Urbanization And Green Steel Will Drive Electrode Demand

Key Takeaways

• Strengthened market position and pricing strategies signal potential for substantial margin and earnings recovery, with an edge from vertical integration and raw material control.
  
• Regulatory tailwinds and decarbonization trends could unlock sustained demand growth, positioning the company as a vital supplier to Western steel and battery markets.
  
• Exposure to industry headwinds, pricing pressures, customer concentration, and emerging technologies threatens GrafTech's long-term margins, stability, and investment capacity.

Catalysts

Research, develops, manufactures, and sells graphite and carbon-based solutions worldwide.

• While analyst consensus expects sales volume and market share gains, recent execution suggests GrafTech is on track to outperform expectations, with cumulative volume growth projected at approximately 25% since 2023 even as the broader market remains stagnant, implying a sharper-than-expected rebound in revenue as end market demand normalizes.
  
• Analysts broadly agree that shifting geographic mix and price increases will benefit margins, but the company's aggressive 15% price hike on uncommitted 2025 volumes, accelerating U.S. and Western Europe exposure, and clear willingness to walk away from low-margin contracts signal the potential for an even stronger recovery in net margins and earnings once pricing power returns.
  
• Global decarbonization policies and planned capacity expansions for electric arc furnace steelmaking, particularly in the U.S. and EU, could drive a step change in long-term demand for graphite electrodes and GrafTech's addressable market, supporting sustained multi-year revenue growth beyond what is currently factored into estimates.
  
• GrafTech's unique vertical integration and proprietary needle coke production not only insulate it from raw material cost volatility but also position it as a critical partner for the build-out of Western battery and EV supply chains, creating entirely new high-margin growth avenues that could materially enhance long-term free cash flow.
  
• Recent U.S. government actions-such as massive antidumping tariffs on Chinese graphite materials, public-private partnership momentum, and ongoing localization policies-may accelerate both domestic steel and battery supply chain investments, amplifying both pricing power and market share for GrafTech far beyond near-term forecasts.

GrafTech International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on GrafTech International compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming GrafTech International's revenue will grow by 28.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -41.6% today to 9.6% in 3 years time.
• The bullish analysts expect earnings to reach $102.7 million (and earnings per share of $0.4) by about August 2028, up from $-211.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.2x on those 2028 earnings, up from -1.6x today. This future PE is lower than the current PE for the US Electrical industry at 32.4x.
• Analysts expect the number of shares outstanding to grow by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

GrafTech International Future Earnings Per Share Growth

Risks

• Global decarbonization and increased steel recycling present a long-term risk to GrafTech's revenue growth, as these trends may reduce overall demand for traditional graphite electrodes, especially as green steel technologies mature and require fewer electrodes per ton of output.
  
• The company faces pricing pressure from persistent global steel overcapacity and a significantly oversupplied graphite electrode market, exacerbated by low-priced Chinese exports, which continues to weigh on GrafTech's average selling prices and threatens long-term net margins.
  
• GrafTech's heavy reliance on a small number of major steelmakers adds revenue instability, as customer consolidation or downturns could result in unexpected drops in order volume and weaken the company's earnings base.
  
• A high debt load, combined with volatile or declining cash flows tied to secular industry headwinds, could limit future investments, force reliance on credit facilities, and increase the risk of adverse changes in credit ratings, directly impacting earnings growth and financial flexibility.
  
• The risk of technological disruption from new electrode materials or production techniques, alongside rising environmental regulatory burdens, could erode GrafTech's competitive position and require higher capital investments, threatening long-term profitability and market share.

Valuation

• The assumed bullish price target for GrafTech International is $2.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of GrafTech International's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $2.0, and the most bearish reporting a price target of just $0.8.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $102.7 million, and it would be trading on a PE ratio of 7.2x, assuming you use a discount rate of 12.3%.
• Given the current share price of $1.28, the bullish analyst price target of $2.0 is 36.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.