighted average realized price of $6,000 per metric ton. This non-LTA pricing represented a 46% increase over the second quarter of 2021 and was in line with the first quarter of 2022, consistent with the expectations we provided on our first quarter earnings call. As we proceed through the remainder of the year, we expect our weighted average non-LTA pricing for the second half to be comparable to the pricing realized in the first half of 2022. Net sales in the second quarter were $364 million, representing an increase of 10% compared to the second quarter of 2021. This reflected the higher non-LTA pricing, partially offset by a mix shift from LTA to non-LTA business, as well as the decline in overall sales volume. FX also had a slightly unfavorable impact on our year-over-year and sequential net sales performance during the second quarter. This primarily reflects the strengthening U.S. dollar versus the euro and Japanese yen, as a portion of our sales are denominated in these and other foreign currencies. However, the FX top line headwind is more than offset on the bottom line by a benefit to COGS related to euro-denominated spending in our European operations. Let me now turn it over to Tim to cover the rest of our financial details.

Thanks, Jeremy, and good morning to everybody on the call. Net income totaled $115 million in the second quarter or $0.44 of earnings per share on both a GAAP and adjusted basis. Second quarter adjusted EBITDA was $158 million, a decrease of 1% compared to the second quarter of 2021, as higher year-over-year costs offset the increase in net sales. Adjusted EBITDA margin was 44% in the second quarter. Let me take a minute to expand briefly on our costs. With nearly all other industries, we continue to be impacted by global inflationary pressures, which are particularly acute in Europe, driven by higher energy prices. Specific to our business, the impacts are most significant for certain key raw materials, energy, and freight. For the second quarter, we experienced a year-over-year increase of approximately 21% in COGS per metric ton, excluding depreciation and amortization. This represented a 7% sequential increase compared to the first quarter of 2022. We expect sequential cost inflation to persist at a similar rate in the third quarter. That being said, we continue to focus prudently on managing our operating and discretionary spending, as we navigate the current inflationary environment. Turning to cash flow. In the second quarter, we generated $60 million of cash from operations and $48 million of adjusted free cash flow. Both measures decreased compared to the second quarter of 2021, reflecting higher working capital. This higher working capital was driven by an increase in inventory, reflecting both the cost impact I just spoke to, as well as higher quantities as production volume outpaced sales in the first half of 2022. Inventory builds occurred during the second quarter in advance of planned third quarter outages at our European electrode facilities and our Seadrift needle coke production facility. Also in anticipation of upcoming outages of certain oil refineries that supply decant oil. Additionally, early in the second quarter, in response to market disruptions related to the conflict in Ukraine, on-hand quantities for certain raw materials that are essential to our manufacturing process were increased above our typical safety stock levels. These actions were taken proactively to enable us to meet the electrode supply needs of our customers despite the current uncertainties in the global supply chain. As we move beyond the outage windows in the third quarter and as our visibility in the supply chain continues to increase, we anticipate beginning to unwind the inventory build as we proceed through the back half of 2022. Turning to slide eight. We further strengthened our balance sheet with a $40 million reduction in our term loan during the second quarter, resulting in a total debt paydown of $110 million on a year-to-date basis. Our debt-to-adjusted EBITDA ratio was 1.4 times as of June 30 compared to 1.6 times at the end of 2021. During the second quarter, we executed an amendment to our revolving credit facility, which increased our borrowing capacity by $80 million for a new total capacity of $330 million. We ended the quarter with total liquidity of approximately $382 million, consisting of $56 million of cash and $326 million available under the revolver. Now on to slide nine. Maintaining a prudent and disciplined capital allocation strategy remains a priority. This includes a continued focus on reducing debt to further strengthen our balance sheet and support our strategic flexibility while also returning capital to our stockholders and investing in our business. During the second quarter, we repurchased $30 million of our common stock, resulting in a total of $60 million repurchased through the first half of 2022. We ended the quarter with $99 million remaining available under our stock repurchase program. In addition, we continue to expect our 2022 capital expenditures to be in the range of $70 million to $80 million. As the industry moves towards more EAF-based steel production, we will continue to invest in our high-quality, low-cost global operating assets to meet the growing demand that the shift will create over the long term. We will remain prudent in managing our CapEx spend, prioritizing those projects with the highest return on investment. Now, let me turn it back to Marcel for his perspective on the outlook.

Thank you, Tim. As is the case for most manufacturing-based sectors at this point in time, the operating environment for the steel industry remains volatile. Global steel prices have retreated from recent highs and global steel production, excluding China, declined 6%, both in the second quarter and year-to-date compared to the same period in 2021. As Jeremy indicated, we continue to see diverging steel industry trends in different geographical regions, with softening in certain markets such as Western Europe, while other markets such as the United States have been more resilient. For GrafTech, the near-term outlook is becoming more challenging with higher raw material, energy, and logistics costs, as well as the impact of the ongoing conflict between Russia and Ukraine. At the same time, the shift in mix from LTA to non-LTA business continues. To get ahead of these near-term challenges, we continue to strengthen our commercial capabilities, prudently manage operating and capital expenditures, and we will continue to focus on reducing our long-term debt. We will also continue to invest in our product and service capabilities to be optimally positioned to participate in the longer-term demand growth for graphite electrodes. We remain confident that the steel industry is accelerating efforts to decarbonize, which will lead to further growth in the electric arc furnace method of steelmaking, driving demand for graphite electrodes. To that point, announcements of planned EAF capacity additions by steel producers across the industry could result in annual incremental graphite electrode demand of over 200,000 metric tons globally, excluding China, by 2030. As a leader in the graphite electrode industry, this supports our positive long-term outlook for our business. We also anticipate the demand for petroleum needle coke, a key raw material used to accelerate batteries for the growing electric vehicle market, will be another positive long-term trend for our business as higher demand will result in continued pricing for needle coke. Our vertical integration into petroleum needle coke production via our Seadrift facility is foundational for our ability to reliably deliver high-quality graphite electrodes. With these sustainable competitive advantages and the strong and committed team, we are confident in our ability to deliver shareholder value over the long term. That concludes our prepared remarks. We will now open the call for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from David Gagliano of BMO. Please go ahead.

Hi, thanks for taking my questions. I wanted to start with a few operational clarifications regarding the near term. Regarding pricing, my understanding is that the commentary indicated comparable pricing in the spot market in the second half compared to the first half. Historically, there has been about a six to nine-month lead time associated with this, along with other factors. The expectation was for prices to continue to improve in the second half. However, with the recent comment about flat pricing, could this be due to newer contracts being signed at lower prices? Can you provide more insight into the current pricing dynamics you are observing in the spot market?

Yeah. Sure. Thanks, Dave, and I appreciate your question. Really, a lot of this comes down to some macro factors, just given that the world economy has been pretty dynamic and there's a variety of market forces that work in different regions. And most notably, what's going on in the Ukraine/Russia situation and the impact that's having on energy prices. We're seeing things that are diverging regionally. And it's important to recognize that the anticipated pricing that we're talking about here is a global average. As we discussed in the remarks, we're seeing some continued resilience in certain regions and softness in others. And essentially, what's happening is that this softness is manifesting itself in a variety of different ways, including announcements by steelmakers, particularly those in Europe that they're avoiding operations during certain peak power times or they're extending their planned summer outages due to high power costs. And so these reduced operating rates are having the impact of increasing electrode inventory at certain customers, particularly in Europe, and consequently reducing demand in the short term, ultimately applying some downward pressure on pricing in certain regions that is beyond what we had anticipated earlier. So, this has really limited some of the price escalation that we were previously anticipating. It's also worth noting that FX is playing a role here. As you know, we report in USD. And we've seen a pretty dramatic run-up in the value relative to the euro and the Japanese yen. And so, given that some of our sales are contracted in euro and yen, price increases that we anticipated on those sales in local currency don't necessarily translate into reported price increases on a USD basis. But having said that, I think it's important to note that this is a short-term impact. Over the medium term and long term, we remain very bullish on our core markets. And we believe that the value proposition of the EAF process to help decarbonize the steelmaking industry is undeniable, and that's being borne out in the various new EAF projects that have been announced globally for the coming years. As Marcel noted, we're monitoring over 150 new EAF projects in the time period through 2030, that will generate 200,000 tons of incremental electrode demand during that timeframe. And these new furnaces are going to require the latest and greatest in electrode technology, and we believe that our value proposition to support these high-efficiency EAFs through our product technology, our technical service, as well as our ability to promise stability of supply through our vertical integration through Seadrift is really going to be shifting a lot of these market dynamics in our favor.

Okay. That's helpful. Thank you for that answer. And just to follow-up on the commentary, obviously, it sounds cautious in the near term. Historically, GrafTech has been a leader at points in terms of meaningfully reducing volumes in a weaker demand environment. Considering the situation now, can you speak more specifically to second half or third quarter volume expectations? How low will GrafTech take its volumes in the second half of this year?

Thanks, Dave. Appreciate it. Yeah. As we talk about the second half of the year, certainly I think if we look at our contracted sales. We provided the guidance for the full year on the LTA volume. And obviously, we have to deliver against those volumes, and the order book is otherwise pretty full in the back half of the year on the non-LTA side as well. I guess, the question always becomes, and we've talked or alluded to in some of our commentary about the efforts to replace the impacted tons because of the conflict in the Ukraine, those have to come out in a profitable manner. So, as we look at the end of the year and certainly, the escalating costs in Europe, we're looking at those on an order-by-order basis to make sure that they're profitable. But as long as we continue to sell tons as profitable, we'll ship as many tons as we can in the back half of the year. And from an operational standpoint, we'll continue to match our production to that sales demand, right? And make sure that we have sufficient graphite electrode inventories on hand at the end of the year as we head into the first quarter of next year as well.

Okay. So, when you put all that together, what's reasonable? If I look back the last, whatever back to 2018, 3Q is, specifically, volumes were below. Obviously, there's some challenging times there, but volumes went down to 32,000 tons in 2020, 39,000 last year. Is it reasonable to be within those two zones for 3Q, 32,000 to 39,000, somewhere in that band?

No, I would think we would expect certainly as we look to the back half of the year to be more in line with where we've been, not going down to the level that you quoted in 2018 or what we saw even last year.

Thank you for the information. I have one final question. With just four to five months until the significant wind down, I understand the market conditions are challenging. What are the updated thoughts on extending the long-term agreements, and are there any negotiations taking place for 2023, 2024, and beyond?

Thank you for that question, Dave. It's Marcel here. So, maybe, first of all, it's important to point out that GrafTech has been providing graphite electrodes for a very long time before entering into any LTAs. So, I think, we're fully prepared to handle this change. Now, we continue to believe that there is a role that multi-year agreements will play in our portfolio. And they can be a win-win for our customers and for us, providing our customers with a hedging mechanism and surety of supply while locking in a portion of our cash flow. So, I think, as we move forward here, we will look to offer our customers a variety of contract terms tailored to their needs. Specifically to your question, so we have had discussions with some customers already, and we'd expect to have some new multi-year agreements in place by the end of this year and into next year. Now, in general, we would expect those new agreements to be based on the current market conditions at the time that they are entered into, although we may consider a variety of pricing structures that suit the needs of both us and our customers. However, it is important to note that while we will continue to offer multi-year agreements as an important part of our commercialization strategy and value proposition, we do not anticipate that they will make up the majority of our portfolio moving forward.

Okay. That’s helpful. Thanks very much.

Thanks, Dave.

Yeah. Thank you. Good morning.

Morning, Curt.

So, regarding the third quarter, it appears you are guiding for volume to remain relatively flat and pricing to be similar on non-long-term agreements. From a cost standpoint, can you discuss how you expect costs to evolve during the quarter? You mentioned an outage at Seadrift, so I assume you will need to source more third-party coke. Additionally, there are inflationary pressures to consider. I would also expect that merchant coke prices will increase sequentially. Can you elaborate on these factors to give us a better understanding of what to expect in the third quarter? Thank you.

Thank you, Curt, for that introduction. There are several points to address, so I'll do my best to cover them all. Regarding the outages, these are planned activities; we conduct our European operations maintenance every year, aligning with holiday periods for our team in Europe. We also perform major maintenance at Seadrift every two years. In our prepared remarks, I mentioned our inventory buildup aimed at ensuring we have sufficient graphite electrode inventory to fulfill customer orders throughout the third quarter without supply disruptions. Additionally, we want to maintain enough needle coke as we continue production in the latter half of the third quarter. Much of this is already reflected in our results and cash flows, and we aim to reduce it further in the latter half of the year. On the cost front, inflationary pressures have affected us, and we expect about a 7% sequential cost increase, similar to Q1 to Q2. This is primarily driven by several factors. Firstly, European power prices are a concern. Energy costs are a relatively small component of our total cost structure, with a significant portion being fixed in Europe—about 80% fixed for power and 65% for gas. However, the volatility in the European gas market has been significant, with the Dutch TTF price increasing from €110 to €200 per megawatt hour over the last four months. Even though we have hedged a portion of our exposure, these drastic fluctuations will impact our financial results. Secondly, raw materials like pitch, crucial for manufacturing electrodes, have seen price increases due to disruptions caused by the conflict in Ukraine, affecting supply chains. While we have secured the necessary supply, the costs associated with pitch and logistics have risen. Prices for decant oil, which trades off Brent, are also increasing, and despite our hedging efforts, we cannot fully mitigate the cost increases. Lastly, logistics costs remain high, particularly for routes between North America and Europe, with reliability at a low point. These factors contribute to various cost challenges we're working to manage effectively. On the topic of third-party needle coke, our import statistics, although dated by a month, indicate that prices range from $2,600 to $2,900 per ton, which represents an increase of about $300 at the high end. We have seen needle coke prices rise in the first half of the year as expected, and while we might experience a slight plateau in the near term, that's the current trend for needle coke prices.

Great. Super helpful. You mentioned your thoughts on petroleum coke and its relationship with lithium-ion batteries. There's considerable discussion about the optimal blend of natural versus synthetic graphite in the anode, including the balance between petroleum coke and coal tar pitch coke within the synthetic category. Do you have an opinion on the composition and future trends in that market? Are you interested in pursuing the merchant electric vehicle market in the long term? We noticed the deal that PSX made with NOVONIX.

Sure, I'm happy to share my thoughts on this. The lithium-ion battery market is set to significantly increase needle coke usage, as you're likely aware. No matter the battery chemistry—whether it's lithium-ion phosphate, nickel manganese cobalt, or others—the anode will consistently be graphite. With the ongoing rise in electric vehicle adoption, we anticipate an uptick in sales of lithium-ion batteries. Additionally, we're noticing a steady growth in the megawatt hours of batteries being used in these vehicles. Taking all of this into account, we project a 23% compound annual growth rate in the consumption of synthetic graphite and thus needle coke within that market between now and 2030. This trend will greatly affect the economic landscape for needle coke. While we are currently evaluating our potential involvement in this market, it's evident that needle coke demand is increasing. We believe this will bolster our value proposition moving forward, especially as our competitors are increasingly dependent on third-party needle coke sources, while we can ensure a steady supply for our electrode customers through our vertical integration.

Great. Thank you very much. That’s all I have.

Your next question comes from Arun Viswanathan of RBC Capital Markets. Please go ahead.

Great. Thanks for taking my question. Yeah. Just picking up that last line of questioning and I guess kind of touching on something you said earlier as far as utilization rates. So, what is the capacity that GrafTech has to potentially dial back its own utilization rates? Where are you guys running, I guess, across your different facilities, across your system? And just curious, if you've made some conscious decisions to reduce rates in Europe? And then, also just given the reduction in steel utilization rates that you referenced, and then if so, would you be able to redirect some of that needle coke volume potentially into the EV market and potentially start that process? I'm sure you're early on in that exploration, but just want to get your thoughts on that. Thanks.

Thank you for the question, Arun. Let's discuss the utilization rates in our European factories. We have around 200,000 tons of capacity, which we expect to operate at 90% capacity, translating to approximately 45,000 tons per quarter, though there’s a bit of seasonality involved. Since we're planning to shut down operations for a couple of weeks in the third quarter, it indicates we are currently running our factories at a high capacity to ensure we meet customer demands. We continuously assess the economic factors of operating these factories and evaluate them against the prices we charge for our products. We will make informed decisions moving forward, especially as we look to sell additional tons. Looking back, we've significantly increased our focus on ESG initiatives, particularly on the environmental front. The investments we've made to enhance energy efficiency in our global facilities, especially in Europe, now yield substantial financial benefits due to rising gas prices. As we plan for our factories' operations, we anticipate that these environmentally driven investments will also deliver strong financial returns in the medium term. Returning to your question about increasing needle coke production in Seadrift and potential entry into the lithium-ion battery market, the capacity at Seadrift is about 140,000 metric tons. However, our internal consumption is notably higher, necessitating the purchase of third-party coke from various suppliers. This approach gives us strategic flexibility to explore that market while still utilizing third-party sources for some of our internal needs. I hope I covered all your points, and I'm happy to provide more details if needed.

Great. No, that was very helpful. And then, I guess, I also wanted to obviously get your thoughts on the markets in electrodes and needle coke as well. So, you noted that there's been some pullback in steel utilization rates causing some inventory build on the electrode side and some impact on pricing. How long do you think that will last? I mean, do you think we're kind of in the early stages of that, just given what's going on with demand and the macro side? I guess, has it impacted needle coke as well? Could you just comment on where prices are in needle coke in the spot market? And if you see that also kind of in the early stages of that inventory build.

It's Marcel here, Arun. I just want to make a brief comment before handing it back to Jeremy for details on needle coke. I want to reiterate our previous statements. We are currently facing a very volatile operating environment. Although we are optimistic about the long-term fundamentals of our business, there is near-term uncertainty in the broader market, which is why we will not provide more specifics on our 2022 outlook at this time. Jeremy, do you have anything to add regarding needle coke pricing?

We've observed a significant increase of about $300 in third-party needle coke prices based on the import/export statistics we track. Although some regions are experiencing a market slowdown, we believe needle coke pricing remains higher than historical levels. Considering various influencing factors, we see support for current pricing and potential for further growth. Essentially, any decrease in demand from the graphite electrode sector is being compensated by increased demand in the lithium-ion battery sector. We expect needle coke prices to continue showing strength.

Great. Thanks. The last question I had was regarding the needle coke market. Have you noticed other electrode manufacturers using pitch needle coke to create ultra-high performance electrodes? I'm curious if you've observed any developments, possibly related to capacity in China or elsewhere. Has there been any innovation in producing UHPs from pitch needle coke? Is that contributing to increased supply in the market?

Thank you for the question. When we examine our competitors and their approaches, we lack direct insight into their manufacturing processes. We have considered pitch-based needle coke in the past, but determined it is not suitable for our needs due to certain chemistry issues that could lead to inefficiencies in our production of ultra-high performance electrodes. While it is feasible to use pitch-based needle coke, we believe that petroleum-based needle coke allows us to operate more efficiently.

Perfect. Thanks a lot. I will turn it over.

Your next question comes from Alex Hacking of Citi Research. Please go ahead.

Good morning. I have a couple of follow-up questions, if that's alright. Regarding the costs and production, are there significant cost differences emerging between your production facilities in Europe and Monterrey? Is there a point where it might be beneficial to adjust your operating footprint, shift more volumes to North America, or even consider reopening St. Mary's, or is the cost difference not substantial?

Yeah. So, thanks, Alex. I appreciate that question. And I'll take the first part and then let Jeremy tackle the operating portfolio. Certainly, there are cost differentials between all of our sites, right, in terms of the regions we operate. North American energy prices are substantially lower than what we see in Europe right now. And even on a historic basis, North American natural gas is much cheaper than European natural gas, and you have labor differentials as well. At the end of the day, if you look at all of those, there's not a wide disparity in terms of our cost structure on average. But certainly, I would say right now, the European power pricing does pose unique challenges to those operations. Jeremy, I don't know if you want to talk about kind of the overall network.

Sure. Alex, as you might have expected given the differences that Tim mentioned and the variations in steel utilization rates between North America and Europe, we have our lean and continuous improvement team fully engaged in debottlenecking efforts across North America, with Monterrey being a significant focus. You're correct that we are focusing our resources on increasing capacity in Monterrey. Regarding St. Mary's, we have ramped up activities at the facility with the addition of a new machining line that supports the existing graphitization processes. I'm pleased with the St. Mary's team’s performance in commissioning and operating the equipment to design specifications. Looking ahead, St. Mary's benefits from access to affordable energy, which is an important consideration for us. Currently, it remains one of our strategic options as we evaluate our manufacturing strategy, but there are no announcements to make at this time.

Okay. Thanks. And then, I just wanted to follow-up on your answer to Dave's question earlier on the LTA. So, I think, what you said was you are in discussion on LTAs with certain customers going to be a lot lower volume going forward. Would these LTAs be similar multi-year fixed price structure as the old ones were? And I mean, I guess, in terms of pricing, I'm not sure what you can say probably not much. But I guess, from my perspective, I'm not sure how attractive it would be to be fixing current spot prices for multiple years, given the volatility on the cost side. So, I guess, any more color on the LTA process. Thanks.

Yeah. Thanks for that. And I'll add to the comments Marcel provided earlier. Certainly, yeah, we do expect it to be a lower overall percentage of our portfolio. And Marcel commented on the fact that we've operated without LTAs in the past, right? These are a good option for both us strategically, as well as our customers as they have certainty of supply. I think over the last couple of years, we've seen enough supply disruptions that companies are looking for a little bit more of that certainty. But we don't have a gun to our head necessarily where we feel compelled that we have to load 50% of our order book or 80% of our order book with fixed price long-term agreements. We can be strategic about it, enter into those partnerships with those customers that I think there's a mutual value perceived out of those long-term relationships. And that's the way we're approaching it. And that's certainly the approach in the customers that we're having the discussions with currently, how they're viewing it as well. So, we look at these as a mutual benefit to both, but again, don't feel compelled to lock in at any price certainly. I think, as we look going forward, I think there's a variety of pricing structures that could be introduced under these agreements, whereby they may not look and feel like the original Gen 1, if you want to call them that, LTAs that were signed five years ago or so.

Thank you. That makes sense. I have one last question that an investor posed to me, which is quite interesting. I wasn't entirely sure of the answer. It's clear that you're not producing needle coke from pitch. However, for those who do, does the price of coal offer any relative cost support for that needle coke, or is it not really relevant since it's a byproduct? Thank you.

Yeah. So, Alex, I would be speculating if I tried to answer that, so it's probably better if I don't. I apologize, but I don't know the answer to that, and I don't want to mislead you or somebody else.

Yeah. No worries. I appreciate the candor. All right. Thanks a lot for the question.

Thanks.

We have a follow-up question from Curt Woodworth of Credit Suisse. Please go ahead.

Thanks. I have a question regarding the new electric parks that are currently being constructed or planned. My understanding is that these projects will utilize larger, more advanced products, specifically in the 32-inch diameter range. Could you discuss your capabilities in that size? Is the growth primarily focused on this specific large-diameter product, and how are you positioned for that? Also, can you provide insight into how competitive that market is today? Thank you.

Thank you, Curt. As we see an increase in high-efficiency furnaces, it's true that many are adopting larger graphite electrodes. The 32-inch market is still relatively new and focused on a few applications in the U.S. However, as we look ahead five to seven years, we anticipate the 32-inch becoming more standard. Currently, the 30-inch or 750-millimeter size is the norm for super-sized electrodes, with many new furnaces utilizing 750s or even 700s. Our value proposition is strong in this area, especially as customers seek larger electrodes like the 700 and 750 that the market is demanding. Our advantage lies in competing on value rather than just cost, offering not only product technology but also technical support and reliable supply in these sizes. As more mills transition from integrated steelmaking to electric arc furnaces, electrode sizes are continuing to increase. While the 32-inch size is still a smaller segment of the market, it is expected to grow throughout this decade, and we are focused on super-sized electrodes right now. Our main attention is on the 700 and 750-millimeter electrodes since they represent the core of the market, but we are prepared to invest more time in the 800s or 32-inch as that segment expands.

Great. Thank you very much.

Thanks, Curt.

There are no other questions from the phone lines. I would like to turn the conference back to Marcel Kessler for closing remarks.

Thank you, operator. I would like to thank everyone on this call for your interest in GrafTech, and we look forward to speaking with you next quarter. Have a great day.

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you for participating and ask that you please disconnect your lines.