Author Topic: EAF - GrafTech  (Read 49340 times)

ValuePadawan

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Re: EAF - GrafTech
« Reply #170 on: February 06, 2020, 07:25:23 PM »
Looks like another 12 MT on LTA's are being effectively renegotiated with customers in 2020. Not a great look. Also spot prices based on my rough math have come down to $8,900/MT and sounds like they will continue to decline in H1 2020.

Sounds like they will be splitting FCF pretty much evenly between debt and buybacks. I'll be interested to see more in the 10-K around the end of February. I wonder when they are going to sign up customers with LTA's past 2022.

Any thoughts?

Can you walk through your math on the $8,900/ton for spot prices? Is that for full year 2019 or Q4? Curious what your estimates were for spot over the year by quarter?

It's for Q4.

They had $415M in revenue in Q4 and sold 41,000 MT of electrodes.

80% of the revenue was LTA agreements with average price per MT of $9,900. Another 4% from byproducts and other revenue with the rest (16% of revenue) being electrodes under spot prices.

415x 80%=$332 million of LTA revenue / $9,900 per MT =33,500 MT of LTA priced electrodes.

41,000MT - 33,500 MT= 7,500 MT on spot prices

415x 16%= $66.4M/7,500MT = $8,853/MT

You can figure this out with the same method every quarter to keep up with spot prices. I'm expecting spot prices to continue to drop over Q1.


ValuePadawan

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Re: EAF - GrafTech
« Reply #171 on: February 06, 2020, 07:34:04 PM »

They still make bank at $8,900 and you have a couple years before new LTAs are signed. The $8,900 is as manufacturing is in a recession, globally. Steel markets down and going through stockpiles at the moment. They suspect 2H recovery, but this also depends on China-US and Europe economic expansions.

The contracts were modified to be extended, some reflected likely bankruptcy of certain customers, none were restructured to reflect current prices. It's purely a demand issue. I think the market and investors are focusing heavily on short term dynamics and extending them out 2-4 years.

Which is fine.

RE: Brookfield concerns. I used to be a Brookfield hater, but, look at TERP. I'm not so sure they can get away with the same thing at a Delaware Corporation public shareholders than at a unit holder limited partnership anyway. If they do, you're not going to lose much money at these prices. Brookfield sold shares at $13...how do you figure they could even offer to buy out the company with those LTAs in place and predicted recovery in 2H?

I still think folks are overthinking this investment, but then again, Guy Spier ain't buying that we know of so the hesitancy is not uncommon.

I'm interested to see what happens if China's blast furnaces which produce 80% of their steel are shuttered or slowed for a month because of supply chain disruptions from Coronavirus.

I think I read that China produces 60% of the worlds steel, so they have a lot of weight to throw around and it'll be interesting to see how industry dynamics play out.

Does anyone have any speculation what will happen? Will iron ore shipment or other raw material slowdowns stop some Chinese steel supply? Or will they continue to pump out steel and dump it to whomever will buy it around the world dropping the price through the floor?

ValuePadawan

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Re: EAF - GrafTech
« Reply #172 on: February 25, 2020, 08:31:59 AM »
Today at the BMO metals and mining conference.

Q: "When will you start renegotiating the new contracts if they're three years out?"

David Rintoul CEO: "So we still have three years to go in these contracts and look these contracts are very much like hedging, so um I would expect there will be another year and a half to two years before we would engage in another round of discussions around new contracts. We have a few discussions with large customers at the moment that want to extend them, those aren't complete yet. It's basically at their call we're willing to do those kinds of things, it'll be there call as to whether they choose to do that or they wait till the end of the five year period."

Sounds like he expects most new contracts to be signed mid 2021- beginning 2022. Thats when earnings visibility would clear up if true.

roark33

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Re: EAF - GrafTech
« Reply #173 on: February 26, 2020, 09:38:56 AM »
Aren't EAF shares up like 30-40% since this whole Pabrai returns thing went off on this thread?

Any update on this?

elliott

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Re: EAF - GrafTech
« Reply #174 on: February 27, 2020, 12:13:14 AM »
Aren't EAF shares up like 30-40% since this whole Pabrai returns thing went off on this thread?

Any update on this?

EAF shares were trading at USD 14 around that time, today at less than USD 9

Edward

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Re: EAF - GrafTech
« Reply #175 on: February 27, 2020, 02:08:14 AM »
Sounds like he expects most new contracts to be signed mid 2021- beginning 2022. Thats when earnings visibility would clear up if true.
Went through the company recently. My impression is that the pricing of the existing contracts is somewhat of an anomaly, and one can't reasonably expect the pricing to persist. The majority shareholders' behavior is also indicative of this expectation.

Since we are not talking about rare materials/know how here (it's mostly a matter of capex, like building a car factory), I don't see how such a company can make much over its cost of capital over time. Hence I don't really buy the Pabrai pitch that this time its different.

Remember ZINC.
https://medium.com/i-am-a-terrible-investor/how-horsehead-holdings-made-me-look-more-like-a-horses-ass-b5be37aa237a

ValuePadawan

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Re: EAF - GrafTech
« Reply #176 on: February 27, 2020, 07:29:37 AM »
Sounds like he expects most new contracts to be signed mid 2021- beginning 2022. Thats when earnings visibility would clear up if true.
Went through the company recently. My impression is that the pricing of the existing contracts is somewhat of an anomaly, and one can't reasonably expect the pricing to persist. The majority shareholders' behavior is also indicative of this expectation.

Since we are not talking about rare materials/know how here (it's mostly a matter of capex, like building a car factory), I don't see how such a company can make much over its cost of capital over time. Hence I don't really buy the Pabrai pitch that this time its different.

Remember ZINC.
https://medium.com/i-am-a-terrible-investor/how-horsehead-holdings-made-me-look-more-like-a-horses-ass-b5be37aa237a

I completely agree that its unlikely that the next round of contracts are priced at $10,000/MT. That was an aberration.

I guess the real question is will the contracts be back around the historical average of $4500/MT or will they be considerably higher due to a tight petroleum needle coke market?

Graftech's cost basis for electrodes using needle coke is about $2800/MT so there's a large difference in profitability between $4500 and $8000/MT contracts. Considering needle coke prices right now seem to show tightness in that market its not clear to me that electrode prices will revert to $4500 in the next two years. If anyone has better information I'm more than willing to destroy this idea I just haven't seen data to refute the thesis.

roark33

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Re: EAF - GrafTech
« Reply #177 on: May 06, 2020, 10:31:55 AM »
https://www.sec.gov/Archives/edgar/data/931148/000093114820000067/a2020-q1earningspressrelea.htm

The impact of the virus has induced over 20 of our long-term contract customers to submit force majeure notices. The long-term contracts provide for force majeure volumes to be deferred to the end of the contract period by extending the term of the agreement for the duration of the force majeure event.

Other long-term contract customers have been impacted by plant closures and lower steel demand, and are struggling to take their committed electrode volumes. We have had no additional customer bankruptcies at this point, but as a result of the above factors we are experiencing some delays and non-performance from certain customers on their long-term agreements. As a result of this macro environment spot pricing is now below the long-term contract price, and some customers are attempting to renegotiate their contracts or delay shipments.

mattee2264

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Re: EAF - GrafTech
« Reply #178 on: May 14, 2020, 10:12:25 AM »

 Pabrai completely out of this now.

Vish_ram

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Re: EAF - GrafTech
« Reply #179 on: May 14, 2020, 11:12:15 AM »
50% decline and sold out. Generally Pabrai exits when it goes below 10 cents.


I was watching Ackman Herbalife documentary and found remarkable similarities to Poof funds

1) HLF and Pooof - insiders make it out like bandits
2) Both need fresh set of naive losers to join in, with money and exit with no money
3) Both spend a ton on marketing, recruiting, talks in various forums
4) Both move from country to country to find new recruits  and opportunities