EAF — Q3 2026 Financial Report Analysis

Overview

GrafTech makes graphite electrodes: large carbon rods that carry the electric current that melts scrap steel in electric arc furnace ("EAF") steel mills. Electrodes are consumed as the furnace runs, so demand tracks steel output, but prices swing hard with industry capacity. In the third quarter of 2026 (three months to September 30) GrafTech sold the same tonnage as a year earlier, 28.8 thousand metric tons, at a weighted-average price of about $3,900 per ton, 7% lower. Net sales fell 3% to $140.2 million, and the net loss widened to $46.8 million from $28.5 million, mostly because of a $13.9 million charge to close its Monterrey, Mexico plant. Underneath the charge, the business still earns far less than its interest bill, and liquidity has fallen by about $98 million since December.

Results

The year-ago price is implied from the stated 7% decline; the filing gives only the current figure "approximately $3,900 per MT". Operating margin is operating loss divided by net sales (the share of each sales dollar left after running the business, before interest and tax; here it is negative).

Volume flat, price lower, by-products filled part of the gap

Management attributes the sales decline entirely to price: net sales fell "reflecting a year-over-year decrease in our weighted-average realized price", and "the year-over-year pricing decline reflected persistent competitive pressures across most of our principal commercial regions." Graphite electrode revenue fell 9.4% to $120.4 million on flat volume.

Total sales fell only 2.7% because "by-products and other" revenue, mostly material produced alongside electrodes, rose to $19.8 million from $11.1 million. That line carries little profit: the cost of goods sold attributed to by-products rose to $13.6 million from $7.8 million, so the $8.7 million of extra by-product revenue added only about $3 million of gross profit.

Over nine months, volume was 87.7 thousand tons, up 6.8% from 82.1 thousand, in line with management's maintained full-year target of a 5-10% increase "as we continue to gain market share". Revenue grew only 1% over the same nine months, so the extra tons were sold at lower prices.

Closing Monterrey

On August 6, 2026 the board approved permanently closing the graphite electrode and connecting-pin plant in Monterrey, Mexico, one of GrafTech's three electrode plants (with Calais, France and Pamplona, Spain), "to better align its manufacturing capacity with market conditions". Production is expected to end early in the second quarter of 2027.

• Q3 charges: $12.3 million of fixed-asset write-offs and $1.6 million of severance in "restructuring and other exit charges", plus $1.7 million of accelerated depreciation inside cost of goods sold.
• Total expected cost: $20-25 million through the end of 2027, "primarily consisting of employee termination benefits, facility closure and other environmental costs". The filing doesn't say how much of that range the Q3 charge already covers, but termination, closure and environmental costs are cash costs, unlike the Q3 write-offs.
• GrafTech intends to sell the Monterrey property and says proceeds would go to liquidity and debt reduction.
• A new risk: Monterrey made all of GrafTech's connecting pins (the threaded joints that join electrodes into a column). After closure, the company "expect[s] to rely primarily on one facility in Pamplona, Spain" for them.

At 64% utilization across 42 thousand tons of quarterly capacity, GrafTech is running well below what its plants can make, so removing a plant should raise utilization and spread fixed costs over more tons at the remaining sites.

Takeaway: The operating problem is price, not demand: GrafTech sold as many tons as a year ago and cut its cash cost per ton by 4%, but the 7% price decline left adjusted EBITDA of $8.6 million against $25.9 million of quarterly interest. Management's call that pricing has hit an "inflection point" (a mid-single-digit rise expected in Q4) is the variable that matters, because at current prices the company is funding losses from a liquidity pool that shrank by about $98 million in nine months.

What the headline numbers hide

Leverage and liquidity are the central issue. Debt principal is $1,225.0 million: $275 million of first-lien term loans and about $944 million of second-lien notes, all maturing in 2029, plus $5.6 million of older 2028 notes. Shareholders' equity is negative $388.2 million (a "stockholders' deficit": liabilities exceed the book value of assets). The market prices this debt at a discount: its fair value was $983.0 million at September 30, about 80% of principal. Over the last three quarters:

• Liquidity fell from $340.0 million to $241.9 million. December's figure included the $100 million undrawn delayed-draw term loan; that was drawn in June and is now fully used, so cash ($134.3 million) plus the revolving credit line are what remain.
• The revolver's availability is $107.6 million, but the filing says "our operating performance ... resulted in our inability to access the full amount of commitments under the facility" because of its financial covenant. Revolver draws also require that GrafTech hold no more than $100 million of unrestricted cash after borrowing, so in practice the line is a backstop once cash is used.
• GrafTech says it was in compliance with all debt covenants and believes it has "adequate liquidity to meet our needs for at least the next twelve months".
• In May it set up an "at-the-market" program to sell up to $50 million of new shares into the market; it has sold 845,245 shares for $5.5 million net so far, with $44.3 million remaining. Small, but a sign that equity is now a funding source.

Cash burn. Operating cash flow was -$8.4 million in Q3 and -$92.0 million over nine months (vs -$60.7 million a year earlier); after capital spending, free cash flow was -$16.3 million in Q3 and -$118.8 million year to date. Two things flatter the Q3 figure: $15.3 million of depreciation and $12.3 million of write-offs are non-cash, and accrued interest not yet paid rose to $23.6 million from $4.8 million in December.

Inventory and receivables. Inventories rose to $247.6 million from $224.7 million in December (+10%), with finished goods up 25%; production (89.8 thousand tons) has run ahead of sales (87.7 thousand) this year. Management calls it a "planned inventory build" and expects production and sales to balance for the full year. Inventory valuation write-downs to market value were $9.8 million over nine months vs $6.3 million a year earlier, consistent with selling prices below the cost of some stock.

One-offs in both directions.

• Q3 revenue included $8.5 million "following resolutions of long-standing commercial matters", vs $11.2 million in Q3 2025. Excluding those, net sales were about $131.7 million vs $132.8 million.
• Nine-month results include a $12.8 million gain on selling assets of previously divested operations ($9.7 million in cash).
• The nine-month net loss looks better than last year (-$130.5 million vs -$154.7 million) only because 2025 included a $42.6 million non-cash tax charge to write off deferred tax assets. Pre-tax loss actually widened 15%, to $127.4 million. The tax write-off also means losses in the US and Switzerland no longer produce tax benefits.

GAAP vs adjusted. Adjusted net loss was $32.1 million (-$1.21 per share), vs the GAAP loss of $46.8 million (-$1.76). The $14.7 million gap is mainly the $13.9 million Monterrey charge, plus stock-based compensation, pension costs and a $0.5 million asset-sale gain. Adjusted loss per share still widened from -$1.03.

Guidance and outlook

Management maintained every 2026 target in this filing:

• Graphite electrode sales volume up 5-10% for the year (nine months: +6.8%).
• Cash cost of goods sold per ton down by a low-single-digit percentage (nine months: $3,668 vs $3,738, -1.9%).
• Capital spending of about $35 million ($26.9 million spent so far).
• A "modest increase in working capital" to support higher volume.

The new element is pricing. Management says it has "reached an inflection point in our realized pricing", having secured commitments in Q3 and early Q4 "at higher price levels than comparable commitments secured in earlier periods", and expects a mid-single-digit percentage increase in Q4 average price vs Q3, with "meaningfully higher realized pricing in 2027". It cites US steel production up 6% year to date through August and new European trade protections.

Our read: A 5% price rise on about $3,900 a ton is roughly $200 a ton, which on 29 thousand tons a quarter is about $6 million of extra quarterly revenue, almost all of it profit if costs hold. That would help, but would not close a gap of about $17 million a quarter between adjusted EBITDA and interest expense. GrafTech needs both higher prices and the Monterrey savings to show up in 2027, while paying the cash costs of the closure. The things to watch in the Q4 report: whether Q4 price actually rises mid-single digits, whether liquidity holds above $200 million once the $23.6 million of accrued interest is paid, and whether the inventory built this year is sold down as promised.