Operator
hello everyone thank you for joining us and welcome to graph tech's third quarter 2026 earnings conference call and webcast after today's prepared remarks we will host a question and answer session if you would like to ask a question please press star one to raise your hand To withdraw your question, press star 1 again. I will now hand the conference over to Mike Dillon, Vice President of Investor Relations and Treasurer. Please go ahead.
Good morning, and welcome to GraphTech International's third quarter, 2026 earnings call. Thank you for joining us. Joining me on the call are Tim Flanagan, Chief Executive Officer, and Rory O'Donnell, Chief Financial Officer. Tim will begin with opening comments on our key strategic initiatives. Rory will then provide color on our quarterly results, outlook, and other financial matters. After closing comments by Tim, we will then open up the call to questions. Turning to our next slide. As a reminder, our comments today 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 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 can find these slides in the Investor Relations section of our website at www.grafttech.com. A replay of the call will also be available on our website. I'll now turn the call over to Tim.
Good morning, everyone, and thank you for joining us today. The third quarter marked another important period for GrafTech as we continue to advance the commercial, operational, and strategic initiatives designed to improve our long-term profitability and strengthen our competitive position. We are particularly encouraged by the progress we are making on the pricing front as higher-priced customer commitments reinforce our confidence that we've reached an inflection point in our realized pricing. During the quarter, we also announced significant step in our strategy to improve the efficiency and competitiveness of our manufacturing footprint through the planned closure of our Monterey, Mexico facility. These actions, together with our ongoing efforts to improve our cost structure, advocate for fair trade, and capitalize on emerging market opportunities, reflect our commitment to taking decisive steps to strengthen GrafTech's financial performance. We also remain confident in the longer-term fundamentals of our end markets, supported by improving steel industry conditions across many of our key regions, the continued transition towards electric arc furnace steel making, and the growing strategic importance of synthetic graphite. This morning, I'd like to begin with an update on our strategic priorities, followed by our perspectives on the steel market and broader industry environment. I'll then discuss safety before turning the call over to Rory for a review of her financial results. On the commercial front, our disciplined commercial approach is beginning to produce tangible results. During the third quarter and early in the fourth quarter, we continued to secure customer commitments at higher price levels than those secured in earlier periods this year, reinforcing our expectation for meaningful improvement in realized pricing in 2027. Restoring graphite electrode pricing to more sustainable levels remains essential to supporting continued investment in high-quality manufacturing capacity and ensuring reliable supply for our customers. As we've seen in prior industry cycles, changes in the balance between supply and demand can result in relatively rapid and significant movements in graphite electrode pricing. While the timing and magnitude of any recovery will depend on market conditions, we believe the combination of improving commercial momentum and actions to better address industry over capacity create the potential for meaningful price recovery. To put our recent pricing progress in perspective, market pricing continued to decline early in 2026 before beginning to recover during the second quarter on the heels of the price increase we announced in March. Since then, we have seen sustained improvement in prices reflected and new customer commitments. However, However, because of our realized pricing reported to date in 2026 reflects commitments that were primarily entered into in prior periods, those improvements have not yet translated into our quarterly results. Our weighted average realized pricing was approximately $3,900 per metric ton in the third quarter, essentially flat with the second quarter. However, based on our current order book and the timing of shipments against these higher priced commitments, we expect a mid-single digit percentage increase in realized pricing in the fourth quarter. Looking ahead to 2027, we are seeing positive results in securing customer commitments at significantly higher prices than those reflected in our 2026 business. While a substantial portion of our anticipated 2027 volume remains to be committed, as is typical for this point in the year, these initial results reinforce our confidence in the pricing momentum we are building. Importantly, our objective is not simply to achieve near-term improvement in pricing but to establish a more sustainable pricing environment we believe our efforts to better align production capacity with underlying demand together with the value customers place on reliable high quality supply provide important support for that objective we remain focused on securing commitments that appropriately reflect the value of our differentiated products technical capabilities and reliable supply while maintaining discipline and how we allocate our available production capacity. We look forward to providing a more comprehensive update on our 2027 commercial position when we report our fourth quarter results early next year. Beyond our own commercial progress, we are also seeing positive industry developments. In China, graphite electrode prices have increased throughout the year, supported in part by higher raw material costs. At the same time, Chinese graphite electrode exports have declined approximately 10% year over year. Taken together, we view these developments as further indications that the prolonged period of low industry pricing is beginning to change. We are also seeing strengthening conditions in the petroleum needlecoat market. Needlecoat prices have steadily increased throughout the year, reflecting a combination of high raw material costs and evolving supply and demand conditions. At the same time, interest in our own needlecoat production capabilities is growing amongst potential customers serving various end markets. Historically, needle coke and graphite electrode pricing have been closely correlated with an average spread between the two of approximately $4,000 per metric ton over the past 20 years on an inflation-adjusted basis. Therefore, we believe the strengthening needle coke market provides another catalyst for higher electrode pricing, while a vertical integration positions GraphTech favorably as these market dynamics evolve. Second, with respect to our manufacturing footprint. In the third quarter, we announced the planned closure of our graphite electrode manufacturing facility in Monterey, Mexico. This represents an important step in our efforts to optimize our manufacturing network, improve operational efficiency, and better align production capacity with market demand. Over the past several years, the graphite electrode industry has faced persistent structural over capacity, reflecting significant capacity additions in certain markets that have outpaced underlying demand growth. These conditions have contributed to a prolonged period of depressed pricing and have made it increasingly difficult to justify maintaining excess manufacturing capacity. We have taken meaningful actions over the past several years to improve our cost structure and operational efficiency. However, given the continued imbalance between industry supply and demand, we determined that further action was necessary. Following the phased wind-down of Monterey, customer requirements currently served by that facility will transition to our manufacturing operations in Calais, France and Pamplona, Spain. The transition of connecting pin production capacity to Pamplona is also in process and on track. Upon the completion of this transition, early in the second quarter of 2027, our annual graphite electrode production capacity is expected to be approximately 127 000 measures importantly we are confident this consolidation will enable us to serve our customers more efficiently through a more competitive manufacturing footprint while preserving the differentiated product capabilities and technical expertise that are central to graphitech's value proposition we expect the initiative to strengthen our cost structure improve operating efficiency and reduce future capital requirements we are managing the transition carefully with a focus on safety, maintaining supply continuity, and meeting our customer commitments. I also want to reiterate our support for the employees impacted by this decision. The Monterey team has made important contributions to GrafTech over many years, and we're committed to treating our colleagues with respect and supporting them throughout the transition. Taken together with our ongoing manufacturing productivity and cost reduction initiatives, this action represents another meaningful step towards establishing a more sustainable foundation for long-term profitability. Following the wind-down of operations and permanent removal of graphite electrode production capabilities at Monterey, we intend to pursue the sale of the property and have already begun preliminary activities in preparation for a potential transaction. Any proceeds from a future sale would provide additional opportunity to support our liquidity position and reduce our outstanding debt, consistent with the requirements of our loan dues. We continue to abdicate for fair trade and more balanced competitive conditions across the graphite electrode industry, including through our support of trade proceedings and key commercial jurisdictions. As discussed last quarter, the U.S. Department of Commerce has been investigating imports of large-diameter graphite electrodes from China and India. Since our last call, Commerce has issued his preliminary anti-dumping determinations. While we were disappointed with the preliminary outcome as related to India, it's important to emphasize that the investigation is not yet complete. The information submitted by the Indian respondents remains subject to verification by commerce and the final determination is expected during the first quarter. Throughout the remainder of this process, efforts to address unfair trade practices that undermine the competitiveness of domestic graphite electrode manufacturing. More broadly, we believe appropriate trade enforcement is an important component of establishing a healthier and more sustainable competitive environment. particularly as governments increasingly recognize the strategic importance of maintaining domestic and regional industrial capabilities. Finally, with respect to emerging opportunities, we continue to believe that the growing strategic importance of synthetic graphite presents attractive, longer-term opportunities for GrafTech. As we've discussed previously, graphite electrodes are essential to electric arc furnace steelmaking, making, which we expect to benefit from the continued transition towards more sustainable methods of steel production. At the same time, demand for high-quality synthetic graphite and petroleum needle coke is expanding into applications beyond traditional steel making, including battery materials, energy storage, and certain defense and industrial applications. These trends are reinforcing the importance of reliable, high-quality supply chains, particularly in North America and Europe. Graftec's vertical integration into petroleum needle coke, extensive manufacturing capabilities, and expertise in graphite and carbon science provide a differentiated foundation from which to perform. An example of our progress in this area, which we're quite excited about, is a collaboration with Antora Energy that we announced in September. Antora develops thermal batteries designed to provide reliable energy supply for industrial applications, such as AI data centers. And our collaboration is focused on leveraging our manufacturing capabilities at our St. Mary's, Pennsylvania facility to support this technology. Although still in its early stages, this represents tangible progress in our efforts to leverage existing assets and technical capabilities to develop new revenue opportunities. We continue to engage with prospective customers and strategic partners and policymakers to evaluate opportunities that leverage our existing capabilities and infrastructure. While these opportunities remain at various stages of development, we believe they offer attractive potential to diversify our business over time and create additional value from our assets. In summary, we are making progress on several important fronts. Pricing momentum is building, and we are taking decisive steps to improve our manufacturing footprint cost structure, and we continue to position GravTech to benefit from longer-term growth opportunities. We believe these actions will strengthen our competitive position and enhance our ability to generate improved earnings and cash flow as industry conditions recover. With that, let me turn to the broader steel market. Turning to slide 5, let me spend a few minutes discussing the broader steel market as steel industry fundamentals remain the primary driver of long-term graphite electrode demand. overall we continue to see improving trends across several of our key regions supporting our expectation for modest growth in graphite electrode demand during 2026 through the first two months of the third quarter global steel production excluding china totaled approximately 142 million metric tons an increase of approximately two percent compared to the corresponding period last year in the united states steel production continues to benefit from favorable trade policies and resilient domestic demand, with steel capacity utilization reaching 80% for the second concern. While the pace of improvement varies by region, we're also encouraged by recent policy developments in Europe that we believe will support a more favorable environment for regional steel producers over time. Taken together, these trends reinforce our view that the steel industry fundamentals outside of China are gradually improving, providing constructive foundation for graphite electrode demand. Turning to slide six, beyond the improving conditions we're seeing today, several potential catalysts could support additional growth in steel demand over the coming years. These include infrastructure investment, higher defense spending, investments associated with the energy transition, and growing demand related to artificial intelligence and data center infrastructure. We also see opportunities for additional demand growth as construction activity recovers, investment in steel intensive manufacturing increases and geopolitical tensions ease. While the timing and magnitude of these individual catalysts will vary, we believe their combined impact provides a favorable backdrop for steel demand growth over the medium term. Importantly, this perspective is supported by the World Steel Association's latest short-range outlook published earlier this month. The World Steel Association is projecting finished steel demand growth outside of China of approximately only 1.5% in 2026, accelerating to 4% in 2027. We view this anticipated acceleration as an encouraging indicator of improving industry fundamentals with positive implications for graphite electrode demand. Specifically in Europe, which remains one of our most important commercial regions, we see important developments aimed at strengthening the competitiveness of regional steel production. As we discussed last quarter, the implementation of the European Union's carbon border adjustment mechanism, together with increased trade protections for steel, has the potential to improve the competitive position of European steelmakers. More broadly, we believe these catalysts will drive increased regional steel production over time and support our view that graphite electric demand outside of China will increase at a compound annual growth rate of approximately 3% in the coming years. While the pace of improvement will depend on broader economic and market conditions, we believe that these demand drivers, combined with other strategic actions we are taking to improve our commercial performance and cost structure, position graph techs of benefit, and I'd like to briefly discuss an area that will always remain our highest priority, which I always believe that no business objective is ever more important than ensuring our people return home safely at the end of every shift. And I am proud of the continued focus our employees have demonstrated across their global operations. Through the first nine months of 2026, our total recordable incident rate was 0.47. While this is above our full year 2025 performance, it remains substantially below the levels we experienced several years ago, reflecting the meaningful progress we have made in strengthening our safety culture. We recognize that maintaining a strong safety performance requires constant attention and a commitment to continuous improvement. Safety must remain embedded in every aspect of how we operate rather simply than a metric being reported each quarter. On behalf of our leadership team, I'd like to thank all of our employees for their dedication to operating safely while delivering for our customers every day. Their commitment is the foundation of everything we accomplish as a team. With that, I'll turn the call over to Rory to review our third quarter results and our outlook in greater detail.
Thank you, Tim, and good morning everyone. I'll begin with our third quarter operating and financial performance before discussing our liquidity position and financial outlook. The results reflected continued execution against our operating priorities, including disciplined production management and ongoing cost improvements, while financial performance continued to reflect lower realized graphite electrode pricing associated with customer commitments established before. Starting with our operations, production volume was approximately 27,000 metric tons during the quarter, an increase of 2% compared to the prior year quarter, but a sequential decline of 19% from the second quarter of 2026. The sequential decline in production primarily reflected planned summer maintenance shutdowns at our European manufacturing facility. Our capacity utilization rate for the quarter was 64% compared to 63% in the third quarter of last year and 74% in the second quarter of 2026. Through the first nine months of 2026, production volume exceeded sales volume by approximately 2,000 metric tons. We continue to expect production and sales volumes to be balanced on a full-year basis, consistent with our previous outlook. Turning to sales, we delivered approximately 29,000 metric tons during the quarter, essentially flat compared to the prior year period and in line with our expectations. Importantly, year-to-date sales volume increased approximately seven percent compared to the first nine months of 2025, keeping us on track to achieve our full year expectation for sales volume growth between 5 and 10 percent. Net sales for the quarter were 140 million dollars, a decline of approximately three percent compared to the third quarter of last year, primarily reflecting lower weighted average realized graphite electrode pricing. Our weighted average realized price was approximately $3,900 per metric ton, down approximately 7% compared to the prior year quarter, and has been essentially flat through the first three quarters of 2026. As Tim discussed, our reported pricing continues to reflect customer commitments established before the more recent improvements in market pricing. We expect the benefit of these higher price commitments to begin flowing through our reported results in the fourth quarter, with the significant increase in realized pricing anticipated in 2027 compared to 2026. To put the financial opportunity in the perspective, each $100 improvement in our weighted average realized price would equate to approximately $12 million of incremental annual cash flow, thereby further supporting our liquidity position. Combined with these actions we are taking to optimize our manufacturing footprint and improve our cost structure, we believe this pricing momentum positions us to deliver stronger financial performance going forward. Turning to slide 9, we continue to make progress on our cost improvement initiatives while managing the impact of ongoing inflationary pressures across several key input categories. During the third quarter, CAF costs of goods sold per metric ton declined approximately 4% compared to the prior year quarter. While this metric can fluctuate from quarter to quarter due to production schedules, inventory timing, and the recognition of manufacturing costs, our underlying cost structure remains materially improved from the levels we experienced several years ago. Our teams remain focused on identifying and executing opportunities to improve manufacturing productivity, enhance operating discipline, optimize procurement effectiveness, and improve energy efficiency. We highlight two key areas of focus with respect to decamp oil, a key raw material in our needle coke operations. We continue to manage cost pressures through supplier diversification and enhancements in our blending capabilities. In addition, sales of oil-related byproducts from our needle coke manufacturing process provide a natural hedge that partially offsets increases in decamp oil costs. Further, our domestic feedstock sourcing and established supplier relationships provide an advantage in managing raw material availability, particularly given the ongoing supply chain disruptions and uncertainty affecting producers in Asia. Second, in Europe, fixed-price energy contracts covering a significant portion of our 2026 requirements have helped insulate us from recent market volatility. As we look to 2027, we anticipate higher energy costs as portions of that contractual coverage reset and we are incorporating those expectations into our operating plans while continuing to pursue energy efficiency improvements. Despite these external headwinds, we continue to expect a low single-digit percentage decline in cash cost of goods sold per metric ton for the full year of 2026 compared to 2025. Looking beyond 2026, the planned consolidation of our manufacturing footprint through the closure of our highest-cost facility, Monterey, is expected to provide meaningful financial benefits. As previously announced, we anticipate annual cash cost savings of approximately $20-25 million, with the full benefit expected in 2028, as well as a reduction in annual capital expenditure requirements of approximately $5 million beginning in 2027. We also expect a one-time release of approximately $20 to $25 million of working capital, with the majority anticipated to occur in 2028. These benefits will be partially offset by approximately $20 to $25 million of one-time cash costs associated with the closure, the majority of which is expected to be incurred by the end of 2027. As we have emphasized previously, our objective is not simply to reduce costs in the near term, but to establish a more efficient and competitive manufacturing network that can deliver greater operating leverage as market conditions improve. Importantly, we remain committed to achieving these improvements while maintaining the product quality, reliability, and safety standards that our customers and employees expect. With that, let me turn to our third quarter earnings and cash flow performance. Turning to slide 10, we reported a net loss of $47 million, $1.76 per share, compared to a net loss of $28 million, $1.10 per share in the prior year quarter. Included in our third quarter results were approximately $14 million of restructuring and other exit charges associated with the planned closure of our Monterey manufacturing facility, the majority of which were non-cash. Adjusted EBITDA was $9 million during the quarter, compared to $13 million in the prior year period, with the decline primarily reflecting lower weighted average realized graphite electrode pricing partially offset by lower cash cost of goods sold per metric ton. Turning to cash flow, net cash used in operating activities was $8 million during the third quarter while adjusted free cash flow was negative $16 million. This represented a significant improvement from the second quarter when net cash used in operating activities was $69 million and adjusted free cash flow was negative $75 million. Our third quarter cash flow reflected an increase in inventory levels that was consistent with our expectations. We continue to anticipate a reduction in working capital, including inventory, during the fourth quarter. As we have discussed previously, our cash requirements are influenced by the seasonal nature of our working capital needs, as well as the timing of our semi-annual interest payments on our second lien notes, which occurs in the second and fourth quarters. We continue to expect the second quarter to represent our highest quarterly cash requirement for 2026, with cash usage during the second half of the year significantly lower than during the first half. For the full year, we continue to expect a modest increase in working capital and we are maintaining our expectation for approximately 35 million dollars of capital expenditures. Turning to the next slide, let me review our liquidity position and debt maturity profile. We remain focused on preserving liquidity and managing our balance sheet prudently as we execute on our strategic initiatives. We ended the third quarter with approximately $242 million of total liquidity consisting of $134 million of cash and approximately $108 million of available borrowing capacity under our resolving credit facility. Importantly, we have substantially no debt maturities until December of 2029, providing us with the time to execute our operational and commercial initiatives and benefit from improving market conditions. Taken together, our liquidity position and debt maturity profile provide financial flexibility as we manage through the current industry environment and implement the actions necessary to strengthen our long-term profitability. As we look ahead, we remain focused on preserving liquidity, managing capital expenditures, and working capital carefully, and pursuing opportunities to strengthen our balance sheet over time. In my closing remarks, I would like to thank our employees around the world for their continued dedication and hard work. Their commitment is essential as we execute our strategic priorities and position GrafTech for improved financial performance. With that, I'll turn the call back to Tim for his closing remarks.
Thank you, Rory. Before we open the call for questions, I'd like to close with a few thoughts on why we remain confident in Graftec's future. First, we are making meaningful progress on the priorities within our control. Our commercial initiatives are gaining traction, we are securing customer commitments at significantly higher prices, and we are taking decisive actions to improve our manufacturing footprint and cost structure. While we recognize that our financial performance has not yet reflected the full benefit of these actions, we believe the progress we are making today is establishing a stronger foundation for improved profitability and cash flow. Second, we remain encouraged by the longer-term fundamentals of our industry. The continued transition toward electric arc furnace steelmaking, together with improving steel industry conditions outside of China, supports our expectation for growth in graphite electric demand over time. GrafTech possesses a set of differentiated capabilities that we believe will be increasingly valuable as market conditions evolve. These include our global manufacturing network, substantial vertical integration into petroleum needle code, advanced manufacturing technology, and our ability to provide high-quality products and technical solutions to our customers around the world. We are also leveraging these capabilities to pursue opportunities in adjacent markets, providing additional avenues for long-term growth. Finally, we recognize the importance of strengthening our financial position. We remain committed to disciplined capital allocation, preserving liquidity, and ultimately reducing leverage as our operating performance improves. We recognize that there's more work ahead, but believe the combination of the pricing improvements we're securing, a more efficient cost structure, and our differentiated competitive position creates a compelling opportunity for GravTech. Our focus remains on executing our strategy and delivering sustainable value for our shareholders.
Operator
With that, we'd be happy to take your questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. please stand by while we while we compile the q a roster your first question comes from the line of bennett moore with jp morgan your line is open please go ahead and just a reminder that if you're asking a question to unmute your device thank you yeah maybe we go to the next one good morning there you go hey bennett can you guys morning yeah we can hear you now okay sorry about that
Thanks for taking my questions. I guess it's first, it's really encouraging to hear the strong price momentum headed into 2027. So first, could you just talk about how the dialogue has been with customers on that front? And then second, is it your expectation that these increases will be margin accretive given the cost inflation, I guess, on the EU energy side and maybe lagged econ oil costs?
Yeah, absolutely. Thanks for the question. So maybe let's talk a little bit about kind of the evolution over the course of this year from a pricing perspective. You know, as we entered 26, we saw declining spot prices that were contracting in the first quarter, which led to the initial price increase that we announced at the end of the first quarter. And we gave some guidance or at least some directional indications in the second quarter call that if you extrapolated what we're seeing in the marketplace as a result of that over the full volume, you know, it would be roughly a 15% uplift. and that's what's starting to take hold and will drive the mid-single-digit increase that we mentioned heading into the fourth quarter. And then early September announced another price increase of 30%. And that really is where the negotiations start with every customer. And each customer is a bespoke or unique negotiation, but that's the starting point. And I think at this point right now we're really pleased with uh the progress we're making in those discussions um you know we still have quite a bit of volume yet to book but you know i think we're right on track where we've been uh in prior years uh at this point in time you know now you know four to six weeks into the heart of uh the negotiation season you know i'd expect as we we work through the end of the year um you know we would end the year and get into the first quarter uh we call in february for the fourth quarter with roughly 60 to 65 percent of our order book confirmed. So making good progress. You know, I think if I add some color to the customer conversations, I think they understand and appreciate that electrode pricing has been on a downward slope for quite some time and that, you know, necessarily isn't sustainable in the long run. I think there's absolutely a recognition of the importance of the electrode industry to the health of the steel industry. And I think when you start to talk about utilization rates at 80% plus in the United States, there certainly is a need to have a stable supply base. So I think a lot of the conversation is oriented around that. But I think there's also a recognition to that, to your question, your second part of your question, that there are rising costs and there are some headwinds globally on the needle coat front, in particular, the raw material input that we use, decan oil, as well as energy pricing. So I'm confident in saying at this point in time that the price increase and the momentum we're building and where we land in next year will be margin accretive, will more than offset any sort of price increases or, sorry, cost increases that we'll experience, as I think, you know, we've done a pretty good job over the last couple of years in reducing our costs. And I think we can do quite a bit to combat the inflationary pressures we're seeing.
No, that's great, Collar.
I appreciate it. my second question i want to ask about the rationale behind why monterey was specifically chosen and i think the location makes it appear as if it's counterintuitive but presumably there were some aspects related to efficiencies and prior investments at other facilities so maybe if you could just help unpack that yeah no that's a good question so i think you know if you take a step back you know our our first and foremost and i think we'd alluded to this in a number of calls previously you know with the market uh the oversupplied market conditions you know we felt that you know we needed to evaluate what our portfolio looked like um you know i think everyone on the call can appreciate that running industrial assets at 60 utilization is not a recipe for long-term success so really our first objective was to bring that supply and demand uh oversupply back into balance uh to the extent that that we could we looked at all of our facilities and really went through an evaluation process of saying how do we continue to serve our customers and by serving our customers maintaining the product mix that we have today our capabilities around supersized electrodes the standard sizes as well as some of the more unique products that we offer to the market that differentiate us alx extra long lengths the low oxidation items like that secondarily we wanted obviously to improve our cost profile which which rory spoke to in terms of bringing down our fixed costs. We were able to reduce the overall cost profile on a variable cost basis for a number of reasons. Monterey is the highest cost facility that we had in our portfolio, partially driven by the fact it's also the smallest set of assets in our portfolio. And then lastly, it's how we manage the risk of transition, right, and how we can ensure that we can do this seamlessly and not disrupt ultimately our customer's business. And I think one thing that's important, you know, you raise the point of the proximity to the U.S. market and that, you know, we only serve the U.S. market partially out of Monterey. We've historically brought in quite a bit of material from our European facilities. So from our perspective, this isn't really a change in the way we've otherwise had to operate. You know, St. Mary's gives us a lot of flexibility to, you know, stockpile inventory, allow us to manage deliveries and shipments to customers. And so it's been a pretty efficient supply chain for us over time. So at the end of the day, we view it as it's the same needle going through the same production process under the same quality standards with the same expectations of product performance.
So it doesn't really affect how we think we'll deliver to our customers at the end of the day hey Bennett just one more couple more things to add on the cost front don't don't overlook the efforts that we've made in the past few years around investment and equipment and process innovation around our needle coat production facility I think we've got a proven track record that we're able to battle changes in underlying crude indices and other commodity costs with our capabilities around blending. I mentioned it in my prepared remarks. With those investments we've been making, it's possible for us to continue to improve our premium needle coke quality with a diversified set of oils. We've got many refineries that supply us. They're not all the same quality, But we've got the science behind the blending and the ability to push in some of the blow of some of the volatile markets. So please keep that in mind. On the energy front, remember we have a pretty robust hedging strategy in Europe. Some hedging contracts are up to two years. So we're going to enjoy some protection against some of the volatility going into 2027 in some of our operations in Europe. But we are – it's kudos to the team, the management team, around identifying these risks and properly mitigating them, whether it's through process innovation, supplier relations, equipment investment, or contractual commitments. So just want to add that to Tim's call's comments.
That's a great, great color and much appreciated. Maybe just sticking with that thread, if I can squeeze in one last one, is with the Intura deal, I mean, is there any opportunity here to help absorb stranded fixed costs at St. Mary's?
Of course. That's one of the benefits that we see. We're not going to guide to individual asset costs or any of the terms of the agreement. We're still working through it with our partner, but we're pleased where it's going. And that, of course, is what Tim was mentioning around prudent use of our idle assets. That's exactly one of the objectives. So I think I'll leave it at that. But you can assume an oxy.
All right. Thank you very much.
Operator
Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Arun, your line is open. Please go ahead.
Thanks for taking my questions. Yeah, I think you mentioned, you know, kind of turning the corner on some pricing initiatives, so maybe you can just elaborate on what you're seeing there, and maybe if you could link that to your outlook on needle coke as well. It sounds like, you know, you've done some work there, but yeah, is there more of an outlook on what you see there, especially given the recent oil price inflation?
Yeah, everyone, thanks. On the pricing front, again, I think good progress is being made by the team across the board. I think we'll start to see the realization of the initial price increase that we announced back in March in Q4, and that will have a higher ASP reported out in the fourth quarter. And then you'll see a step change that will be meaningfully higher as we head into 2027 as we continue to work through the negotiations. But very pleased thus far with the team's effort and all the work that's been done throughout the year to get us here. So, yeah, I don't know if there's much more I can say at this point on the price front. With respect to needle coke, you know, I think, you know, needle coke has been similar to electrode prices, pretty stagnant for a number of years. And, you know, we probably entered the year somewhere in the $1,000 to $1,200 range, depending on grade. And we've seen that steadily increase over the course of the year. And really, that's a factor of two things. One, obviously higher oil prices are going to drive the byproducts for oil in that. So that's certainly driving up the price of needle coke to some extent, but also supply and demand. I think we're seeing greater demand in the market across a couple end markets and end users, which certainly helps drive up the price of needle coke. So if I had to say where I think the market is today, we're probably in that $1,700 to $2,000 a ton range, again, which I think provides support for higher electrode prices going into 2027. And I probably would expect that number to continue to creep up as we head into Q1 and Q2 of next year. And, again, it's been a little while since we've had this conversation. But, again, when you start to see needle croak prices in that range, CJIF really becomes a cost-benefit to us and a strategic asset beyond the benefits we get from having surety of supply and the ability to control the quality of the product we put into our electrodes. So we're really pleased with how that market's evolving as well.
Thanks for that. And I guess I wanted to get your thoughts on supply-demand, you know, for electrodes globally. Congrats on your own decisive actions here to close Monterey. But would you, you know, you noted the 60% utilization. I imagine the industry is also, you know, not running full, you know, maybe above that 60%. But, yeah, where do you think industry utilization, you know, rates are and where do you think and do you expect other actions? I know, you know, yourself may not be able to take anything else, but I guess maybe just get your thoughts on that. And then as a related question, you know, now that you've exited some extra or you will be exiting some electrode finishing capacity, conversion capacity, Will you still be able to potentially use some of your needle coke and divert it to the EV side, the battery materials market, or is that unlikely? Maybe you can offer your thoughts on both industry supply demand and then, you know, potential forays into the EV industry.
Thanks, Arun, and try to capture both of those. So just to clarify, on a year-to-date basis, we're at about 68% utilization, so a little better than the 60 that I threw out there before, but just as an example, I think if you look across the industry right now, if I had to take an estimate of where I think it's at collectively, we're probably sitting at about 65% globally outside of China. And if you take the 51,000 tons of capacity reduction, that would put you probably closer to 70 or just over 70%. So certainly a meaningful move in terms of balancing out supply and demand, but I think there's still opportunity for that to tighten up. And some of it will happen organically as electrode demand continues to grow at, you know, call it 3% a year over the next five years or so, or as we project out. But also, I think there's still opportunity for some supply reduction in the market. You know, which plants and which competitors in that, you know, I think we've done our part. I won't speculate as to what it is, but I mean, I think at the end of the day, this is a cost game and fixed cost leverage game in many respects. So I think the bigger the plant, the more cost competitive they tend to be. With respect to Seadrift and how we view Seadrift as an asset, certainly by reducing our electrode capacity, that gives us a little bit more capacity or excess capacity out of Seadrift and certainly allows us to, you know, continue to explore how we partner and supply needle coke into, I'll say broadly, other synthetic graphite applications, whether that's for EVs, energy storage, industrial defense applications. applications, whatever. So, you know, we continue to work in the background, as we have been saying for the last couple years, and Tora is the first example of kind of all of this work by our development and technical teams to come to market and allow us to use some stranded assets.
We have a number of other initiatives and activities going on that will allow us to use the needle code at Seadrift, and I'm pretty excited about where that will be. land longer term thanks your next question comes from the line of Abe Landa with Bank of America Abe your line is open please go ahead uh good morning thank you for um taking my questions uh maybe just some housekeeping items um the the cost to achieve the Monterey closure the 2025 million what is cash versus non-cash and how do you split that up between cogs and SG&A that is that
is a cash cost, $20 to $25 million. So I guess I would split it predominantly as cost of goods sold. The primary categories of that cost are general closure costs is about half and people costs is the other half. So you can probably think about that mostly as COGS. But we'll be isolating that to report it separately for you to go forward.
Sorry, maybe the $20 to $25 million cost saves i guess how would you split the cost saves between cogs and oh the question no i i i think i think i misspoke i misspoke over here so um that that cost savings will be primarily cost of goods home okay we're lowering our overall go ahead and there's no no uh long-term liability cleanup costs that are kind of associated with uh closing the monterey Okay.
So that's included in the first 20 – yeah, there's a lot of $20 to $25 million floating around. So that first $20 to $25 million was the cash cost expected from the closure, which would incorporate all the site closure costs and other decision-based costs. And the $20 to $25 million of cost savings going forward would be COG savings.
Yes, it does. You kind of mentioned that you thought realized prices would be up mid-single digits quarter on quarter in the fourth quarter.
I guess if we were just to look at those open contracts where you're able to actually enable cost increases or price increases, what was the percent change on those volumes on a quarter versus quarter? basis or expected change yeah so i'll go back to kind of the analysis or the the indicators that we shared previously you know because when the the first price increase we announced was a a range of 600 to 1200 so it wasn't ratable across each region and again negotiated on a customer by customer basis but if you take what we achieved in those on a regional basis and apply our existing mix it was about 15 percent uh you know for the new contracts that we had again just to remind you or the new commitments that we made during 2026 after the price increase announcement but just to again to remind you that when we made the price increase announcement about 80 percent of our volume was already committed so it's a relatively really small subset of customer commitments that were at that higher price And that is essentially what you're saying is that's flowing through into
the fourth quarter. And that's why we're getting to like the mid single digits.
So if you think about, if you think about the, the, the way, you know, so Q1 would have been all negotiated in 25. Q2 would have been almost entirely negotiated in 25, maybe some small volumes in 26, but probably before the price increase. Q3 and Q4, that percentage of when it was contracted pre or post price increase tends to go up. The fourth quarter is going to have the biggest portion, and that's why we're seeing the price increase now trickle through our results. And then given your recent price increase, I think of 30% in September's timeframe, that's going to then flow through 1Q combined with the commitments you typically get from the North American markets. that will all essentially kind of flow through to the better higher price increases and start in 2027 by kind of thinking about the various parts correctly yeah so that that'll that'll be a step change as we get into 27 so all of the 27 volume is being negotiated post this new price increase announcement so you'll see a step change as we get into q1 deliveries um and again typically it's more of that 60 to 65 percent that we have committed in the start of the new year is going to be heavier weighted towards North American or U.S. customers, just the way those markets tend to contract versus the rest. But there is a lot of European and other region commitment in there as well.
And maybe just touching on in the U.S. the anti-dumping and countervailing duties that were at least the preliminary was provided since your last call, that seems like, especially on NDA, it was kind of lower versus your expectations. Maybe if those are reaffirmed, how do you expect U.S. graphite electrode import volumes to be impacted and maybe the impact on pricing within the U.S.?
So, a little disappointed in the outcome, but, again, I don't think the previously communicated numbers were our expectations. That's what the filed cases were and the preliminary assessment coming out of the ITC. But, again, I think as we made in our prepared remarks, you know, the investigation is not complete. You know, the information will be subject to verification, as it always is, as commerce works through its process. And, you know, I think we're confident that Commerce will do a complete and thorough investigation, you know, before they announce their final ruling in Q1 of next year. You know, in terms of market, you know, I think certainly we saw, you know, the Indian competitors have, you know, call it 10 to 15 percent of the U.S. market a few years ago. And with all of the turmoil and trade talk over the last year or year and a half, you know, I think that maybe has pulled back some. But, you know, how that plays out going forward, I mean, prices are still going up absent the announced increase or tariff levels as high as what the preliminary rulings would have otherwise suggested. So, yeah, I think we like our position, both in the U.S. and Europe globally, and our market position. Again, I think it all comes down to value proposition, you know, for those customers that value something other than just the absolute lowest price.
And then my last question, you said earlier that pet needle coke prices are being driven by graphite electrode demand, but then also other markets. Can you just describe what's going on in those other markets and maybe kind of any other asterisk supply and demand perspective on pet needle coke?
Yeah. So, I mean, I think there's a few things, right? Obviously, needlecoat demand, I think all of the disruption in the oil markets to date, you know, in terms of, you know, oil coming out of the Middle East and getting to needlecoat producers globally certainly will have an impact. as well as I think as you start to think about the demand and the impact that the diesel markets are having. As the refineries produce more diesel, they're producing less decan oil. Less decan oil means less needle coke in the market. So all of those things can weigh on kind of the supply and demand balance from a price pushing up, but also graphite electrode demand And, you know, pulling needle hook braces up as well. So it's kind of a push and pull on that front.
That makes sense. That's all for me. Thanks, Ed.
Operator
There are no further questions at this time. I will now turn the call back to Tim Flanagan, CEO and President, for closing remarks.
Thank you, Kenneth. And I'd like to thank everyone on this call for joining us this morning. We look forward to speaking with you again next quarter. have a great day.
Operator
This concludes today's call. Thank you for attending. You may now disconnect.
