GrafTech International Ltd (EAF) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Graftech quarter one conference call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded Thursday, April 24, 2003. I would now like to turn the conference over to Ms. Elise Garofalo. Please go ahead, ma'am.

Thank you very much. Good morning, everyone, and welcome to our conference call. At this time each of you should have received a copy of our press release. If you haven't, please call Dawn Felix [ph] at 302-778-8244, and we can quickly fax or e-mail you a copy.

Before we get started this morning, I'd like to remind all of you that both this release and this call contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language of our forward-looking statements contained in our news release. That same language applies to this call.

This morning on the call we have Craig Shular, chief executive officer of GrafTech; Scott Mason, president of synthetic graphite line of business; John Wetula, president of advanced energy technology, our natural graphite line of business; and Corrado DeGasperis, our CFO. At this point I would like to hand the call over to Craig.

Thank you, Elise. Good morning, everyone, and thank you for joining GrafTech's conference call. Today I will take you through our first quarter results. In the first quarter we had net income of $3m before restructuring charges, or 5 cents per share. This includes other income of 4 cents per share. Net loss after restructuring charges was $9m, or 16 cents per share.

As previously announced, we recorded restructuring charges for organizational changes and the closure and settlement of various defined benefit plans. Accordingly, we booked a $19m restructuring charge, which is equal to 21 cents per share, 15m of which is not cash. Net sales were strong this quarter at $174m, which was about 27% higher than the 2002 first quarter and 9% higher than the fourth quarter last year. The improvement was driven by higher graphite electrode selling prices and increased sales volumes in our synthetic graphite and advanced materials lines of business.

Graphite electrode selling prices increased about $160 per metric ton and about half of that increase was due to currency benefit. Graphite electrode sales volume was 47,000 metric tons, which was 22% higher than the same period last year due to stronger demand in the U.S. and Europe. Sales volume was about the same as the 2002 fourth quarter. Cathode sales volume increased 8% over the first quarter last year and also was about the same as the fourth quarter.

Lastly, positive impacting our net sales performance was our carbon line of business, where we delivered strong sales volumes in both our refractory and carbon electrode businesses. Gross profit was $40m in the first quarter, 30% higher than the same period in 2002, and 4% higher than the fourth quarter. Gross profit dollar improvement was driven by the higher sales levels just discussed, however, Q1 gross margin percent was 23% versus 24% Q4 last year, down primarily due to higher energy cost, changes in capital sales mix, and a higher freight cost.

Turning to our cost savings plan, we have strong execution in two key areas of this plan. Firstly, we successfully completed the expansion of graphite electrode capacity in our facility in Monterey, Mexico. This project was on time and on budget. As you know, our product takes approximately 60 days to produce, so we expect this most recent expansion to deliver product to the marketplace towards the end of the second quarter. We are very well positioned to service our customers in the NAFTA region with this large, 60,000 metric ton facility.

Secondly, we completed our organizational streamlining along our three major lines of business. Our severance programs and benefit plan redesigns were substantially completed in the U.S. as planned and by the end of the first quarter. This has resulted in a reduction of 27% of our salaried work force in the U.S. These actions will yield overhead savings of approximately $2m per quarter beginning in the second quarter. Continued execution and delivery of these cost savings are critical as we work to offset recent increases in energy cost.

Now let's move to our growth initiatives and review some of the accomplishments in our electronic thermal management business. Our eGraf ETM product line approvals have been going quite well, and this past quarter we received several application approvals from customers. IBM approved eGraf for head spreaders in certain Notebook computer applications; Sony approved our product for head spreaders again in computers and in television screen applications; Samsung in Korea approved eGraf for its new line of plasma screen televisions; and eGraf HiTherm thermal interface was tested and approved by Intel for use in applications in several of their Intel processors including the Pentium IV processor.

Finally, we received a heat-seek order from Chaparral Network Storage Inc. The annual revenue from this order is expected to be approximately $250,000 beginning in the second quarter. We are getting more encouraged by the level of our ETM approvals and are more confident that these approvals will lead to increasing future orders.

Moving over to the corporate side, cash flow from operations with a use of cash of $23m, the primary use of cash was due to 25m of interest paid, largely due to a semi-annual bond interest payment, which falls due in Q1. Two other cash flow items to note -- one, capital expenditures for the quarter were $9m and, secondly, we took advantage of a drop in LIBOR during the quarter as we mark-to-market our 10-year swap agreements, and that allowed us to do a reset, which generated $10m of cash in the quarter.

We ended the quarter with net debt of 737m, and we had approximately 158m of available revolver at the end of the quarter. Based on our current business plans for 2003, we believe we will remain in compliance with our senior secured bank credit facility covenants.

Finally, closing with outlook, we are encouraged by the strong order book in our graphite electrodes and cathode business, however, in light of overall weak global economic conditions, we continue to monitor closely this deal in aluminum industries. Demand in our other end markets, including semiconductor, electronics, and aerospace, continues to be weak with little sign of near-term recovery. We reaffirm our 2003 annual earnings guidance of 21 cents to 26 cents per share, excluding restructuring charges. The higher energy costs we saw impact our Q1 results are expected to carry forward into the second quarter. However, we anticipate reductions in the second half of 2003.

Looking at the '03 second quarter, we expect earnings per share to be in the range of 4 cents to 6 cents. Graphite electrode sales volume is expected to be between 48,000 and 50,000 metric tons. Real average graphite electrode selling prices should be higher than the first quarter, as lower-priced annual contracts that ran from Q1 '02 to Q1 '03 have been completed. Average graphite electrode price for the second quarter should be approximately $2,300 per metric ton.

Lastly, completion of organizational changes for our new lines of business should result in reduced overhead cost of approximately 2m per quarter, as we stated earlier, beginning in the second quarter.

That concludes my prepared remarks, and I'd like to open up for questions.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question-and-answer session. If you have a question, please press the star followed by the 1 on your pushbutton phone. If you would like to remove your question from the polling process, please press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order they are received, and if you are using speaker equipment, please lift your handset before pressing the numbers. One moment, please, for the first question.

The first question comes from Brett Levy with Royal Bank of Canada. Please go ahead.

Hey, guys, congratulations on a very strong quarter.

Hey, Brett, thank you very much.

You had referenced a strong order book, going forward. Can you give us some sense in terms of number of months or absolute tonnage that we're talking about at this point? And then I suppose -- can you talk a little bit about -- I mean -- you had mentioned 2,300 a ton. Is that for the second quarter?

Good questions, Fred. Firstly, yes, the $2,300 per metric ton is for the second quarter, and the order book is strong and most of the second quarter is all booked. We have a very high percentage of book for that 48,000 to 50,000 already, and the balance of the year is a very high percentage booked in both our electrode business and our capital business. So we will continue to run our facilities at virtual capacity and barring any hiccup in steel or aluminum industries, our book looks quite solid.

All right, and I guess I would note that sort of where I saw things troughing in the close of 2,000 a metric ton in the fourth quarter, it looks as if that second quarter number is up more than the 7 or 7.5% that you were initially looking for. Has there been additional movement in spot prices? And then can you talk about if there are any re-openers for contracts in the middle of this year?

Regarding price, your observation is correct, Brett. The market remains tight, and spot prices are up. In February we announced a series in increases globally, and all of our spot business after that announcement went at those new levels, and those new levels, to give you an indication, in the U.S. would be $2,450 a metric ton versus the $2,300 in second quarter. So we are getting those increases; the market remains tight; there is no bubble in graphic electrode inventories either in our shop or in our customers' shops; and the real price increase we think we're going to get for this year will be a solid $100. Most of the book was built, as we talked earlier, and it gets built in the end of last year and the beginning of this year, so there's not going to be a lot of spot volume, but what I can tell you, as I said earlier, everything that's going as spot is going to the second price increase.

And then in terms of addressable capacity, can you talk about both Brazil and Mexico in terms of how far along each project is and when you feel that you'll be able to get the maximum capacity that you're targeting there?

Mexico is complete, and that product is now running through the plant, and that's about a 60-day process from the initial forming of electrode to the sale of a finished product. Brazil is pretty much all done, and together, with the rest of our platform, we will have a solid capacity next year of at least 210,000 metric tons and, as you know, we re-position that where we believe are the right countries, the right markets, and to enhance our low-cost profile.

A last question, and then I'll back in queue -- you referenced the higher energy costs and that they would be similar in the second quarter and then that they would go down. Can you give some rough sense in an absolute dollar way where you think the energy costs -- you know, what the delta would be from, say, 2Q to 3Q?

Well, energy was up, for ourselves, like a lot of folks and for us and also for a lot of folks it was up even more than what we thought. It looks like it perhaps peaked in March. We've seen some of it already start to come down, but the delta for us was somewhere between $2m to $3m. We would hope that would start to drop off and that the second half of the year, maybe the increase in the second half of the year, instead of being 2m above expectations is maybe only a half million above expectations.

So we've seen it drop off here in the U.S. pretty significantly. We've seen some drops in a couple of our other countries where we have plants, and we're monitoring that very heavily. We've been working very hard on our hedging program. We have some hedges in place for about 20, 25% of our natural gas, and so this area gets a lot of attention in a company like ours where we use a lot of energy, and if it continues to roll over the second half, I think we'll be in good shape, and that delta will be somewhere around 2 million bucks.

Thanks very much -- good quarter.

Thanks, Brett.

Thank you. The next question comes from Bruce Klein with Credit Suisse First Boston. Please go ahead.

Hi, good morning.

Good morning, Bruce, how are you?

Good -- just back to the GE price -- I think you mentioned 2,450 was the spot. Were there some initiatives by, I thought, one of your competitors in Europe announced an initiative. Is this kind of consistent with what they're doing also in the spot market and how they -- have the competitors also -- the other competitors as well -- also move to get the spot prices up? And what period would that be for?

Bruce, in February ourselves and our largest competitor and a couple of the others all raised prices, and they are all, I would say, similar to the 2,450 we talked about. Our view of the marketplace would be that it's -- the tightness you see us talking about, the others are talking about in their conference calls, and we're seeing that experience in the marketplace.

Is that U.S. or Europe as well?

Europe also. Europe also remains tight, and European spot prices are holding also the second increase.

Okay. When you say the second increase, you mean in addition to what contractually you received in '03?

That's right. I'm speaking of the second increase as the February increases that we announce and a couple of the other competitors also announced publicly.

Okay, and where -- in terms of your cost on graphite electrode, where are they shaking out these days -- or in the quarter versus the fourth quarter?

Well, you know, as we intentionally did in this structure -- as part of the structure of the LOBs, we won't be reporting cost per ton, and last quarter we highlighted that trying to execute price increases while also spending a lot of time publicly talking about cost per ton really didn't work out well for us in the marketplace with our customers. Q1 versus Q2 we did see some increase, and it was primarily energy-driven and in a couple of countries we had freight surcharges, which were also indirectly energy-related.

I might have misunderstood you -- did you say -- or did you mean to say first quarter versus fourth quarter?

Yes, first quarter versus fourth quarter.

Okay, and with regard to asset sales, what is the status of what's going on on that front?

We continue to be active. We've targeted, as we said, 15m for this year. We're in dialog on a few pieces of property we have, and we're in dialog on a non-strategic business we have, and we'll keep you posted as soon as we get to any definitive agreements.

Is there a timeframe that this should or will happen and, if not, you'll alert the market that you're not going to do this? Or is this something that's likely just going to happen, I guess, I'm trying to figure out.

Bruce, I think if we conclude on this, I think you would see us come out when we have the definitive agreement, we would make an announcement. Other than that, as we proceed forward -- signed a final, formal agreement -- we would make an announcement on that. Other than that, we'll just give regular updates on our conference call. Our efforts will be continuing on this.

Okay, and my last question was just the cash exit cost from restructuring. I had a $10m figure for '03 as an estimate. Is that reasonable? I know there were a lot of moving pieces in terms of timing. I'm wondering if that would change -- what you think is going to be that kind of number for '03?

Yeah, that's still about right -- that figure, 10m, is still a good number.

Okay, thanks, guys.

Thanks, Bruce.

Thank you. The next question comes from Michael Gambardella with JP Morgan. Please go ahead.

Mr. Gambardella, if you're on speakerphone, please lift up your handset.

Yes, it's Mike. Congratulations, Craig -- a good quarter.

Thanks, Mike, how are you today?

Most of my questions have been answered, but can you give us any kind of feel for the progress or anything on the fraudulent conveyance case? And do you have any kind of leverage to move the judge along to make a decision on whether or not this can go to trial?

You know, Karen, our general counsel, is with us. Let me have her give you some color on it and give you the latest update.

Mike, thanks for the question. As you know, we are still waiting for Judge Daniel's decision on the pending motions to dismiss. They have been outstanding now for approximately two and a half years. Unfortunately, the court process is such that we really do not have any real leverage that we can get to have them move that process any quicker. We are in regular contact with the clerk of the court as well as the judge and the defendants to continue to ask them to move as quickly as they possibly can.

But there is just no way you can really push it along, and there's no timeframe on it, right?

Unfortunately, no, under the federal rules there is no time period within which he has to issue his ruling. So the best we can do is continue to be in dialog with the court to ask him to move as quickly as he can and, of course, keep him updated on any other case law, which might be relevant for his decision.

Okay, all right. Thanks a lot and, again, congratulations on the quarter, especially on the pricing -- getting that other price increase in there.

Thanks, Mike. Have a good day.

Thank you. The next question comes from Bob Schenosky with CIBC World Markets. Please go ahead.

Thanks, good morning, Craig.

Hey, good morning, Bob, how are you today?

Good. A couple of clarifications -- the $100 a ton -- that is still clear of currency, correct?

That's correct.

Okay, great, and if you could just mention, in terms of the gross margin deterioration, you mentioned the energy cost, but can you also mention the direct impact in terms of the mix and what caused that and then also the freight cost?

Sure. On the mix it was in our cathode business, and our cathode business is basically two main product lines -- one are graphite cathodes and the second are carbon cathodes. The graphite cathodes have a higher margin than the carbon cathodes, and so the mix swing was between those two product lines and in Q1 we sold more carbon cathodes than we did in Q4. And so we had good volume. Both quarters were about 10,000 metric tons, but the complexion of the first quarter was more carbon, lower margin versus graphite.

Okay, can you give a sense of the actual impact, though, in terms of --

For us, that would have been about $1.5m would have been the impact. The freight was probably, for us, somewhere around $200,000 to $300,000 impact. We had a couple of countries where we fought as much as we could, but a couple of countries on the trucking and on the rail, they had a surcharge related to fuel. We expect those to drop off here as oil starts to drift back down, but that was relatively minor -- $200,000 to $300,000 for us.

Okay, great, and, if I could, just a couple of more quick ones. Congratulations on all the approvals there on the thermal management side. What does this mean in terms of operations and the time lag? What are some of the key issues in terms of getting this turned into actual volumes?

Thanks for your congrats. Our team has worked very, very hard on this. The timeline on these, Bob, is usually -- you might work 12 to even 18 months with a customer, going through a detailed approval process. And, remember, we're offering unique solutions. It's not -- you know, it's a solution -- a graphitic solution that the Intels and IBMs have not seen or been exposed to at all. So there's that lead time up front, and we expect, over the next four quarters, you're going to hear us talking about a lot of those approvals now becoming actual orders.

For instance, Samsung -- we worked very hard on that -- that all brand-new line of plasma screen TVs, large business potential. You work a number of months to get approval, and we look forward, over the next couple of quarters, perhaps, to getting actual orders and then successful orders that could ramp up to decent buying. These are high-margin products, they're high value-add products, and there are unique advantage technologies we have that we've been driving hard the last couple of years.

So is it reasonable to assume, then, that we could start to see some of this impact to P&L in '05 or could it even be earlier than that?

I think you could see it in '04, and I think this year -- what will be our target this year is in the second half of this year to start reporting year-over-year comparisons of ETM sales for you that show nice growth improvements.

Okay, great, and then just one last one, if I could, on the graphite electrode -- one, there may be some more slippage in steel prices. Certainly, the Chinese -- it looks like they're going to have to bring down prices in the back half of the year, and I wonder if you could talk about that in terms of the outlook for the second half and, more importantly, I know it's early, but in just general terms as you look to '04, and then also -- I know Corrado and I discussed this, as well as Elise, earlier this week, but we've had some questions on it -- if you could also mention St. Mary's and what impact that may or may not have?

Okay, perfect. Addressing the first one, Bob, on steel and steel prices -- yeah, it looks like steel prices are, in some sectors, you know, in some product lines, might be coming down a little bit. From our vantage point and our close work with our customers, their order books are a little bit shorter than what they were, let's say, six months ago, but the offtake [ph] electrodes continues to be strong, and our feeling is, really, steel and aluminum is going to be driven more by overall economic growth. The consumer buying of durable goods and automobiles and consumer confidence hold up here, and improve post the Gulf War, we think steel buyings are going to continue to be good. Some of our customers continue to run full out. Some have done very well, depending on the segments they operate. So we think the next two or three quarters really is going to be triggered by overall economic conditions.

On St. Mary's -- as you've seen in the public, someone has come and bid -- a company has come and bid, and they're working hard to try and close on that deal. May 5th is their anticipated closing date. They're trying to arrange financing. I don't know if we're going to be successful or not, but let's assume they are. They are going to try and start about half of the old CG facility, and that's the portion that's in St. Mary's, Pennsylvania. The portion that is in Niagara Falls, I don't believe anyone believes it can even run again, it's old and high cost. Now, St. Mary's would mean about half of the old CG volume. If we go back to the two companies that went bankrupt -- [Conratty] and CG -- between the two of them was about 60,000 metric tons of capacity, most of which was sold in the marketplace. So St. Mary's coming back would mean about 20,000 metric tons of that 60 may come back to the market.

What we would put to you is -- and we did a lot of work running our own plants in the U.S. -- what we would put to you is that St. Mary's facility is high cost, and that St. Mary's facility will be disadvantaged and will struggle to compete against, let's say, our facility -- 60,000 -- three times larger out of Mexico -- positioned in a Mexican cost base -- very large site, a site that we've been running for 20 years -- very experienced and a very aggressive workforce. So time will tell. If they do come up and run, we're ready.

And it's going to primarily be the smaller size range, correct? And if they're not up and running soon, then they're probably not going to be in the ball game for '04 contracts, correct?

That's right. They serve primarily the smaller sizes. There are a lot of competitors down there, right? There's Chinese, Indians, and so there's a lot down there that we're used to competing against, and so if they come back, it will be primarily in that segment, and we're prepared, as I said, to meet them in the marketplace. We look forward to it, though. We've been working very hard on our production platform and building competitive advantages into that platform. You know, a point in case, just the 27% of the U.S. salaried workforce that we've reduced. We're ready if they want to return to the market.

Okay, thanks very much.

Thank you, thanks, Bob.

Thank you, the next question comes from [Thomas O'Shea] with [Golden Tree]. Please go ahead.

Could you let us know what the 21 to 26 cents a share equals on EBITDA basis? Whether or not you anticipate drawing on your revolver and what the rate is on your term loan?

Sure. Thomas, the 21 to 26 is about 110m to 120m EBITDA.

Okay.

And the draw on the revolver that you saw in the first quarter -- about the 45m is about the draw we would expect this year. You know, that's the kind of debt level we've been guiding to -- is about 740 or so, so that's the kind of draw we would expect, and on your interest cost -- if you look at our entire portfolio of debt -- the bond and the deep debt we have in revolver -- the effective rate of all that would be about 6.7%.

Gotcha, and do you know specifically the rate over LIBOR on the term loan?

Yeah, on the term loan it's about 335 basis points over LIBOR. That's the B debt 137m.

Thank you very much.

Thank you, Thomas.

Thank you, ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you are using speaker equipment, please lift your handset before pressing the numbers. One moment, please for the next question. The next question comes from Andrew Burr with Financial Management Advisors. Please go ahead.

Just going back to eGraf and the potential business that you can do with IBM, Sony, Samsung, et cetera, can you quantify how big you think that could be as you get out into -- we won't worry about next year, but as you get out into '05, '06 -- what do you think that can generate in terms of revenue?

Good question, Andrew. We have tried to be very cautious here and really manage people's expectations for a couple of reasons. One, as we said, the approval process is long. We have a brand-new unique product, unique technology, and so we try to be very cautious in managing expectation and so our strategy is keep the market very posted on approvals as we get them and as they're locked in, and what we will do on an '04 basis is give you the order volumes and the sales revenue thereof as we get them.

Our expectation, our targets, I can talk to you about. You know, our target would be, if you go out to '05, that this would be several million dollars of revenue to us.

Okay. What kind of margins?

The margins in this are very high. These would be some of our highest-margin products. So these would be something that would be, you know, more than double graphite electrodes -- a high-value solution for these customers.

Great, thank you.

Thank you.

Thank you. The next question comes from John Thies of Grantham Mayo. Please go ahead.

Good morning. I have a vague recollection that that St. Mary's plant had some size limitations with respect to the size of the electrodes it could produce. It seems likely that if it resurrected, it wouldn't be able to compete in the high end of the electrode game. Is that your observation?

You're right, it's a disadvantaged site, but as far as its size range, it can make, our understanding, pretty much most of the product line. It's small -- I mean, 20,000 metric-ton plant is very small. It's half the size, virtually, of our smallest, and it's in the wrong location, but I believe they can make most of the sizes. But like anything, I'd hate to try to make all the size ranges when you only have a 20,000 metric ton plant. If you have a plant that small and that disadvantaged, you'd more likely try to get to a same product line and really drive out and pound out a lot of the same kind of product and try to get some efficiency that way. So they can make all the sizes but, no, you're point is probably right -- they may try to narrow it down if they do come out to the market, just to try and manage that high cost.

Thanks for clarifying that.

Our pleasure. Thank you for the question.

Thank you. The next question is a followup from Brett Levy. Please go ahead, sir.

With respect to the St. Mary's plant, I mean, you guys must have looked at it to some extent. Is it as good as the plant that you guys just mothballed in Tennessee? And at 2,300 a metric ton, do you think it is capable of making money at the gross margin line, the way it's currently configured?

Good question, Brett. In regards to the U.S. plant we closed, it is nowhere near the efficiency and technology that was in our U.S. plant that we closed and, you're right, we spent a lot of time understanding that St. Mary's facility when the assets were put up for auction. So we spent an awful lot of time analyzing what was there and what wasn't there.

In regards to trying to make money out of that plant, I think your observation, that $2,300 price is going to be very hard to have a viable business there. And, as I said, our team is ready -- Mexico, we spent a lot of time getting that plant to 60,000, and we have what we believe, increasingly so, an overhead structure in our company that's ready to be very competitive.

Thank you.

Thanks, Brett.

Thank you. The next question is a followup from Bob Schenosky. Please go ahead, sir.

Thanks, it's Schenosky -- but, Craig, if you could just also highlight on the St. Mary -- my understanding is there's no machining capability there and, as well, if they were to put in connecting pins, what do you think that would do to the output? I guess what I'm just trying to get to is the fears that some people may have in terms of this coming back online and what real capacity would be if they had to throw the connecting pins in there?

Bob, those are both good points. You're right, they do not have machining capabilities today at the St. Mary's facility, so they've got to get machine in there. They may try and take the old machine from Niagara, you know, the mothball Niagara plant and bring that to Pennsylvania. So they may try and do that. But they've got to get machining somewhere, and they've got, probably, that 20,000 metric tons total. When you put pins in there, because pins eat up a lot of capacity, well, then, the electrode -- you know, the actual electrode capacity, considering they make their own pins, is probably down to something closer to 16,000 tons.

Okay, great, and then just one final one, if I could -- the target earnings that you have for the year in terms of the 21 to 26 -- does that include the 4 cents in the first quarter of the currency gain or is that an operating number?

That's the operating number.

Great, thank you.

Thank you.

Thank you, the next question is a followup from Bruce Klein. Please go ahead, sir.

Hi. Just trying to get a sense of what sort of is in your head regarding -- I know, again, it's early and this question was asked, I think, in a different way in terms of '04 contracts -- how do you see -- I mean, if we kind of muddle along at these levels, maybe -- and steel prices are -- if we stay at these levels would be lower than what we set in contracts six months ago or four months ago -- how do you view the market in terms of the tightness now? Maybe the operating range or some other measure -- but how might that, do you think, translate -- maybe even -- directionally over a contract?

Bruce, if prices stayed where they are today -- the latest spot prices going off the February increases -- then the price would be about 2,450. However, if the market remains tight as it is, and steel continues to run decently, as it is now, there are other opportunities for us to increase the prices again, and we, of course, are looking and watching very closely for those opportunities, and if it remains as tight as it is now, I would expect you would see ourselves and maybe others seek to get additional price increases -- some to offset some of that energy impact and then price could be 2,550, 2,600 could be a potential price if a second round this year was taken.

Okay, and if steel prices stay -- I mean -- what's a scenario where price -- contract price were lower in '04?

Well, not so much off of steel price, you know, because some of those steel guys have done very, very well. But it's more often just the steel volumes. If volume continues to be good, you know, volume has been relatively good, over 300 million metric tons, total steel volume has been good -- if that continues, and let's say post -- you know, the clarity we get here off the Gulf War, if that continues, then I think that market is going to stay tight as we see today.

And on the G side -- do you focus on operating rates? I'm just wondering what you think they might be versus where they were six months ago -- if there's been much change?

On our own graphite electrode operation?

No, I have a sense of yours, but a sense of the industry.

Our sense is the industry is running very high op levels -- 92, 94% range -- and our indications are requests from the marketplace to fill emergency orders because someone has been disappointed by another one of their suppliers, and the scuttlebutt is they missed a shipment, and so when we look at our customers' inventory graphite electrodes, we don't see any excess at all. They're lean, and we hear, on the competitors' conference calls, that they are running at very high op levels. So we think the G industry is, in total, at a high op level.

Great, I appreciate it. Thanks, Craig.

Thank you, Bruce.

Thank you. There are no further questions at this time. Please continue with any closing comments.

All right, folks. Thank you very much for the questions, and I appreciate your time in our conference call today, and we look forward to talking to you about our Q2 results in another three months. Take care.

Thank you, sir. Ladies and gentlemen, this concludes the GrafTech quarter one conference call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000. Your passcode is 535343. Once again, if you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000 with passcode 535343. We thank you for your participation today. You may now disconnect.