GrafTech International Ltd. (NYSE:EAF) Q4 2023 Earnings Call Transcript

GrafTech International Ltd. (NYSE:EAF) Q4 2023 Earnings Call Transcript February 14, 2024

GrafTech International Ltd. misses on earnings expectations. Reported EPS is $-0.27 EPS, expectations were $-0.21. GrafTech International Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen, and welcome to the GrafTech Fourth Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] This call is being recorded on Wednesday, February 14, 2024. I would now like to turn the conference over to Mr. Mike Dillon, Vice President, Investor Relations and Corporate Communications. Thank you. Please go ahead.

Mike Dillon: Thank you. Good morning, and welcome to GrafTech International’s earnings call for the fourth quarter and full year of 2023. On with me today, are Tim Flanagan, Interim Chief Executive Officer; Jeremy Halford, Chief Operating Officer; and Catherine Delgado, Interim Chief Financial Officer. Tim will begin with opening comments, Jeremy will then discuss safety, the commercial environment, sales and operational matters. Catherine will review our quarterly results and other financials, and Tim 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 in this call may include forward-looking statements regarding, among other things, performance, trends and strategy.

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 can find these slides in the Investor Relations section of our website at www.graftech.com. A replay of the call will also be available on our website. I’ll now turn the call over to Tim.

Tim Flanagan: Good morning, everyone, and thank you for joining GrafTech’s fourth quarter earnings call. Let me begin by acknowledging a simple fact. To operate in a cyclical industry and find ourselves in a challenging part of that cycle, for our industry and for our business. And our results have fallen short of our expectations. Yet our optimism about the long-term prospects of our company remain intact. On this call, we will discuss the actions we are taking in response to the cyclical downturn in demand, which include optimizing our footprint and improving our cost structure, as well as the reasons for our long-term positive outlook. With that backdrop, I will start with the macro environment, which continues to be impacted by economic uncertainty and geopolitical conflict.

This includes the ongoing impact of above-target inflation combined high-risk interest rate environment. In addition, there are multiple active military conflicts globally as well as strain geopolitical relations all of which are contributing to expanding disruptions in commercial trade. These and other factors are having a significant impact on the economic performance and outlook for many regions. For example, in the EU which is collectively the world’s third largest economy and a key region for our business, 2023 represented another year of low industrial production and weak economic conditions, which are expected to continue for the foreseeable future. These factors have contributed to a constrained global steel industry, which has resulted in persistently soft demand for graphite electrodes.

Further, graphite electrode prices remain weak, and the industry has suffered from low capacity utilization. In his comments, Jeremy will elaborate on both of these dynamics. As weak demand played out in 2023, GrafTech was also pressured by the impact of a temporary suspension at our Mexican operations in late 2022. We also experienced ongoing cost pressures, partially due to low capacity utilization. In response, we took a number of steps to help us navigate the headwinds focusing on those things within our control. Our actions included proactively reducing our production volume to align with our demand outlook, closely managing our costs, capital expenditures and working capital levels and at the same time, making targeted investments to further improve our operational flexibility and product offerings.

And the impact in 2023 was significant. Our initiatives to manage working capital led to more than $100 million of inventory reduction over the course of the year, resulting in positive free cash flow for 2023. Further, our efforts to reduce costs nearly drove a 10% decline in our 2023 period costs. However, as we enter 2024, the softness in the commercial environment persists and in response, we must take additional action. This morning, we announced the implementation of a cost rationalization and a footprint optimization plan. This is a set of initiatives designed to reduce our cost structure and optimize our manufacturing footprint, while at the same time, preserving our ability to deliver excellent customer service and to capitalize on the long-term growth opportunities.

Let me briefly walk through the three key elements of the program. First, we are indefinitely suspending most of the production activities at our St. Marys facility as well as indefinitely certain assets within our remaining graphite electrode manufacturing footprint. As you know, last year, we announced our intentions to restart production at St. Marys as a primary component of our pin supply risk mitigation strategy. Since then, we have significantly advanced other elements of that strategy. Specifically, we proactively built up our pin stock inventory to exceed historical levels and proved out the capability of Pamplona to be a secondary facility for pin stock production. Thereby giving us pin production capabilities on two different continents.

With the advancement in these areas, we can adapt to the current environment and align costs and production with demand, while remaining confident that our supply chains are well-positioned to meet the needs of our customers in all regions. Second, we are implementing actions that will reduce the company’s overhead structure and expenses. This includes a thorough review of all our corporate and support functions globally to ensure we have the right structure and resources moving forward. Third, we will continue to operate our remaining graphite electrode production facilities at reduced levels as needed in response to weak market conditions, there aligning our production with our evolving demand outlook. These actions will drive several key outcomes.

Specifically, the suspension of production at St. Marys and the reduction in corporate overhead will drive $25 million in annualized cost savings once fully implemented by the end of the second quarter, excluding the impact of onetime costs, which are estimated to be approximately $5 million. Further, the indefinite idling of certain led efficient assets across our remaining graphite electrode manufacturing footprint will reduce our stated capacity on a go-forward basis from 202,000 metric tons to 178,000 metric tons, a reduction of 12%. In light of current economic conditions and behaviors of others in the market, we view this as a prudent step. At the same time, it preserves our ability to meet our customers’ needs and gives us the flexibility to respond to future upswings in the market.

Lastly, these actions will support our efforts to further reduce inventory levels and manage working capital and capital expenditures in 2024. For all the reasons I’ve noted, we believe these are the right steps for the long-term health of our business. While the focus of my discussion today is on near-term headwinds and how we are responding, it’s important not to lose sight of the fact that we operate in an industry with substantial long-term tailwinds. These include the expectations that the steel industry decarbonization efforts will continue to drive continued share growth for electric arc furnace methodic steel production, thereby driving increased graphite electrode demand. In addition, demand for petroleum needle coke, the key raw material we use to produce graphite electrodes is expected to accelerate driven by its use to produce synthetic graphite for the anode portion of lithium ion batteries used in the electrical vehicle market.

GrafTech possesses a number of unique competitive advantages that support our ability to capitalize on these trends. These include the substantial vertical integration into petroleum needle coke as well as a distinct set of capabilities, which supports a compelling customer value proposition. For all of these reasons, GrafTech is well-positioned to benefit from future growth opportunities and create shareholder value. I’ll revisit these topics at the end of our prepared remarks. But first, let me turn the call over to Jeremy, followed by Catherine as they provide more color around our results and near-term outlook.

Jeremy Halford: Thank you, Tim, and good morning, everyone. As always, I’ll start my comments with a brief update on our safety performance, which is a core value at GrafTech. We are encouraged that our 2023 recordable incident rate improved significantly from the prior year level and places us among the top operators in the broader manufacturing industry. Improvement in this area was a key point of emphasis with our internal teams in 2023, and I would like to thank all of our team members for their efforts. Yet we must continue to do better, and we will not be satisfied until we achieve our ultimate goal of zero injuries. Let me now turn to the next slide to provide more color on current macro conditions and the commercial environment.

Steel industry production outside of China continues to be constrained by weak demand due to global economic uncertainty. Compounding this has been the impact of steel exports from China, which reached a multiyear high in 2023. Looking at data recently published by the World Steel Association, on a global basis, steel production outside of China was approximately 831 million tons in 2023. While this level of production was in line with 2022 in total, there was a significant divergence among regions. In 2023, steel production increased 12% in India and 6% in China — Russia. However, this growth was offset by declines in most of our key commercial regions. Specifically, steel output in Europe declined 7% in 2023 as the ongoing slowdown in industrial production, subdued market demand and high energy costs continue to weigh on steel production.

In the Americas, steel production was down 3% in 2023 despite output in the U.S., the largest steel producer in that region being flat year-over-year. As we move through the early part of 2024, we believe that a significant amount of global economic uncertainty remains as an overhang on steel demand and production in the near-term. This, in turn, has resulted in ongoing industry-wide softness for graphite electrode demand. In addition, recent changes in competitive dynamics are having a further impact on graphite electrode pricing. First, despite the weak demand environment, we continue to see a healthy level of electrode exports from certain countries, including India and China into nontariff protected regions such as the Middle East. These are typically lower priced electrodes with prices continuing to decline further of late.

Second, given these export dynamics, we continue to see a knock-on pricing effect in tariff-protected countries, such as within the — as Tier 1 competitors have continued to lower pricing in these regions to support volume. As Tim will expand on during his closing comments, we view this as transitory changes in the competitive landscape. However, these are nevertheless dynamics that we must manage in the near-term. With that background, let’s turn to the next slide for more details on how these factors have impacted our results and how we are responding. Our production and sales volume for the fourth quarter of 2023 were both approximately 24,000 metric tons. A key focus throughout 2023 was to proactively manage production volume to align with our evolving demand outlook, and we were pleased with our team’s execution of this strategy.

Fourth quarter shipments included approximately 5,000 metric tons sold under our LTAs at a weighted average realized price of $8,500 per metric ton. And 19,000 metric tons of non-LTA sales at a weighted average realized price of approximately $4,800 per metric ton. This weighted average price for non-LTA sales represents a more than 20% year-over-year decline and a sequential decline from the third quarter of more than 10%, reflecting the pricing dynamics I referenced. Net sales in the fourth quarter of 2023 decreased 45% compared to — the ongoing shift in the mix of our business from LTA to non-LTA volume was the key driver of the year-over-year decline with lower overall volume and pricing also contributing. For the reasons already mentioned, we expect industry-wide demand for graphite electrodes in the near-term will remain weak and pricing pressures to persist in most regions.

In response, we are taking the actions that Tim outlined in his comments. In addition, we are being selective in the commercial opportunities we are choosing to pursue with a focus on competing responsibly. We believe that we provide a compelling value proposition to our customers and we can compete on more than just price. Our value proposition includes a strategically positioned manufacturing footprint that provides operational flexibility and reach to key steelmaking regions. Being the only large-scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke, offering access to the architect furnace productivity system and customer technical services at no incremental cost to the customer, and a focus on continually expanding our commercial and product offerings.

For example, we remain on track to add 800-millimeter supersized electrodes to our portfolio by the end of 2024 to serve a small but growing segment of the UHP graphite electrode market. As always, we remain relentlessly committed to producing the highest quality graphite electrodes and meeting the needs of our customers now and in the future. Let me now turn it over to Catherine to cover the rest of our financial details.

Catherine Delgado: Thank you, Jeremy, and good morning to all. We had a net loss of $217 million or $0.85 per share. This included a goodwill impairment charge of $171 million and a lower of cost or market inventory valuation adjustment of $12 million. Both of these non-cash charges reflect the near-term industry-wide dynamics we have spoken to, soft graphite electrode demand, weak pricing, both coinciding with higher cost inventory remaining on our balance sheet. Adjusted EBITDA was negative $22 million in the fourth quarter compared to positive adjusted EBITDA of $80 million in the fourth quarter of 2022. The decline in EBITDA reflected, first, the continued shift in the mix of our business towards non-LTA volume; second, lower pricing third, lower sales volume; and fourth, the impact of the lower cost or market adjustment.

Also contributing to the decline in adjusted EBITDA was higher year-over-year cost on a per metric ton basis. However, we did see a sequential improvement in this metric from the third quarter as we anticipated. As shown in the reconciliation provided in our earnings call materials posted on our website, our cash COGS per metric ton declined approximately 7% from the third quarter of 2023 to the fourth quarter. The key driver of this improvement was a quarter-over-quarter reduction in the level of fixed costs that are being recognized on an accelerated basis due to low production volumes. In other words, these are costs recognized in the current period, there would have been inventoried if we were operating at normal production levels. As a reminder, in the third quarter, we recorded approximately $18 million of such costs, approximately half of which was attributable to Seadrift being temporarily idled through the third quarter.

In the fourth quarter, needle coke production at Seadrift resumed. This, along with a modest increase in graphite electrode production resulted in the amount of such costs recognized in the fourth quarter, declining to approximately $10 million. Now as it relates to 2024, we anticipate a low-teen percentage point decline in our cash COGS metric ton compared to the full year cash COGS per metric ton of 2023. In addition to the timing impact of the lower cost or market valuation adjustment that we recorded in the fourth quarter of ’23, we expect the decline in cash COGS into ’24 to be driven by three factors. First, the impact of the cost rationalization activities that Tim discussed, of the estimated $25 million in annualized cost savings once fully implemented by the end of the second quarter, we expect approximately $15 million of the annualized savings will be reflected as reduced fixed manufacturing costs.

Second, market pricing for key elements of our cost structure, including decant oil, energy and coal tar, pitch continues to moderate as expected. Third, we expect a modest year-over-year improvement in our sales and production volume in ’24, which would have a two-pronged impact on our cash COGS per metric ton. The anticipated increase in our production volume and capacity utilization rates, this will significantly reduce the amount of fixed costs being recognized on an accelerated basis. In addition, our fixed costs will be recognized over a larger volume base compared to the prior year. Turning to cash flow. For the fourth quarter of ’23, we generated $9 million of cash from operating activities and adjusted free cash flow of $4 million.

This cash flow performance was supported by our ongoing focus on managing our costs, managing our capital expenditures as well as our working capital levels, including another significant reduction in inventory during the quarter. I’m pleased to note that with our disciplined efforts in this area throughout 2023, this resulted in GrafTech being free cash flow positive for the year. Moving to the next slide. We ended the year with a liquidity position of $289 million, consisting of $170 million available cash and $112 million available under our revolving credit facility. This reflects the financial covenants that limit borrowing availability under our revolver in certain circumstances. More importantly, we do not anticipate the need to borrow against the revolver in 2024.

And further, we have no debt maturities until the end of 2028. Now, let me turn the call back over to Tim for some additional comments on our outlook.

Tim Flanagan: Thanks, Catherine. Thus far, we’ve discussed the current environment and how we are responding. Let me spend the last few minutes of our prepared remarks by looking further ahead beyond the near-term challenges. To reiterate one of my opening comments, our optimism about the long-term prospects for our company remains intact. We operate in a cyclical industry, which necessitates making tough decisions at times as we manage the things within our control. As a company and a management team, we’ve been here before, and the actions that we announced today have been designed to preserve our flexibility to capitalize on future recovery in the market, and we expect the market to recover. Why do we remain confident? While cyclical, we also operate in an industry with significant long-term tailwinds.

Decarbonization efforts are driving a transition in steel with electric arc furnaces continue to increase share of total steel production. The EAF method of steelmaking now accounts for nearly half of global steel production outside of China and an increase from 44% in 2015 with market share growth in nearly every region. And this trend of EAF share growth is expected to continue. In fact, we continue to see examples of governments providing incentives to companies to help fund investments in new EAF capacity. This ongoing transition towards EAF steelmaking is expected to drive demand growth for graphite electrodes over the longer term. Overall, considering planned EAF capacity additions based on steel producer announcements, along with production increases at existing EAF plants, we estimate that this would translate to a graphite electrode demand outside of China growing at a 3% to 4% CAGR over the next five years.

While we’ve seen the change in the competitive dynamics of late, as Jeremy indicated, this isn’t entirely unexpected at this point in the cycle. We view these as being largely transitory, and we are well-positioned to benefit from the long-term demand growth for graphite electrodes to note a few reasons. First, as prior cycles have demonstrated, the anticipated recovery in graphite electrode demand in coming years will help ease the current competitive pricing pressures. As a historical reference point, over the last 20 years, the selling price for our non-LTA volume has averaged approximately $6,000 per metric ton adjusted for inflation, which is significantly above current market prices. Second, anticipated demand growth for petroleum needle coke, the raw material that we use to produce graphite electrodes will also present a pricing tailwind.

To expand on this point, needle coke demand is expected to accelerate driven by its use to produce synthetic graphite with the anode portion of lithium ion batteries used in electric vehicle market. Growing demand for needle coke should result in elevated needle coke pricing. Given the high historical correlation between petroleum needle coke pricing and graphite electrode pricing, with an inflation-adjusted spread that has averaged approximately $3,900 per metric ton over the last 20 years, this trend should translate to higher market pricing for electrodes. Third and specific to the competition with Chinese graphite electrode producers, we continue to view their opportunity for competitive inroads in our key markets to be limited over the longer term.

The imposition of customs duties and other turf protections and key EAF steelmaking regions, including the U.S. and the EU, have served to limit the level of imports from China into these — imports from China into these regions. Further, a quality gap still exists between Chinese electrodes and Tier 1 producers, which will become increasingly evident as new EAFs with more demanding applications come online in the coming years. As it relates to China’s domestic graphite electrode demand, the country produces approximately 1 billion metric tons of steel on an annual basis, with approximately 90% still produced using the traditional method of steelmaking. With even a relatively small percentage shift in the output to the more environmentally friendly EAF model, this would absorb a significant level of domestic graphite electrode production, thereby decreasing incentives for them to explore the export markets.

Lastly, and specific to GrafTech, for all the reasons that Jeremy referenced, we provide a compelling value position to our customers and can compete on more than just price. As such, we continue to believe that GrafTech will get through this challenging period, emerge as an industry leader and the preeminent supplier of mission-critical products to the electric arc furnace industry. Before concluding our prepared remarks, let me transition to a brief update on our efforts towards participation in the development of a Western EV battery supply chain. We continue to see potential long-term value creation opportunities in this space as we possess key assets, resources and know-how to support this industry. Our activities continue to advance in both the areas we have spoken to previously.

First, leveraging our assets and technical know-how in the area of petroleum needle coke production given the expected demand growth for this key raw material. Second, leveraging our graphitization resources and expertise to produce synthetic graphite material for battery anodes. We remain excited about the opportunity and look forward to sharing more as we can. In closing, we remain optimistic about the long-term outlook for our business and our ability to deliver share value. We are an industry-leading provider of a consumable product that is mission-critical for the growing electric arc furnace method of steelmaking. We possess a distinct set of assets, capabilities and competitive advantages. Lastly, as a result of our disciplined capital allocation strategy, we have ample liquidity to navigate the near-term.

This concludes our prepared remarks. We’ll now open the call for questions.

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Q&A Session

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Matt Vittorioso from Jefferies.

Matt Vittorioso: So I appreciate all the color on the steps that you’re taking to navigate this market. I was hoping maybe we could just try to — you provided some color on expectations around cash costs down low-teens, if I do some rough math that kind of seems to get you into the high 4,000s, maybe 4,800 that kind of matches the current spot price or the non-LTA realized price you had in the fourth quarter, that just very rough kind of leads you to a neutral or zero EBITDA or kind of environment. Is that sort of what you, guys, are picturing for 2024 as you navigate sort of cash costs and realized pricing kind of being in the same ballpark?

Tim Flanagan: Yes, Matt, thanks for the question, and I appreciate it. And certainly, I think if you apply the current spot price here at the end of the fourth quarter and do the math the way you do, I think that’s what it would suggest. But I would also just remind you that, that cost guidance also reflects the fact that while we’ve said that we’re going to improve or slightly increase sales volume year-over-year. We still expect to be running at a utilization rate kind of well below kind of normalized capacity. So we still think there’s room for cost to come down as we move through. As volumes pick up, we expect the cost to navigate down towards the lower 4,000 range over time. But in the current environment, at spot pricing is what you said we recognized in the fourth quarter, I think that’s a fair statement.

Matt Vittorioso: And then I was hoping you could just talk about working capital. Obviously, you’ve done a nice job managing working capital throughout 2023 to ease the — to actually generate cash. Just what’s the working capital or inventory opportunity that you see in 2024 just as we think about liquidity and how that sort of progresses over the course of the year?

Tim Flanagan: Yes. So we took out just over $100 million of inventory during the year, but we also commented we offset some of the reduction of our inventory on hand with building additional pin stock, right? So a little bit of an offset there. We think there’s opportunities with the footprint optimization that we’ve just outlined to further reduce inventory levels, not certainly to the order of magnitude that we’ve seen in 2023, but there’s some opportunity to relieve some additional inventory here in ’24. That being said, as volumes pick up, both on the sales and production side over the course of the year, you’ll get a little bit of a negative impact on working capital. So net-net, fairly balanced from an overall working capital perspective as we go throughout the year.

Matt Vittorioso: And I think we’ve gotten the comment or question from a lot of investors just given the current liquidity picture. And I think you’ve outlined some nice steps today to manage and preserve liquidity. But as you see things today, any reason to raise additional capital or borrow additional money in the context of having $290 million of liquidity today?

Tim Flanagan: Yes, you said it at the end there, right? We ended the year with $177 million of cash and the availability that’s on the revolver. We feel good about the liquidity position and where we stand today. And really, it’s all in the context of the steps and what we’ve announced this morning was the idling of St. Marys, the rationalization of the rest of our footprint as well as kind of the corporate and the overhead side of the business, taking a hard look at that as well. We think all of those steps really position us well to manage the near-term environment.

Matt Vittorioso: Last one for me, if I could just squeeze it in. The other conversation we have a lot is just around customer relationships and contracting as it pertains to customers that have rolled off of those long-term agreements. And maybe there being some ill will or just bad taste in certain customers’ mouths post having those long-term agreements in place that were at higher prices. And I’m sure you’re not going to provide specifics on conversations. But any commentary or feel or body language you can give us around like, is that a persistent problem? Are you making progress in sort of bridging that gap with customers? You talked about the long-term opportunity here, which seems pretty positive, assuming you can sort of get customers back in your good graces. So just any color or thoughts on that would be really helpful.

Tim Flanagan: Yes, Matt, good question. And no, we’re not going to comment on any particular customer interactions or relationships. But I would say, we went into the ’24 negotiation process, which continues, right? It’s ongoing throughout the year. With a pretty difficult macro backdrop that we’ve talked to. And I think we’re pretty pleased with the way that it’s played out in terms of the level of engagement with customers, both in the Americas as well as in Europe and the rest of the world for that matter. So generally speaking, very pleased with where our customer relationships stand. And we’re going to continue to focus on those customers where they value the long-term relationship and the value proposition that we bring to the table.

It’s the technical services, it’s the continuous furnace monitoring that we offer. Those customers that value that are the customers that we build these relationships with, and we’re having the most success with. So we’re pleased with where our customers stand at the moment.

Operator: And your next question comes from the line of Bill Peterson from JPMorgan.

Bill Peterson: I guess how should we think about the shape of shipments as you see it today as we think about throughout 2024. I’m asking in the context of one of your Tier 1 peers. No, they provided some sort of sales outlook and expect the first half of ’24 to decline versus the second half of ’23, but also decline again in the second half of ’24 relative to the first half. And I’m not really sure what their assumptions are around pricing, but would seem to indicate there’s no expectation of improvement at least from a shipment profile in the back half of the year. So just kind of wanted to get a view on how you’re thinking about that.

Tim Flanagan: Yes. It’s really tough to comment on somebody else’s shipping patterns and the way they’ve contracted and the way that they manage kind of their customer relationships or how they do that. I think as we look out in ’24 as we’ve commented, without providing specific numbers, we do anticipate an increase, a modest increase in sales volume next year. We’d expect sales to be in line Q1 from where we did in Q4. And then in the year, we’ll progress from there. I think as we look out longer as we head into 2025, we are anticipating volumes to continue to pick up and some market recovery.

Bill Peterson: And I guess from your advantage point, again, some more, how are peers in the industry responding in terms of supply. It appears directionally, we had a few of the peers are at reducing output but also have higher utilization than GrafTech. So I guess, what is the risk to your share or maybe continued pricing environment given that your peers are not really trimming capacity, it doesn’t appear to be terminal capacity as much as you are.

Tim Flanagan: Yes. I mean I think we, again, are focused on taking the steps that we believe are right for GrafTech as a business that will, not only position us best from a cost perspective, utilize our most efficient assets in the near-term, but also allow us to continue to deliver electrodes to our customers in all regions. And we think the plans that we’ve laid out allow us to do that. Absent of what our competitors are doing and what their drivers are in terms of their own respective business. But right now, I would generally say everybody is probably operating at less than optimal utilization levels and we’re no different.

Bill Peterson: It sounds like you’re comfortable with your cash position for the year, but I guess that demand and shipments were, I guess, to take another leg down or decline significantly. Are you evaluating — are there other liquidity alternatives such as asset sales, maybe secured debt issuance or anything else that could be on the table should things actually progress worse? Just trying to get a sense of what alternatives you have.

Tim Flanagan: Yes. I mean, there’s always the risk that the market continues to move sideways or down further. At this point in time, we have a fair portion of our order book locked for the year just given the negotiation process that we just went through. And that certainly is something that we took into account as we looked at the cost rationalization and footprint optimization program that we just went through. So again, we feel good about the steps we’re taking and how it positions us this year. And the world will play out as the world plays out going forward.

Bill Peterson: Well, I’ll leave it there and take it off-line, but good luck with navigating the environment here.

Operator: And your next question comes from the line of Alex Hacking from Citi.

Alex Hacking: I apologize if I missed this, but could you provide any color on the pricing outlook for the first half of this year?

Tim Flanagan: Yes, Alex, thanks and appreciate you joining the call. We haven’t provided any outlook for the pricing environment. And frankly, there’s no benefit in terms of getting into a discussion around where pricing is. You can look at pricing, what we reported for the fourth quarter and use that if you want.

Alex Hacking: And then I guess, regarding India and China exports. Yes, I think as you mentioned, Chinese steel production was probably up a little bit last year. Indian steel production was up strongly last year. Yet they seem to be exporting more graphite electrodes. Do you have any color on what’s happened or capacity adds there? I guess what’s driving the increase in exports from those regions?

Tim Flanagan: Yes. So I think our commentary about exports was on the steel side. And I think Chinese graphite electrode exports are maybe introducing some pricing pressures in the market, which we talked a little bit about in the third quarter. But year-over-year, Chinese electrode exports are actually down kind of a double-digit percentage. Indian exports, again, may be up slightly year-over-year, but on a scale, they’re a fraction of what the Chinese export market looks like. So net-net, I don’t think there’s that much more material being put into the export market, but I think the pricing has been more aggressive certainly.

Alex Hacking: So I guess you — so you haven’t lost market share at India and Chinese material last year. In fact, if anything, you would have gained share against that if exports were down.

Tim Flanagan: No, I mean. Is it fair? I don’t know if that’s the way I would look at it. There are certain areas in the non-tariff regions, where you see more activity from those players in those markets that we otherwise would not want to sell into, and we would otherwise put material into our core markets of the U.S. and the EU.