Alex Hacking: And then I guess just finally, any comments around your market share in the U.S. market in particular. I think it’s the most attractive market for electrodes. We know that you potentially lost some market share beginning of last year, given the Monterrey issues. So any update on your U.S. market share?
Tim Flanagan: Yes. And I think we commented in the third quarter on this, in particular about how — the first step for us was to be able to go into the Q4 negotiation window with all of our customers, not just those customers in the U.S., with the ability to commit to volumes for the full year. And we’ve done that, and as I said earlier in one of my responses to a question, we’re very pleased with the way those negotiations went and the volumes that we were allocated from all of our customers. And we don’t necessarily give specifics in terms of market share. But again, the Americas is a substantial part of our business and will continue to be going forward.
Operator: And your next question comes from the line of Arun Viswanathan from RBC Capital Markets.
Arun Viswanathan: I guess first question would be you noted that there’s a significant cost per ton reduction. I understand the footprint optimization will help in that. But what kind of utilization rates should we think about as move through the year? On our math, it would seem that you’d need to get into the 70s or 80s in order to get those — that cost per ton down into the $4,000 or $5,000 per ton range. Is that required? And I know that you’re shutting down St. Marys, but are there greater actions you can take? I mean running at 47%, it would imply that there’s 50% or so of your capacity that it’s really not being utilized. Would you consider shutting down maybe some of the other plants like Pamplona or [indiscernible] or maybe you can just walk us through that.
Tim Flanagan: Yes. Thanks, Arun. And kind of a lot in that question, so if I miss a part, please let me know. I guess first question with respect to your question on cost and how we get to levels below kind of what we’re otherwise guiding to. And remember, that’s not all going to come on the back of fixed cost leverage or fixed cost reductions, right? Fixed costs represent roughly 25% or so of our overall cost structure. So any increase in utilization will improve the cost structure, but we do anticipate further improvement from the price of needle coke as well as our other variable costs, right? So we’re seeing kind of favorable trends in the market for all of those, and those will continue to benefit us going forward, particularly in terms of energy prices in Europe.
In terms of — I think your second part of the question was around would we shut another plant down again, the actions we’ve taken today with St. Marys and our corporate overhead is predicated on our view of the world and our understanding of our business and market and don’t necessarily — let me say it this way, we think we’ve taken the steps needed to be successful to navigate through this trough and get to the other side when we anticipate the market picking back up. U.S. running our plants in Europe and in Monterrey are important in our ability to deliver all of the products and make — deliver on our commitments to our customers. But as well as being able to otherwise capitalize when the market picks up longer term, which, again, and we’ve said it a few times, we firmly believe that the market will pick up as we move forward.
Both because of the decarbonization of steel as well as the demand for needle coke through to the EV market. So we’re going to continue to run those assets, but we’re going to run them as efficiently as we can.
Arun Viswanathan: Sorry about that I was on mute. Just one other question. Just could you elaborate on your plans to pursue commercialization of your needle coke into the EV market? Is there any support you can get from IRA or any other strategic initiatives there?
Tim Flanagan: Thanks, Arun. I’ll let Jeremy take that one.
Jeremy Halford: Yes. Arun, so a couple of things there. First of all, you’ll recall that as we previously noted, in July, we did file a permit application to significantly expand the capacity adoption at Seadrift — and at the time, we said that we would be able to check if we went forward with the project, we would have the ability to increase the 140,000 ton nameplate capacity by about 40% through a combination of calcine and pre-calcined needle coke. And so at the time, we said that we would anticipate that process taking about a year. And we don’t have any reason to think that the permitting process will be any longer or shorter than that at this point. We’re continuing down that path. In terms of actually commercializing and engaging with potential customers, we continue down that path, both from a needle coke as well as a graphitization perspective.
We have done trials with several customers. And I would say that the pace of activity there is increasing. And so we feel good about where we’re at, but nothing to announce at this time.
Arun Viswanathan: And then just lastly, I just wanted to ask again on that issue of potential electrode substitute or competition from Chinese and Indian electrodes. Presumably, during the shutdown at Monterrey, there was some potential of your customers. Maybe source selective from other suppliers. What’s the strategy to kind of get back that — those volumes? I know you said that there’s value proposition and service that you provide, but it would appear that just given the pricing environment that price would be the main lever to try and get back to some of that share. Maybe you can just elaborate on some of the other services that you think would be helpful in regaining that share?
Tim Flanagan: Yes, Arun, I mean I think ultimately like any commercial relationship, right? It’s the relationship and it’s providing a compelling value proposition, not only through a quality product, which, again, we think our electrodes are the best in the in terms of quality. But it’s also what else you offer your customers and how they view you as well. And I think it’s important to remember that especially in the U.S. market, in particular, price isn’t always the bottom line in terms of the determination just given the fact that the U.S. mills are still running at very healthy utilization rates. Any sort of quality issues or breakage or interruption to their furnaces ultimately cost them money. So they’re going to continue to err on the side of producing quality electrodes, and that’s what we remain focused on.
Operator: And your next question comes from the line of Kurt Ki from [indiscernible] Capital.
Unidentified Analyst: Just a few follow-ups, if I may. On the competitive landscape, I completely recognize it’s not all about price. And cost can be a moving target. But where do you think your three plants are on the cost curve? Maybe just which quartile do you think they are in?
Tim Flanagan: Sorry. I thought you had a further question or more to that. Yes, again, we don’t necessarily break our plants down separately. We look at the overall manufacturing footprint as kind of a global network. And we think we’re very cost competitive. We’re exactly on the cost curve, I won’t speculate, but we think we’re well positioned from a cost perspective. And certainly, as we continue to drive up our utilization at the plants that just makes those plants even more competitive given their overall size and scale.
Unidentified Analyst: And with respect to editors idling electrode capacity is — can you expand on that? Do you have any estimates of what might be happening on that front?
Tim Flanagan: I can’t comment our competitors are doing. It would just be pure speculation. But if they want idle capacity, I’m okay with that.
Unidentified Analyst: Last call, you mentioned that China was limiting the export of synthetic graphite. Is that — any comments on that front?
Jeremy Halford: Yes. I think the specific comment had to do with synthetic graphite for use in anode materials and kind of a recognition of the value of synthetic graphite as we start seeing further electrification of the fleet. And so that continues to be the case, perhaps restricting or they’re at least requiring licenses from the producers before they’re allowed to export that material. It’s not something that we’ve got direct experience with, but we do know that, that is a key driver of potential exports from there. And kind of a recognition of the importance of synthetic graphite in the overall electric vehicle supply chain.
Unidentified Analyst: And on Cedar, how much would a 40% increase in capacity cost?
Tim Flanagan: Yes. So we haven’t provided a specific number, but what we’ve guided to in the past is that a full replication of Seadrift would be north of $750 million and the replication or the addition of that 40% isn’t linear, right? It’s not 40% of $750 million. We can do it much more efficient than that. So yes.
Unidentified Analyst: Super helpful. Last one, the order book, how much have you sold for fiscal ’24, how much volume?
Tim Flanagan: Yes. So we’re — we haven’t provided exact numbers in terms of what total volume we expect for the full year, but we’re well over 50% committed at this point heading into the first quarter.
Unidentified Analyst: For the full year?
Tim Flanagan: For the full year.
Operator: And your next question comes from the line of Curt Woodworth from UBS.
Curt Woodworth: So just wanted to follow up on — so in terms of cracking the code around sort of the EV anode market, right? So you have PSX that signed some deals with NOVONIX on the coke side. You’ve got a lot of EV development underway. And so on the one hand, you have a competitive advantage on the petroleum coke side going into synthetic. And then you also have capability just on the pure equipment machining material process side, the business. So I guess the question is what — where do you think the value and use is the most compelling in your portfolio? Do you think it’s more processing or on the coke side? And then how should we think about like next steps. Is it more likely that you would partner with someone to potentially expand Seadrift?
Or you have excess machining capacity that could be utilized that makes synthetic, for us to really frame kind of the relative economics, and I know that it’s early stages, but anything you could help us think about would be greatly appreciated.
Tim Flanagan: Yes. So let me start and then Jeremy, I’ll ask you to chime in as well. And the two areas that I commented on, in particular, where we see the opportunity as it relates to us is utilization of our graphitization assets as well as our expertise in Seadrift as a facility, whether as it is constructed today or if we were to pursue an expansion. Both of those are pretty compelling because both sets of assets are really dual-use assets, right? The process for graphitizing anode material isn’t really any different than the process for creating electrodes that we do and have been doing for decades and decades. So really, it’s an opportunity for us to not only maximize our utilization of our assets, but also there’s an arbitrage opportunity to go after the markets that have the best margin longer term.
In the short run, right, there’s really no benefit or upside in ’24, right? These are all kind of longer-term opportunities in place for us, but still are certainly exciting ventures as we head out. The way we think about it from a balance sheet perspective and what the construct looks like, there’s a dozen different ways that this could play out or more than a dozen different ways that this could play out. But certainly, given kind of the challenging environment right now, we wouldn’t do this on our own in most cases, right? Given the capital outlay or any sort of significant expansion of Seadrift, we wouldn’t be in a position nor we wanted to take on that cost on our own. Jeremy, I don’t know if you want to add to that?
Jeremy Halford: Yes, I think you’ve hit the key points, Tim. This is an opportunity that will be comparatively small in the near term, thinking 2024 and as we accelerate through 2025 and into the latter part of the decade is really when we see the Western supply chains developing and are seeking to be a participant.
Curt Woodworth: And then in terms of needle coke in the past, you’ve commented on third-party pricing data that you have. Can you give us a sense for where you think needle coke? And then I know you’re hesitant to provide any commentary on pricing for electrodes. But directionally speaking, order magnitude, should we think that your 1Q non-LTA price will fall similarly in fashion as the last Q-on-Q? Or any comments would be helpful.
Tim Flanagan: Yes. So let me start on the electrode side, and then I’ll let Jeremy comment on needle coke. Yes, we’re not going to provide kind of any sort of specific outlook, whether directional or not beyond the macro kind of commentary we’ve provided, right? We’re still negotiating orders on a daily basis, and it doesn’t benefit us to signal where we think those prices are going to go.
