Good morning, everyone. My name is Jack Greenberg with the Midwest IDEAS Conference , hosted by Three Part Advisors. Thank you all for coming. Our next session will begin momentarily with GrafTech International, traded on the New York Stock Exchange under the ticker EAF. Here on their behalf is Tim Flanagan, President and CEO, and Mike Dillon, VP of IR and Assistant Treasurer. With that, I'll hand it over to Tim to begin. Thank you.
Thank you and good morning. Appreciate everyone joining us. We look forward to speaking this morning and sharing a little bit about GrafTech. Thanks to Three Part Advisors for putting on the IDEAS Conference. Always a great opportunity to meet with investors and look forward to the conversation. Maybe starting out a little bit on who we are and what we do. First and foremost, fine print. I'll let you read that at your leisure. My legal team always insists that I mention it, so thanks to them. Again, a little bit about who we are. So GrafTech is an industry leader, a producer of high-quality graphite electrodes. Graphite electrodes are an essential consumable for the production of steel via the electric arc furnace, or EAF, method of steelmaking.
Our customers are EAF steel producers around the globe. Our largest markets are North America and Europe, roughly 45% or so split between those two. We sell about 10% of our product into the Asia-Pacific market. Electric arc furnaces are one of the main methods of decarbonization for steelmaking. They produce about 75% less CO2 or greenhouse gas emissions than traditional steelmaking methods, basic oxygen furnace method, and we'll talk a little bit more about that as a tailwind of our business and a driver of our future success. We think GrafTech as a business has a number of competitive advantages. First and foremost, we operate three of the largest graphite electrode facilities in the world at capacity.
Those facilities are all very low cost and well-positioned on the cost curve. We have a substantial vertical integration into our raw material, which is petroleum needle coke. We are unique in that aspect relative to our competitors. And we focus on providing value-added services and solutions to our customers. This includes our customer technical support team, the engineers that go out to our customers on a day-to-day basis. Our ArchiTech furnace monitoring software, again, allows us to monitor furnace conditions with our customers, enabling us to have value-added suggestions and solutions to our customers. And then lastly, technical leadership in the electrode industry space.
So again, you know, decades upon decades of R&D and innovation behind our business, allowing us to bring products like our 32-inch or 800 millimeter electrode to the market, which is being trialed for the first time this week as we speak. Great innovation in a small but growing segment of our industry, which we see as a future source of demand for our products. And then lastly, our Net Zero electrode. Being part of the decarbonization story for the EAF industry as a whole, we see the ability for us to support our customers' decarbonization goals and objectives as a key, and we're working towards that in a Net Zero electrode. I said graphite electrodes are an essential consumable for the production of steel via an EAF.
We view them as a critical enabler of the infinite recyclability of scrap metal into new steel. Sorry, I think I went one too far. Sorry. Without getting into a lot of technical details, a couple of things about graphite electrodes, if you're not familiar. One, they're the means by which the electrical current is passed through the electrode into the scrap charge in an EAF, so it's ultimately how the scrap metal gets melted. Highly engineered products. Our products range from 12-32 inches in diameter, 7-11 feet in length, and weigh up to 5,600 pounds. So these are large electrodes. There's no substitute for them in the market today, and there's nothing even on the commercial horizon.
It takes about six months to produce a single graphite electrode, and it takes about an eight- to ten-hour operating shift in an EAF mill to consume it. Very long production cycle relative to the consumption, and you consume about 1.7 kilograms of electrode per every ton of steel. Just a good rule of thumb to keep in mind. Electrodes cost less than or comprise less than 5% of the per ton cost of a ton of steel made, and frankly, in today's market, it's probably less than 2% of that cost. A little bit on the synthetic graphite supply chain. If you look at synthetic graphite in the middle, obviously, this is our core product.
The core market or end market that we serve today are the EAF steel makers via the production of graphite electrodes. The other primary end market for synthetic graphite is lithium-ion batteries in the form of anode powders. We do not play in that space today, but that's a future opportunity for the business, and we'll again talk about that a little bit further. In either outlet or either avenue in terms of end market, our raw material is petroleum needle coke. Again, we share or have a substantial vertical integration into petroleum needle coke through our facility in Seadrift, where we produce upwards of 140,000 tons of needle coke on an annual basis. Petroleum needle coke is made from low-sulfur decant oil, a by-product of oil refining.
So again, we're taking material that's being cast off of another production cycle, pulling it in, again, part of the overall circular economy. The vertical integration is a really important story for us from a standpoint of twofold. One, not only does it give us a cost advantage in most markets compared to our competitors, what we can produce it for versus what it typically trades on in the open market. But more importantly, and I think this becomes a bigger thematic as we look forward, is the surety of supply. So the last time there was a major disruption in the graphite electrode market was in 2017. The supply of needle coke was a significant concern. It caused a major shortage of electrodes, also then created quite an imbalance on a pricing side.
So we feel very good about our positioning via the vertical integration. Our footprint, global company, we're headquartered just outside of Cleveland, Ohio, in Brooklyn Heights, Ohio. Our electrode production facilities are in Monterrey, Mexico, Calais, France, Pamplona, Spain. We have a machining operation in idled graphite electrode capacity in St. Marys, Pennsylvania. As I mentioned before, we produce our Seadrift, our needle coke in Seadrift, which is in Port Lavaca, Texas. And our customer and sales and technical service teams are spread throughout the globe.
So again, our footprint very much matches the footprint of our customer base, our end markets, where we sell, again, 49% of our sales into the Americas, about 30% into-- This is on a last twelve months basis, 30% into Europe, Middle East, and Africa, and then about 11% into the Asia Pacific region. Looking at key business highlights. You know, starting with the supply side on the graphite electrode business. So total graphite electrode capacity outside of China is approximately 786,000 tons. While this number remains relatively stable over the last decade, and the last time there was a major rationalization was, again, in that 2016-2017 time frame.
While relatively stable, I would describe our position today as oversupplied in the market, and you're starting to see a bit of a supply response from Western producers. This past February, we reduced our capacity by 24,000 tons. This included the idling our St. Marys facility, as well as taking out certain less competitive production lines at our other facilities. More recently, two of our Japanese competitors, one in particular, announced a 24,000-ton supply reduction, or about 25% of their total capacity, and the other has suggested that they're reviewing their production capacity as well. Those latter two reductions are not reflected in that 786, but really is an indication of how the market is otherwise responding to the current challenging conditions.
But overall, fairly consolidated market among the top five producers, accounting for about 80% of the total supply. And if you look at our 178,000 tons, we're about 25% of the market. We talked about some tailwinds of the business longer term, and we've referenced the ESG and the decarbonization story, so I won't spend a lot of time here, but I think it is important to keep in mind the ESG, ESG-related advantages of the EAF steelmaking market. As I mentioned before, a lot of focus in the steel market around decarbonization, the transition to EAF steel production from blast furnace steel production, and really, again, electrodes are a key enabler of that, allowing the steel to be produced via the recyclability of scrap.
In terms of that transition, you know, EAF steel production as the environmentally friendly alternative in steelmaking has continued to take market share away from blast furnace steel producers. It currently stands, again, outside of China, at about 50% of the total production in the world is made via EAF versus blast furnace. That's up from 44% in 2015, and if we look at public announcements made, you know, we'd fully expect that trend to continue going forward. Looking at our core markets of North America and Europe, about 70% of the steel manufactured in North America is made via the EAF, about 50% in Europe, respectively. I mentioned the public markets and the announcements around EAF conversions.
So we track about 200 projects around the globe, ex-China, and those 200 projects that we're tracking would suggest there's about 170 million tons of incremental EAF-produced steel coming in the market over the course of the decade, so through the next six years. Some of those are new greenfield projects, some of that is conversion of existing blast furnace capacity. But overall, a fairly significant shift in the composition of steel manufacturing over the course of the decade.
If you take that hundred and seventy million tons and think about the conversion rates and what I said about the consumable rate of kilograms of electrodes, kilogram of electrode consumed per ton of steel, you get to about two hundred thousand tons of incremental demand for graphite electrodes over the course of the decade. So two hundred thousand tons in a market, that's seven hundred and eighty-six thousand tons. So more than 25% incremental demand coming here over the balance of the decade, again, all of which is outside of China in the markets that we serve. If you think about our competitive advantages, our position with needle coke, our geographic presence, both on the operations or production side as well as the commercial side, we think we're very well positioned to take advantage of this long term.
Another tailwind that we talk about a lot, you know, is the EV market and the expectations around the demand for needle coke, in particular, petroleum needle coke, as a result of the adoption of EVs, and really, this is where I go back to the two elements of our competitive advantage that are important: the cost side, but more importantly, the surety of supply, and this is where surety of supply comes into play, so we believe firmly that the demand for petroleum needle coke is going to increase over the balance of the decade, and we really think it's gonna come from two areas. First, the demand for incremental EAF steel production, which will therefore require more graphite electrodes, but secondly, the demand for synthetic graphite to be produced into anode material for the use in EV batteries.
Needle coke, again, is the precursor material for that, anode material. The latter of these, the anode material demand, will be the bigger driver of the demand for, petroleum needle coke, and we believe that global supply-demand imbalance will become significant as we move into the balance of the market. If we're at 1.4 million tons of demand today, we expect that to be about 2.8 million tons, at the end of the decade. Even more so than just the global supply-demand imbalance, we think there's the potential for regional supply-demand imbalances. If you look at, you know, the vast majority of anode material for EVs today, are being produced by China.
And as the demand for non-Chinese material, non-Chinese battery materials grow, and the strong desire of both the U.S. government, the EU, and other Western governments to establish self-sufficient supply chains for anode material, we expect that those to be significant drivers of that imbalance. Right now, just from a supplies perspective, there are four petroleum needle coke producers outside of China, two of which are in the West. Those four producers do seven hundred and fifty thousand tons. Seadrift is a hundred and forty thousand ton facility. We're the second largest producer, and again, only one of two producers, in the West. From a capacity standpoint, no new capacity has been added outside of China. Seadrift was actually the last facility built in the West, and that was back in 1983.
So again, feel very good about our positioning relative to our competitors in this growing market. You know, I think it's important again to connect the relationship again, you know, as a precursor or base material for the graphite electrode business, any sort of demand increase in raw material supply, petroleum needle coke, will drive up needle coke pricing. That'll have a positive impact on graphite electrode pricing. So not only supports the core business, but gives us an outlet for needle coke and also to diversify the business as we move forward. You know, as we talk about leveraging these competitive advantages, right? Again, only producer that's substantially vertically integrated, Seadrift's 140,000 tons, gives us about 80% coverage of our demand in a full capacity sort of environment.
In an environment like last year or this year, where we're producing below capacity on the electrode side, we're able to sole source all of our own needle coke as we go forward. The vertical integration, along with, you know, our global footprint, and both from a production and commercial standpoint, as well as the best-in-class technical offerings in our CTS support teams, as well as, again, the decades and decades of research and the work on the R&D front, based on first principles understandings of synthetic graphite, not only make us industry leaders, but also position us well to take advantage of these longer-term tailwinds. You know, one of the areas, and we get a lot of questions on this, people know us very well for our graphite electrode production.
What are we doing to position ourselves on the anode side, and how do we take advantage of the EV side? So really, for us, it's... You know, there is strong demand for this product. I think we fully believe that there will be the establishment of Western supply chains, and so there's really two opportunities for us to take advantage of our operating footprint and the assets we have. First, it's either as a supplier of needle coke as a raw material into the production of anode material. And then secondly is as one of the largest suppliers or providers of graphitization capacity. There's no new graphitization capacity coming online either. We think there's a real opportunity for us to process other people's materials and graphitize that as these supply chains get established.
So, you know, as we continue to explore these opportunities, we continue to engage in dialogue with OEMs, battery makers, oil companies that are interested in entering the space and think there's a really unique opportunity to partner with those and really take advantage of the capacity and the fact that we have assets on the ground, and these aren't necessarily greenfield projects that would need to be established. A few developments on that front, in particular, we filed for a permit in 2023 to expand our Seadrift facility. That permit was approved this past May, so we're very happy with where that stands. We've submitted DOE grant applications to fund half of the expansion of Seadrift.
And we continue to, again, to work with those third parties to demonstrate the capabilities around our needle coke, whether it's using our needle coke in, ultimately, a battery application, whether it's processing other people's needle coke through our facility in Seadrift, putting it in coin cells, pouch testing. All of those are good developments for the feasibility of our material, our processing capabilities, and our technical skills into entering the anode space. So, Long story short, we remain encouraged in the developments that are taking place there, and are very excited about the prospects in the future as we head into this market. Maybe the last thing I'll talk about before we Excuse me, before we jump into any sort of Q&A, is capital allocation, right?
I think we've tried to be very disciplined over the last five years on our capital allocation strategy. You know, during the tenure of our LTA contracts, we've paid down over $1.2 billion of debt. We sit here today; we have about $950 million of debt remaining on our balance sheet. But during that same time, we've continued to invest in our business. And even in a cyclical trough that we're in now, we continue to invest in our business and make targeted investments to improve the overall productivity and cost performance of the business as we look forward. So we'll continue to invest in our business. Last year, we completed a refinancing of our term loan, so we pushed out the maturity to 2028.
Our near-term maturity is December 2028 on both tranches of our debt. So a lot of runway to operate the business during this cyclical downturn, and feel good about that. Overall, from a liquidity perspective, we ended the quarter with $120 million of cash, $121 million of cash on hand, and $111 million available under the revolver. So sitting with just over $230 million of liquidity, and again, feel well positioned as we work through the trough and look forward to capitalizing on the long-term tailwinds for our business. So with that, I will pause and open it up to the floor for any questions.
How much capacity are you adding to Seadrift, and what will it cost?
Yeah, so the question was: How much capacity, and what will it cost? So Seadrift is a hundred and forty thousand ton facility. We can add, with the proposed project, about 40% capacity. And there's a little bit of a mix, differential between calcined and pre-calcined coke, but think about it as a 40% addition. Total cost of the project is less than $200 million.
Do you expect to get half from DOE?
That is what we've applied for, and we will see how that plays out here over the course of this year.
Given the industry overcapacity, if DOE says no to the funding request, would you put the expansion on hold?
So, the overcapacity really exists on the electrode side, not the needle coke side. I think there's gonna be strong demand for needle coke either way. Again, if you think about the demand in the West for needle coke, there's only two providers, and if you think about all of the benefits that are set forth in the IRA, that domestically sourced needle coke is gonna be important. So they may say no, but the oversupply isn't on the needle coke side. If they say no, obviously, given our debt load and our balance sheet, we'd have to strongly consider a partner. And even with that, you know, we would look for a partner that can help in one of two ways: either on the front end from a supply...
You know, we buy decant oil on the merchant market as it exists today. If we could long-term supply contracts, more favorable pricing, that sort of thing, higher quality material, we'd look for a partner in that respect. Or on the back end, if you could sign offtake agreements and have, you know, secured capacity, that would help fund it. Both of those to us are attractive options.
How long is that permit approval good for? Is there an expiration on it where you have to resubmit it?
Is it three years? Does that sound right?
I'm not exactly sure on that.
Yeah. I want to-- Don't hold me to it. I think it's three years from the date of the approval, so we've got runway, you know, certainly before we have to take action on it.
Is there any other source for this needle coke? Is there, like, tar sand, is that a byproduct from that? Is that a source?
The two main sources of needle coke are petroleum-based and pitch-based. Obviously, petroleum-based is a derivation of petroleum refinery, and pitch is gonna come out of blast furnaces, a byproduct of the coking process for met coal going into blast furnaces. Chemically, they're different. You tend to find more sulfur and nitrogen in pitch-based, which is not an attractive feature, right? You gotta spend money to get that out, and it affects processing time. So obviously, that's why we favor the petroleum-based.
Why are your revenues down so dramatically in the last five years? It peaked at $1.9 billion in 2018.
Yeah. So take a step back. Two thousand- let's call it two thousand and sixteen, two thousand and seventeen time, the graphite electrode industry as a whole went through a major rationalization. You took about 20% of the volume off the market. At the same time, Chinese steel was flooding kind of the West. Tariffs get put in place. China makes some demands around their own decarbonization objectives, and all of a sudden, supply-demand imbalance switched from oversupplied to undersupplied in a very short period of time. As a result, we signed about two-thirds, give or take the year, of our volume under long-term supply agreements. So these were five-year fixed price, fixed volume supply contracts, that...
You know, average price of a graphite electrode over the last twenty years, with inflation adjustments, is about $6,000. It got up as high as $25,000, kind of in that two thousand and eighteen, two thousand and nineteen. So these contracts were. Sorry. These contracts were $10,000 a ton at the time. So favorable for the first three years, unfavorable for customers in the last three years or two years of the contract. Those supply agreements really drove, you know, much higher revenue because they were kind of heavier than or overweight, you know, supply contracts. So the roll-off of those contracts, which really kind of rolled off at the end of 2022. In 2022, I think we did about 100,000 tons of LTA volume.
They rolled off, you know, we're down to fifteen thousand tons this year. That in concert with volumes, which is partially because of supply-demand dynamics, you know, European economy, global economy, steelmaking being down in Europe, our volumes have fallen off. We did have our Monterrey facility shut down in the fourth quarter of 2022. That really hurt our volumes and our ability to negotiate commercial contracts heading into 2023. So we very much took a big step back in 2023 from a volume perspective, and now are working to claw our way back in that market share back in 2024 and beyond.
I said this on our last public call: you go down in the elevator, and you have to walk back up on the stairs, and we're walking back up on the stairs, so very much fighting back, and that's why we focus a lot of our attention now on the customer value proposition, the technical services, those things beyond just the electrode that positions us well for customers.
Thank you.
Yeah.
A lot of the slides revolve around ex-China, but isn't China kind of the problem child right now with how much they're exporting? So can you just speak to, like-
Yeah.
What's the possible outcome with tariffs or just readiness?
Yeah. So you're absolutely right. I mean, and I would say part of the reason. We certainly don't ignore China. We've got to keep China in mind because they are in the market, and they are the marginal pricer in many markets. The data out of China and how opaque it is out of China. You know, your guess is as good as mine in many respects. But they are the story, right? Ultimately, the Chinese pricing in the market right now is what's really driven the impact or the downward pressure on the producers in the West. China has as much or even more supply for graphite electrodes than all of the Western producers combined.
And China continues to live up to their stated goals and objectives of converting EAF production from roughly, you know, 9% of total steel production to something greater. So you combine all of that with the current economic conditions in China, you know, the lack of, you know, a robust property market in China is really weighing on kind of the global supply. China's position to export, call it, 300,000 tons of electrodes, and again, those are electrodes of all grades and calibers from, you know, carbon anodes all the way up to, you know, the ultra-high power, which is what we focus our end market on. So the volume of Chinese exports hasn't changed materially year over year. It's really the pricing story that's weighing on the market.
Okay. Appreciate everybody's time and attention and, if there's any follow-ups or questions, don't hesitate to reach out. Have a great day.