GrafTech International Ltd (EAF) 2012 Q4 法說會逐字稿

Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech fourth-quarter and year-ended 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. I would now like to turn the conference over to Ms. Kelly Taylor. Please go ahead ma'am.

Thank you, Jody. Good morning, and welcome to GrafTech International's fourth-quarter and year-end 2012 conference call. On the call today is GrafTech's Chief Executive Officer, Craig Shular, and our Chief Financial Officer, Lindon Robertson. We issued our earnings release this morning. If you did not receive a copy, please contact Marie Nora at (216) 676-2160 and she will be happy to fax or e-mail a copy to you.

As a reminder, some of the matters discussed during this call may include forward-looking statement as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call.

Also, to the extent that we discuss any non-GAAP financial measures, you will find reconciliations in our press release, which is posted on our website at www.GrafTech.com in the Investor Relations section. In particular, on this call, we will be discussing for the periods reported the non-GAAP financial items of adjusted EBITDA, operating income, net income, and EPS that exclude the non-cash impacts of fourth-quarter pension-related charges, as well as certain discrete tax benefits. Any year-to-year growth comparisons reflect these same adjustments. Further information on the methods we use to calculate these items can be found in our SEC filings.

For your reference, a replay of the call will be available on our website. At this time, I'd like to turn the call over to Craig.

Thank you, Kelly. Good morning, everyone. Thank you for joining GrafTech's call. Today we will take you through our full-year and fourth-quarter highlights, provide commentary on our 2013 outlook, and then open it up for Q&A.

Recapping 2012, we achieved sales of $1.2 billion, our second highest sales in Company history. Our Engineered Solutions segment grew 18% to $223 million, slightly -- I'm sorry, an all-time record for that business. EBITDA came in at $247 million, slightly ahead of guidance, a solid performance in a very difficult environment. Net income was $113 million, or $0.81 per share.

The 2012 market environment for our Company was a challenging one. The EU recession, where approximately 30% of our sales typically reside, and the sizable carryover of graphite electrode inventories our customers had in Q1 were significant head winds. Furthermore, many of our steel customers globally incurred large losses in 2012, which contributed to the difficult environment. We responded to the challenging market dynamics by reducing our workforce almost 10%, freezing pay increases for the top 90 in the global leadership team, and reducing planned CapEx and overhead expenses.

Other highlights in 2012 include the development of a super premium grade of needle coke and successful commercialization of this breakthrough product in the second quarter of 2012. This represents a key development in expanding Seadrift's ability to service the full range of customer needle coke needs. In addition, the development of super premium needle coke marks an important strategic milestone in our ability to internally source our needle coke requirements, providing us with greater procurement flexibility and less dependence on third-party suppliers. Our Seadrift facility has been a very important part of our 2012 results, and we believe represents a sustainable competitive advantage.

Rounding out 2012 highlights, we celebrated the successful landing of the Mars rover, Curiosity, in August. The thermal solutions used in the Mars rover's heat shield, which protected it from the intense heat and friction generated during descent through the Martian atmosphere, were developed and manufactured by a subsidiary of our Engineered Solutions segment. Our team has a rich history of developing innovative graphite solutions to manage thermal issues for a number of industries and end markets. We continue to leverage this core competency and position our Company as a premier advanced materials Company.

Turning to our Q4 results, total Company sales improved 7%, to $371 million. EBITDA came in at $75 million. Net income was $34 million, or $0.25 per share. In our IM segment, sales increased 5% to $310 million. Operating income for the segment was $44 million. It's important to note that 2013 marks the final year of a third-party take-or-pay type needle coke agreement, triggered by the acquisition in which -- I'm sorry, the acquisition of Seadrift in which GrafTech is required to purchase specific needle coke quantities. Going forward, this will provide us with increased flexibility to further optimize our vertical integration with Seadrift and manage inventories.

In our Engineered Solutions segment, sales increased 19% to $61 million. Operating income was $7 million, or 11% of sales. Our Engineered Solutions business finished the year with record sales of $223 million, achieving a more than 20% annual growth rate the past three years. The capital investments we made and the new products we developed in our R&D center in recent years helped propel this growth.

Turning to outlook, based on current international monetary fund projections, the estimate for global GDP growth in 2013 is 3.5%, a slight downward revision from the IMF's last projection in October 2012. The IMF notes that although global economies are expected to recover at a gradual pace, downside risks remain significant. The IMF highlights that recessionary conditions in Europe persist, and that the euro region continues to pose the largest downside risk to the global outlook.

According to the World Steel Association and other published reports, global steel production is expected to increase 3.2% in 2013. Steel customer confidence, however, remains subdued, due to the continued economic uncertainty and the very tough year they've had in 2012. Overall, we expect higher volumes in our Industrial Materials segment in 2013, due to anticipated restocking of inventory and improvement in steel production levels across our global customer base. There have been several electric steel furnaces that are coming back on recently in key geographies for us, that will benefit our 2013 volume. As a result, we expect to run our facilities at approximately 70% op level in the first quarter, up from around 65% Q4 last year.

The graphite electrode market has become increasingly competitive with the addition of approximately 100,000 metric tons of capacity coming on line over the past year, of which approximately 65,000 metric tons are located in China. In addition, an estimated 130,000 metric tons of additional graphite electrode capacity expansions have been announced, of which 100,000 metric tons are located in China, and these are expected to be operational in 2013/2014. These additions have further exacerbated a global electrode industry which already had excess capacity.

In the needle coke market, additional supply has come online with the restart of a major Asian producer whose operations had been suspended for several months in 2012. This producer appears to be currently fully operational, resulting in additional available capacity this year. The graphite electrode and needle coke capacity additions described above are compounded further by a still recovering global economy and a challenging steel market, in which many steel producers continue to struggle to achieve acceptable profitability levels. The modest improvement in global economies and our steel end market, while encouraging, is not enough to offset the negative impact of the graphite electrode and needle coke capacity additions. As a result, these factors are contributing to downward pricing pressure on both graphite electrodes and needle coke for 2013.

Over time, we believe the aforementioned excess graphite electrode capacity could be absorbed by growth in the EAF furnace sector based on CRU International and other estimates, it's expected that approximately 100 million metric tons of new EAF steel capacity will come online over the next five years. We are well positioned to manage through the cycle and will focus on managing those items within our control. We will continue to provide our customers with superior service, quality, and product innovation. We will maximize the cost competitiveness of our advantage backward integrated business model, and finally, growing our ES business to diversify our Company.

On the cost front, we will further reduce overhead expense through additional right-sizing initiatives, hiring restrictions, suspension of the 2013 salary merit increases, and reductions in travel and other discretionary expenses. We expect overhead expense to be down $15 million this year, as compared to last year. We've also reduced targeted capital expenditures from 2012 levels. In our IM segment at the midpoint of our range, CapEx is expected to be approximately $60 million, $55 million for maintenance, and the remaining $5 million will be invested on product innovation to grow our competitive advantages.

In our Engineered Solutions segment, we plan to invest approximately $45 million. $35 million will be growth capital to support increasing demand for our products used in advanced consumer electronics, such as OLED, LED, LCD displays, tablets, smart phones and eReaders. And in the energy sector, items such as our work on lithium ion batteries and the oil and gas industries. The remaining $10 million for ES is related to maintenance spend. These investments position our Company for future growth and support our target of double-digit revenue growth and operating income margin expansion for the ES segment in 2013.

On a stand alone basis, i.e. excluding the shared corporate allocations, we expect the Engineered Solutions business will generate sufficient cash to fund itself in 2013. GrafTech's Six Sigma efforts will also contribute to drive additional productivity improvements, eliminate waste and drive quality improvements throughout their organization, which will result in savings and value to our customers. Secondly, we have capitalized on our advantage low-cost business model by continuing to optimize our Seadrift assets to the benefit of our entire graphite electrode network. Seadrift is making the best needle coke it has ever made. And with the breakthrough on super premium needle coke, we can now internally source the full range of our needle coke requirements. Recall that this is our last year of the third-party take or pay type line-down agreement, triggered by our acquisition of Seadrift.

Thirdly, our Engineered Solutions business will continue to grow in this challenging environment, and will partially mitigate the downside variability of the cyclical steel environment that we face. We anticipate solid top-line growth and improved margin profile in this segment, as our ES product portfolio shifts to higher margin businesses. We expect double-digit revenue growth for the full year and operating income margins to be in the range of 13% to 15% in the second half of 2013. For our full-year guidance, we are targeting EBITDA to be in the range of $175 million to $205 million. We expect the first quarter will be our weakest, with EBITDA targeted be in the range of $30 million to $40 million. The first quarter of 2013 will be negatively impacted by seasonally lower graphite electrode volumes and higher cost inventory, due to the carryover third-party needle coke acquired in 2012.

In the second half of 2012, we expect improved profitability due to the higher sales in both business segments and lower cost in our IM segment, as we work off higher cost third-party needle coke and, reflect lower fixed cost per unit as operating rates improve over the year. We are targeting cash flow from ops to be in the range of $150 million to $180 million, should be a strong year for us. That's probably of about 60%, 65% over last year. We are targeting an effective tax rate to be in the range of 33% to 36%. As the tax benefit inherent in our operating model is reduced due to less favorable mix of jurisdictional profitability. It's important to note, however, that our cash tax rate is estimated to be approximately 10 percentage points lower, or 23% to 26%, as we effectively utilize foreign tax credits.

Through our strong business model, low-cost production and backward integration, GrafTech is positioned as one of the best graphite material science companies in the world, with a team that has a proven track record of successfully managing through electrode industry cycles. Our goal is to come out of this difficult environment better than we entered, just as we did during the 2009 global recession. Our advancement in graphite electrode and needle coke quality, combined with our industry-leading customer tech service and global production platform position us best to serve our worldwide customers. In addition, our Engineered Solutions segment, which has produced double-digit revenue growth over the past three years, provides us with a sustainable base for further diversification.

Finally, I'm confident that our Company is up to whatever challenges the global economy presents. Team GrafTech will seize growth opportunities and emerge from these tough economic times with an even stronger business model and a sustainable strategic advantage to drive long-term shareholder value. That's the end of our prepared remarks. Jody, could you open it up for Q&A, please?

(Operator Instructions)

Martin Englert, Jefferies & Company.

I wanted to get a sense of what kind of declines you were seeing in graphite electrodes in needle coke year on year that's baked into the '13 guidance?

When you say decline, you mean in prices?

Yes sir.

In graphite electrodes, it varies by geography, but I would say the decline in prices are probably around 8% to 12% in graphite electrodes, and needle coke would be probably around 8% to 10% decline. And that would be 2013 versus what we saw last year.

Thank you. Was there any material shift in the -- how much of the order book have you had built out so far for the electrodes, and what do you anticipate for the needle coke order book on '13?

If I look at both books, I would say one starting high level, I expect higher volume in both books than last year. We have started to see some improvements in most of our geographies. Demand will be a little bit better than last year. And then especially in the electrode book, recall last year there was virtually no Q1, and also a soft Q2, due to the big overhang and carryover from the prior year of graphite electrodes.

So what I see this year is better demand, almost every jurisdiction for graphite electrodes, and then I don't see as much, near as much, carryover that affected Q1, Q2 last year. So, part one, higher volumes in both those businesses. Then, what I would say, in some of the geographies where we have local manufacturing, South America, South Africa, we have started to see some furnaces come on line that were off for much of last year. We are so well-positioned to serve those furnaces.

So I see some items where we will benefit maybe even more than the overall growth in steel, where last year we were -- we probably felt it even harder because those segments and those geographies were so important to us.

Thanks, that's helpful. In addition, there are anything materially different about the mix of electrode products that you'll be selling in '13 versus '12? Anything weighted more towards ladle grade more or less than you did?

No, when you look at ladle and melter, it's not a major swing at all. And then as far as the percentage of the book done, you had asked, we are a bit over 60% done on the electrode book, and needle coke is probably between 50% and 60%. So, it's been an orderly process other than the slide in price. And I look to round that out probably over the next couple of months. Customers are coming in quite frequently now for their requirements.

If I could, one last question. On the release, you had talked about the new Chinese capacity coming online that's been ramping up or expected to ramp up. Can you talk about how to the extent that they play in the international market or they are exporting that material to other regions outside of the country.

They do a lot of export. If we recap last year, the Chinese graphite electrode industry last year probably had one of its worst years ever, very large losses, a lot of excess capacity in the domestic market. And they really struggled to make any money locally. Credit terms and payment stretched out six months, nine months, a year and a half in some cases, in the local markets. So, think of the local producers in China, most of them have lost a significant amounts last year in the dog fight that's been in the Chinese market. A lot of excess capacity.

All of them try to export, because the local market really doesn't give them anything. Their exports are in virtually every country. Depending on the type of furnace, the customers' requirements or the customers' willingness to wrestle with some of the Chinese supply, which sometimes can be variable, they are a factor. No doubt about it. They tend to be the low price -- the low quality, low price guy. When the steel industry is struggling, as it did very much so last year, like any industry, any company, they look at every opportunity they can to reduce cost. So, they are a factor. They tend to be the lowest price. They also tend to be at the low end of the quality range.

Arun Viswanathan, Longbow Research.

First thing was on needle coke. You said that you are running out of your take-or-pay contracts here. So, where will we take your internal consumption over time and how do you see that playing out in 2013?

Well, time will tell, Arun. We've been taking about 70,000 metric tons out of Seadrift. That coke, since we've owned it, if you think of the normal grade needle coke, has made significant improvements in the quality. Then, of course on top of that, we had the huge breakthrough on super premium needle coke. Now that that facility can make all of the grades we require, and we no longer have starting next year that mandated take-or-pay-type contract, we have complete flexibility to maximize Seadrift's operating rate, profitability, et cetera.

Time will tell where that goes. I will share with you, last month, we made some electrodes with that -- the normal premium needle coke that Seadrift's been making for 30 years. With all the improvements that we've done under our ownership, it's the finest normal premium they've ever made. We've made electrodes with it, and I'll tell you, the electrodes coming our of our electrode plants are the finest electrodes we've ever made. Obviously, we see this as a strategic, competitive advantage on quality, better service for our customers. We have assured supply. Time will tell where we go, how much we use of it.

But, I think you're big takeaway should be we've had a major constraint here. We had three years of take-or-pay type contract that were triggered and mandated by the Department of Justice under that P66, the old Conoco contract. For instance last year, we had to buy about 80,000 tons from Conoco. Huge numbers. So, lack of flexibility, we have to take it. It's a take-or-pay type situation.

So, my point is, when you put our ability to make super premium needle coke, you look at what we've done with the normal premium and the quality that team has delivered for us, it's just outstanding. Then, you match that up with the flexibility we have go forward, our low-cost platform, I think, just got better positioned, more flexible, better to generate EBITDA, and, quite frankly, more competitive.

Okay. Thanks. And then, on the volume side, you said you're seeing slightly better volumes in 2013. So, how does that play out with your utilization rates? Were you in the low to mid-60s in 2012, and do you see that going up in 2013 in electrodes? And what about needle coke as well?

Yes, the way we see the book going, I'll start with graphite electrodes, first. We will run about 70% in Q1. If you go back to Q4, the exact number was 64%. So, we've stepped up from 64% to 70% in Q1. What I would expect, the way the book is coming together, and like I said before, almost every geography is a little bit better. Then, we don't have that big hole in Q1 and Q2 that we had last year, due to the huge carryover inventories our customers had.

So, what I see looking forward in Op level, we will do about 70% in Q1. Then, I would expect over the course of the year, it will be higher every quarter. Q1 should be our lowest operating rate and will build on the 70%s, and depending how the book comes together, how the economies shape up, we could be -- we could exit in the low 80%s. So, volume is coming up.

There's new EAF furnaces. I would expect that second half of the year will be our better half, for sure. We would have worked off the old high-cost Conoco coke that we had to buy. That should be gone pretty much in the first half. Cost will be better. Operating rates will be higher the second half. Our ES business continues to put nice points on the board. They will have a solid second half, like we said, margins, Op margin, 13% to 15%. We should exit the year, if the economies continue the trajectory we see and steel is up that 3% that World Steel is looking for, we should exit the year probably with a 80% plus, 82%, could be 83% operating rate.

Okay. Thanks. Another longer-term question, then. If things are going to get better in the second half, how do you see longer-term pricing playing out in electrodes and needle coke? You used to enjoy a little bit better situation. Obviously, things are a little tougher in 2013 with new competition. Is that a structural headwind that you won't be able to overcome in future years? Or, how does that relate to the future as you see it?

You are right. It's an overhang in capacity. Picture in '11 and '12, the graphite electrode industry already had excess capacity. Then, the new capacity coming on over the next couple of years that we highlighted just exacerbate that. I see it's a timing item. It's going to be structural here for a while. I really like our position in that kind of situation. We have a very solid track record, performing well when our industry gets tough.

I like what our model has done, how we have built it out, back-integrating. I like the needle coke quality. I like the ES diversification. I think we are very well-positioned. So, there's going to be a little bit of a market conflict out there. You've got some guys that have put in new capacity and what not. But, when I look at what we have versus the other guy, I like that matchup. I'll tell you, our plan is we will come out of this bigger, better and faster. (multiple speakers).

This is a clarification, though. Historically, there were times when you could get 15% to 20% needle coke pricing, and the structure there hasn't necessarily changed so much so that it would preclude that, would it? I understand there's more capacity in electrodes. But, can we see the pricing, the type of pricing improvements that we've seen prior years?

Yes, good point. I was speaking about graphite electrodes. If we change it over to needle coke, I would expect now that we are out of this take-or-pay large volume, our volume drops down significantly this year versus what we had to buy last year. So, our flexibility already this year is picking up. The volumes cascaded down, so this year I think we have to buy about 56,000 tons. What I see in needle coke is we should run full out.

The Seadrift needle coke is going to run full out between our demand and the market. So, if I look at needle coke, I see that sector getting tighter sooner than graphite electrodes. It's not as much capacity overhang versus what we have in graphite electrodes. So, your point is spot on. Needle coke should get better before electrodes. That's generally been the trend the last 30 years. It will get tighter first. So, needle coke really doesn't have a large structural issue right now in front of it.

Sal Tharani, Goldman Sachs.

Going back to this take-or-pay contract you have, does that contract -- is impacting your Seadrift that you are not running it full out because you can sell the rest of -- versus what you will be getting in future internally?

This year Seadrift will run full out, just to be clear. In the last two years, it's been a constraint. So that we've had to manage around, because we had to buy so much. Then, obviously, we want to run Seadrift as full as we can. So, think of it -- it's a significant constraint that our operation has had that this year is much smaller and next year goes away. We've managed through it the last three years. It hasn't been easy.

We've had to manage through that when the global economies were very tough shape, EU went into a massive recession. And last year, like I said, we had to take 80,000 tons managed through EU recession, huge slowdown in a lot of our markets, 30% of our sales are in the EU. But, Sal, my point would be is that's behind us.

The electrode versus needle coke. Which one do after have to run at higher utilization rate to dissipate or reduce the fixed cost?

Well, both enjoy reduced fixed cost per unit as they run higher. So, think if Seadrift will run full out this year. They will have a very nice cost structure. They are making outstanding quality, as I said earlier. So, they will benefit from higher operating rate. They will run higher. Last year was not low for them. They were in the high 80s for much of last year.

Remember, last year we had to interrupt the Seadrift machine to do many trials, and we were perfecting and trying different formulations for the super premium needle coke. So we had a lot of interruptions. During the turnaround last year, you'll recall we made modifications to the machine using some of our technology, et cetera. So, this year, we don't have any of that.

This year, Seadrift will run at a high Op level without any of those types of interruption, making spectacular needle coke. It's a little enjoy nice fixed cost absorption. Then electrodes, over the course of this year, Op levels should come up. First half, as I said earlier, we should finish with the higher cost third-party needle coke we had to buy. So, second half we will have higher fixed cost absorption per unit and lower cost, because the higher-cost coke will be worked off.

Last thing, beyond 2013, how should we look at the tax rate and your SG&A? Any guidance you can give? At least an idea, should we go back to 20%, 24%, or do you think it will remain in the 30%s, the tax rate?

As you see on the overhead, we've done a lot of work there. We did a lot of work last year, a lot of heavy lifting, a lot of reductions in teammates and cuts and discretionary. But if I profile SG&A for you first, $12 million to $23 million, last year, if I pull out R&D, call R&D for us is about $13 million. We don't want to cut R&D. It's our future in electrodes and Engineered Solutions and needle coke. You see the benefits. You see what we did with our R&D with needle coke. You see the double-digit growth in Engineered Solutions. Our graphite material science work in R&D, we don't want a slowdown. Last year was about $13 million. This year will be about $13 million. We want to protect that.

On SG&A, last year I think was about $142 million. This year, if you look at our guidance, it should come in around $127 million, so down about $15 million. We've got virtually all that off the payroll already. We've already moved. We moved Q4 -- December, January, February, on all of that. Overhead this year, $127 million for SG&A, and the total about $140 million. So if I look at those two totals, $155 million to $140 million. That's the way I would look at SG&A. We are trying to be very tight there, but not sacrifice R&D and our service to the customer.

On tax rate, as you see, we have a complex tax picture, because we sell in so many countries and we produce in so many countries. We have the widest network of graphite electrodes plants around the planet. So, well-positioned to service the customers, but it generates a complex tax book. You see the last several years we have been very good at getting very low tax rates in their low 20%s. This year, because of some of the jurisdictional profitability, some of that moves. Some of our tax credits, you see our tax rate is going to come up.

How long that's going to last, I don't know. Could it last into '14? Yes, it could. Some is going to depend on profitability, where the industry goes. But, can we get back to those 20%s? Absolutely. So, if for planning purposes, if you wanted to use this year, and I don't know, maybe next year, at a higher tax rate. But I would not do it in any long-term plan for us. We will get back to those low 20%s. It's the model we've built here.

Luke Folta, Jefferies.

On the tax rate, like you said, there has been a bit of a shift in jurisdictional profitability. Can you talk about which regions have changed and what is driving that change in the tax rate?

Yes. Absolutely. Let me toss it over to Lyndon, and he will give you some color on our tax book.

I would just highlight that as our business is a global business operating in a global market, we rely on many manufacturing locations that you can see described in our public filings. As we structure this tax book, it's based on our operations. So, when we structure it, as most companies would, it would put it -- you bring those profits to those manufacturing sites as they are contracted to provide manufacturing to your global equation.

Then, your global fulfillment equation provides you the incremental opportunity to fulfill. And in a higher-margin equation, that is where those higher margins will flow as the global entity makes the sale. So, our structure does become more optimal at a higher profit level. So, this year, as you were guiding a little lower profit, you can see that there's pressure on that tax rate.

Now, a second aspect of this is the ES business has, Engineered Solutions business has accelerated and increasing some profitability, as well. Most of that business equation is still based in the US. And in that regard, that's driven off of the US jurisdictional profit. That's a smaller element of it. But, that's not something that we are -- that we certainly regret. It's the mix of the entire graphite electrode market, though, and the lower margins that you can anticipate with the pressure on price that is really driving the change in our tax structure.

Okay. It seems like that's fairly complex. Could you simplify it by saying that you are making more in the US and less in some of your other regions? Is that what it really boils down to at the end of the day?

It's not quite that simple. The profit margins come back to those manufacturing locations that we contract inside our structure. And so we manufacture, yes, in the US, but we also manufacture in Mexico, Brazil, France, Spain, South Africa. Much of these are under the contract that I described, and I would probably hesitate to go further. As you said, it is complex and I run the risk of creating more confusion than helping to clarify. When you get into a lower profit equation, the very first people to get -- the first plants and locations that get paid on this is those contracted manufacturers. The incremental margin opportunity and our global structure is what puts pressure on the tax rate.

All right. Thanks for that. Also, there's a lot more discussion about China this quarter than there ever has been. I understand the capacity issue. Can you talk about what's happening from a quality perspective there? It seems like, based on what you are saying, and also in some of our channel work done over the past year, that their presence in some of the major markets is (inaudible).

I'm curious to know if you think it's more a function of their quality is slowly getting up the curve, or was it just that there was a meaningful price differential between the Chinese and non-Chinese producers that allowed them in, and now they are there. Any color on what's happening there would be helpful.

Luke, we haven't seen a dramatic improvement in their quality. They continue to march up the curve, so every year they get a little bit better. As I've said before, we are not standing still, obviously. So, the needle coke improvements, electrode improvements, we continue to raise the bar. They get better every year, but we haven't seen anything dramatic the last two years. What they have done the last year is they just keep adding more capacity.

In China, capital is almost free. They go to their little regional government; they build a new plant. Like I said, the local market in China is just in devastation. It's the lowest prices we've ever seen in China in 15 years for graphite electrodes. So, it's a lot of losses accumulating there. I think for the local producers, obviously, they look offshore and maybe they can make a little bit of money. So, yes, they are a factor in many countries. They tend to be at the lower end. They've got a lot of excess capacity.

If I take it to a longer view look, obviously, we've been looking very hard the last 10 years at opportunities in China. We've looked at at least 10 producers, the ones we would consider the best 10. We've looked very hard to look at an acquisition. We just -- the price expectations they have have been way too high, especially when you look at it in today's P&L's that they have today, I'm delighted we didn't drop $150 million, $200 million in there two or three years ago. It would be completely underwater today, written off and bleeding.

So, looking longer term, what I see is there will be a consolidation there. There's going to be a rationalization. Even in the Chinese environment, they can't continue forever with these large losses. So, there's going to be consolidation. There's going to be an opportunity, I think, for us. Like we did in our four last acquisitions, we will find the right one for us. We won't overpay. We will get a deal that is good for us and that can generate income, literally, the first-year, like the four that we picked up.

So, that time is coming. Is it one, two, three years from now? I think it's somewhere in that time zone. It's like I said at the outset, these tough times, our track record is we are very good at managing through these cycles. We've been doing this for 14 years. The '09 cycle, we managed very well through that, picked up four acquisitions then, and we will do the same thing here. So, you could see us emerge two or three years from now, and we've got a profitable Chinese operation that we paid the right amount for.

One last one. When you look at your growth strategy in China, is there, just in general, is there any strategic reason why it's better to own Chinese electrode capacity than anywhere else in the world? Do they have any strategic benefit there? As a second on to that, the new capacity that is coming into the market that they are constructing, is that capacity differentiated from -- is that some of the highest-quality stuff now that is the newest capacity, or is that just more of the same?

The new capacity is a little bit better than some of the old stuff. They have some very old facilities, 40, 50, 60 years old, that have not been maintained well. So it's not like a plant in the US that's 40 years old. It's really worn down. Some of the new ones are better. They are more consistent product. Like I said earlier, they are coming up the curve.

As far as an advantage in China, I will tell you, call it 10 that we've looked hard at; call it 5 that we've done detailed due diligence. None of them have had a better cost structure than our facilities. This is something that when we've come back and looked at them, we looked at the price they're asking for, to your point, is there an inherent strategic advantage? Well not in that scenario. I don't mind competing against them. They are not advantaged on the cost structure. What we've got to find is a right-priced one, where the price is realistic and one that we can improve and make profitable in the first year of operations.

What would be the point of going -- owning assets there to begin with? Just having a presence on the ground and being able to service that market better?

Here, you would do it looking a little bit longer term. This what I see longer term. Scrap generation is growing dramatically in China, from almost nothing to every now and then they even export scrap. If I look out the next 10 years, China is going to generate a lot of scrap. EAF will grow in China. If any of you have been to China recently, the pollution is so bad. A month ago they had to keep everybody indoors in Beijing and close the airport because of the pollution.

EAF, environmentally friendly, small carbon footprint, the growth of the scrap reservoir in generation in China is going to make it a very good market. And it's a market under the right conditions and price, as I said, we'd like to be in. I just don't want us to miss that big growth. I think this consolidation will come. The losses can't continue. They are huge in China right now in the GE industry. We've just got to be nimble and have ability to play offense to seize the right opportunity.

Michael Gambardella, JPMorgan.

Could you give us a rough ballpark number for the EBITDA penalty that you estimated you had in 2012, and what you think you're going to have in 2013 from this onerous needle coke contract, the take-or-pay contract?

Well, let me start with some items, and let me think if we want to put a dollar on it. The items, obviously, it's caused us to carry a higher inventory. We've had to take that, and so, it's given us less tools to manage our working capital. So, I say big picture go forward, we are going to be able to streamline our inventories without that mandate buy to a much greater extent. So, there's a carrying cost to that.

If you look at this year, coming to your dollar question now, obviously, needle coke prices have come down on the third-party buy. So, the higher-priced needle coke that we bought last year is still in our system. That will run for the next six months. Could that be approximately $20 million? Yes, it could be approximately $20 million penalty. Obviously, I'd much rather be producing at my Seadrift cost, versus buying on the third-party with the markup. Very rough, like you asked, I'd say is it a $20 million penalty in a year? Yes.

How much of a higher penalty was it in '12?

In '12, I would say most of it was carrying costs. Remember, we did not have the drop in needle coke prices in '12. In fact, they went up. One was carrying costs. Two was it could not optimize Seadrift as much as we could have without that mandated buy. I had to get the 80 or pay for it. One is the higher inventory we had to carry. There is a carrying cost to that. Another one would be Seadrift did not run as -- max out all last year. This year, it's going to run full-out because the mandated buy has come down. There's an element of Seadrift, I haven't priced that out, but it's an important part. Is that another $10 million or $20 million? It could be, yes.

My point is, and we've been highlighting this, as you know, ever since we did the deal that big picture, super premium needle coke has been so important, because without that, I still have to go to the third party and buy. Because they force you to buy some normal premium to get their super premium. Before we had the breakthrough, there was only two producers of super premium needle coke. Now we're the third. We are self-sufficient. Then next year, I don't have that mandated take-or-pay type contract. We really get flexibility and can run Seadrift, service all our needs, take great care of our customers.

And I think over time, like we've talked big picture, we are putting the R&D into the needle coke. It's all graphite material science, and you're going to see continued improvements in our quality. The normal premium that Seadrift makes is the best they've made in 30 years. That will translate into better electrodes and a sustainable competitive advantage. Not only in the quality, but obviously on the cost structure we enjoy versus the competition.

Did I hear you say earlier that you thought that the penalty on EBITDA was higher in '12 than '13?

No, not necessarily. Remember some of the penalty coming into this year is price has come down. What I am saying is we haven't priced it out. You asked for big-picture number. Last year, we would've carried more inventory because of the 80,000 buy, and we would have run Seadrift at a little bit lower operating rate than what it could have run. So, I haven't priced that out, but obviously, that's EBITDA for us.

Right. And then, so, your guidance on '13 and you are looking at for 2013, you are looking at higher volumes. And it sounds like you are also looking for lower non-needle coke costs in '13 versus '12. Is that correct?

Well we said lower needle coke cost in the second half of '13, because we've worked off the high-cost inventory.

Right, but you have higher volumes, and you've made some comments about your SG&A cost going down.

Correct. SG&A down $15 million. Op levels should increase over the course of the year for both of our businesses and for GE and needle coke. So, fixed-cost absorption should be better, especially the second half. So, you are spot on on that, Mike.

So, the delta change in EBITDA year over year is just a bigger cost drop on GE versus the cost drop on needle coke?

Well in price. We said prices down in GE. Price is the big item.

I meant to say bigger price drop in GE.

Yes.

Than the cost drop on (multiple speakers).

Correct, but you add all those up, price is the huge item. Price down in GE 8% to 12%, price down on needle coke 8% to 10%. That's the big item that's -- year over year, that's the big change in EBITDA.

Mark Parr, KeyBanc.

I had a couple of questions. In your release, you had indicated you thought that customers would be restocking in 2013. I'd like to get some color around that, because we are seeing so little interest on the part of people in the supply chain to build inventory at this point.

Mark, what we were referring to is, if you go back a year ago, there were some of the largest carryover inventories we've seen, other than the crash of 2009. If you go back a year ago, Q1 a year ago and Q2 a year ago, a lot of customers were burning electrodes that they had bought a year before. So, coming into this year, there's some carryover electrodes, but it's not near what we had last year. So our point is, we don't have Q1 and Q2 so affected by large carryover compared to last year. So, that's a better picture for us.

And then as I said, almost every geography is coming in a little bit better. EU looks a little bit better, not great. China is better; Middle East is better; Brazil is better; South Africa is better; US is a little bit better. So, most geographies are a little bit better than what we saw in '12, so those two items combined is what's picking up our volume.

You see electric arc furnace production gaining share in 2013 compared to 2012?

It might. We had that collapse in the iron ore prices, you'll recall, last year. It dropped, depending on where you were in your starting point, 40%. The electric -- the iron ore guys have got most of that already back. So, yes, I think if iron ore stays up high, EAF will continue to be in a very nice position this year.

Okay. If I could ask one follow-up.

Please.

I was just reading recently about a material, I believe, I may not be pronouncing this right, but I think it sounds like graphene.

Right.

It's -- apparently it's a liquid graphite, or it's a liquid carbon product that has the ability to hold a lot of energy. I was wondering and they were talking about using this potentially for batteries in cell phones and other small electronic devices. I was wondering if you knew anything about this or if this is something that the ES division is working on commercializing?

Mark, a great question. Graphene is front and center a part of graphite material science. Our PhDs here would work with graphene, which if I give you the simple answer, is a single layer of graphite. It's the thinnest, most basic layer of graphite you can make. So, it's very light, and it has unbelievable heat and electrical properties. So, in the world of graphite material science, many people are looking at this graphene because it has such unique properties, strength.

Down the road, graphene will have some great applications in what you were talking about, in batteries, in thermal management, in strengthening certain areas, and applications that need to be very strong but lightweight. Graphene is at the front end of product development. The Nobel Prize was recently, a couple of years ago, awarded for it.

We are in the front end of it. Graphene is just one of the many examples of graphite material science, and we are one of the leaders in the world with patents and PhD's, et cetera. So, over time, you will see graphene, which is right in the middle our Engineered Solutions business, you will see it propel growth in Engineered Solutions in some unique applications down the road.

Okay. Thanks. Good luck on the first quarter.

Rob Pohly, Samlyn Capital.

Getting back to the Chinese capacity comments. I was wondering if you could maybe just put a little bit firmer numbers on in 2012, how much capacity, UHP capacity in particular, was exported from China into, obviously, non-Chinese markets?

Let me start with the additions. We said there's about 100,000 metric tons of additions. And about 65 --

Is that all UHP?

Yes, that's all pretty much UHP.

So, what do you think the total capacity is of UHP in China today?

I would say China is around 300,000 metric tons of UHP. Now, not all UHP is created equal as we know. Some will burn off very quick on a furnace, and some will last an eight-hour shift. UHP, if I look at the range of what China calls UHP, there's a lot of variation.

How much was actually exported in 2000 -- last year, bought by customers?

They would export worldwide a bit over 200,000 metric tons around the world. In that 200,000, you have a lot of UHP, but you also have some lower grades that our industry would call HP and RP. These might end up in simple, easier smelting applications.

What about just the higher end. How much of that was exported, UHP?

I would say probably less than 25% of the total exports are UHP. So of that 200,000, 220,000 total that is exported, less than 25% is UHP. So, it's a factor. It goes to a lot of different countries. It's always low, low price, and in some applications, it can work. Or, you have a steel industry that's losing hundreds of millions of dollars every quarter, boy, you look at everything. You are just trying to stay alive.

You saw so many steel companies issue equity and new debt just trying to stay afloat. They are forced to look at almost anything. So, the Chinese are a factor. They have been for a number of years, as we said, but they tend to be at that lower end, low price.

What's the roughly the price difference between a UHP that you sell and a UHP that a Chinese manufacturer would sell?

Oh, it can be $1,000.

Okay.

It can be $1,000 difference. Remember, if you sit in the Chinese producer's shoes, he's got a plant in China, I daresay a lot of them. Every sale they make in China is a loser. The payment terms, the ones we've looked at, done due diligence, they're lucky to get a payment in six months. Some are carrying AR that is a year-and-a-half, two years old, and still carrying it as good. I would say their domestic business is less than rewarding to them. Like I said, we've done due diligence on that.

Have you ever sold needle coke to a Chinese electrode producer?

Absolutely. Seadrift would sell in all of the major markets, Japan, Europe, China, Russia, so around the world.

How much needle coke did you sell into China to Chinese electrode produces?

We don't give that out for competitive reasons, but let me say this, Seadrift's quality, like I said, the normal premium and the super premium is at a level it can sell anywhere. It's in demand. We've got people demanding the Seadrift coke. It depends on the market, and so we have no trouble selling into China.

Chris Haberlin, Davenport & Company.

Just going back to the supply/demand balance in GE, it looks like between last year and what's coming on this year and next year, you are looking at maybe a 15% total capacity increase. Are you seeing higher-cost producers being forced out of the market starting to shut in capacity? Or, is the industry as a whole really taking it on the chin and everybody's operating at lower rates, which is driving prices lower?

Yes. I would say it's more the latter. No one has really left the playing field, so some new assets have come on. As new assets like to do, they like to run them. They just made the capital investment. No one has left the playing field yet. But as I said, being the industry's low-cost producer, back integrated, what we have on quality, some of the things we've talked about, the flexibility we have go forward without a mandated third-party needle coke buy, growth in our ES business, et cetera.

I think we are very well-positioned for this challenge. Our team, I'll tell you, we look forward to it, because out of it, I think you will see us play offense. We will make some smart acquisitions. There will be, to your point, probably some consolidation. Some guys are going to leave the field, probably through consolidation. We will come through this even stronger.

Then, in terms of customer buying, is what you are seeing with about half of your book done so far this year, is what you're seeing, is that in line with expectations for growth in steel production? Or is it exceeding expectations for growth in steel production, saying that customers are restocking inventories in a down price year?

I think it's in line with the two factors we talked. Remember, they don't have near the excess carryover electrode inventories this year that they had a year ago. Right? That's one. And then two, in general, most geographies have some improvement this year over last year. I see the increase in our volumes is normal with what's going on in the market. As I said a little bit earlier, the one little color we will give you, we have a couple markets where we have the graphite electrode facility, South America, South Africa, that got pretty hard hit last year.

We felt that more than others because we have a large position there close to the customer, local CTF. So last year I would say we got it on the chin more in some of those markets. Well, this year, some of those furnaces are coming back online. So we are benefiting a little bit more than maybe the others are because of that. So, we are getting a little boost from that. You add all that up, and that's why Op levels are coming up for us and the guidance we've given.

On that guidance, can you talk about what you would like to see in order to get to the top end of your guidance? And maybe what type of environment would have to play out in order to be at the bottom end of your guidance?

I think most of that range is, one, we've got to build the balance of the book. So there is always risk on that. There's some noise in that -- in the range. And then, how does steel run this year? If we have the increase, World Steel Association is looking for about a 3% improvement? Last year was 1%, 1.2%. So, almost triple year over year. If we get that 3%, that will put us probably toward the upper end.

Last year also, working with a lot of EAF customers, I think a lot of them believe, total steel improve may be 1.2%, but EAF didn't improve near that much year over year. It was flat or maybe 0.5%. We may see EAF do a bit better this year than last year, because of what we talked about on iron ore pricing. Iron our pricing last year collapsed 30%, 40% down. Some of the cost advantage of EAF was mitigated by that. Iron ore prices are looking pretty good right now, probably up 30%, 40% up from their bottom last year. That may skew some of our producers to run more EAF than the blast furnaces.

Ray Rund, Shaker Investments.

In looking at the guidance that you gave on EBITDA and overhead costs, SG&A and R&D, it sounds like plugging them into the model I have and making some assumptions, which I think are not outlandish, on your revenue levels, it sounds like your first profit margins in the first and second quarter are going to be down into the mid-teens, and then start to recover towards the end of the year. Is that a misreading of the situation?

No. I think you are reading it right. We don't guide to that item, so I won't comment on a specific number. But, I think your read of it is correct, yes. That is graphite electrode pricing. That pricing is such an important item in our industry. So, directionally and your interpretation is spot on.

Thank you.

Go ahead.

Can I follow that up with --

Please.

A question, in the quarter just finished, you did $371 million total. Why would the demand drop so much in the first quarter?

Well, remember, Q1 historically is a little softer for both of our segments, for ES and for IM. ES is coming off the big year-end build and new products and all that.

ES I understand because of the consumer electronics content.

In IM steel, usually Q1, most years, is one of our weakest quarters. That's our history. So, that's not completely out of line. Remember, we didn't say they don't have -- the customers don't have any carryover inventory; they do have some carryover into Q1, but nowhere near what they had a year ago. There's some carryover for sure, but it's must less than, like I said, last year, the impact to carryover on Q1 and Q2 was the largest other than '09 collapse.

I see. Thank you very much.

Zahid Siddique, Gabelli & Company.

Just another follow-up on the EBITDA delta question. I think you are expecting the EBITDA to decline somewhere between $40 million and $70 million in 2013 over 2012? With the volume going up and the cost being reduced and customer inventory position better and your own inventory position better, so you are suggesting that most of that is pricing?

Absolutely, price.

I want to find out what you are assuming in your models from a pricing perspective? Is that 10% to 12% number? Or is that a higher number?

What we would say, across different geographies, the price in graphite electrodes is down 8% to 12%. If you want to take the middle of that range, that's probably not a bad assumption.

If we took that and put that in our models and assumed some volume improvement, we will get an EBITDA decline of $40 million to $70 million?

Yes, you should be somewhere in that direction, depending on some of your other assumptions in your models. Also, remember needle coke is down about 8% to 10% also.

Correct. Just another question on the book building process. Relative to the past book building processes, where are you? Is it a slow process, or is it in line, or is it faster at this point in the --

It's faster than last year. We're over 60% in the graphite electrodes so far. So, it's a rapidly heading to 70%, 75%. We have a lot of requests in hand right now. I'm telling you what's actually in the book is over 60%, between 60%, 65%. I can see over the next few weeks that number is going to ratchet up quite a bit, just because of the bids we have requested in hand. So, it's faster than last year. Last year, you recall, because of the huge carryover, inventories was very slow, in fact, went deep into Q2 for some accounts.

Okay, and the last question on valuation. Given that small price improvements can adversely impact or positively impact your EBITDA to such a degree, how should we be valuing GrafTech, given that there's so much volatility?

Well, we are going through a period here of some excess capacity. So, that's got to sort itself out. The way I would look at it, you've got to look at what are the items that team GrafTech can work on? And how has it improved its business model the last several years? Our low cost, I think we are industry-leading, low-cost position, especially when you throw in the needle coke and our balance sheet, our ES growth, all of those items.

So, as you play this out, who do you think outperforms? Who is the company that can play offense and make some great acquisitions through this tough time in graphite electrodes? That's the way I would look at it. We can't control the capacity adds or what the others are doing. But, boy, we can improve our model so it's low-cost, the quality is great, super premium needle coke, and then, be shrewd when we make a move.

Like I said, I'm so pleased we haven't bought anything in China. I'd have probably $200 million written off, losing money, bleeding cash, where our cost structure right now is better than any of the Chinese producers. So, the right time will come. We will be in that local market at the right time, at the right price. So, Zahid, I would look at that way if I stood back at it. It's going to work itself out. We will continue adding EAF steel capacity around the world because it's advantaged, and we will be there to service it.

Charles Bradford, Bradford Research.

There are as many as 20 -- there is as much as 20 million tons of DRI capacity being planned in the US over the next few years. I know the US isn't that big a market for you guys, but some of these same trends might happen elsewhere. For example, the Chinese are claiming they have twice as much alternative gas suppliers as we have, or reserves as we have, which they are only beginning to develop. That's really the basis of why DRI makes sense.

So, the question is, my understanding, and I don't want to comment, frankly, about whether these plants get built or not. But, when you melt DRI, do you not use more electricity than if you melt scrap? Secondly, if you use more electricity, will that use up more electrode?

Chuck, you are spot on. Let me say one thing in detail, and then step back from the DRI equation. DRI is a melt that chews up a lot of electrodes. So, we love working with DRI, and so in general, yes. Does it use electrodes and does it tend to be tough on electrodes? Yes, it can be, point one. Point two, if we stepped back from it, when you see DRI adds and capacity, for someone like us that services EAF, this is very good news. More scrap, more China scrap, more DRI and other scrap substitutes are just beneficial for the EAF industry.

This low-priced natural gas that we have in the US, and you see China trying to exploit some of it through shale, is so powerful to the DRI equation, that we agree with you. We see more DRI coming, like new [course] building and other customers, which is a big benefit for EAF steel, which means there's going to be a lot more high-quality electrodes, large diameter electrodes required in the future. DRI usually is attached to the largest available EAF furnace, which requires the large, high-quality electrodes. So, this phenomena, we are very supportive of. We like to see it, and it's very good for our business.

The next step would be that if a lot more DRI does come on stream, and it is likely to come on in a lot of places, that would seem likely to drive down the price of scrap, even in places like Turkey, which have big electric furnace output and may not have access to the [TPS], I'm not sure. But it may actually enhance electric furnace output in a lot of places.

We agree with you. We agree with you. Scrap is their biggest cost in an EAF furnace. This is very beneficial for our customer base, very beneficial for GrafTech. That phenomena of DRI, natural gas in China, the things they are talking about, plus just the scrap reservoir and sources coming up in China over the next 10, 15 years, are so impressive and dramatic, is the other reason we want to find the right access and the right acquisition in China at the right time.

One of the questions I would have is, would there be enough DR quality pellets available to supply a lot of additional DRI capacity? And would this not cause iron ore prices to increase, just in general?

That's a tough equation. As scrap grows, as DRI capabilities grow, as natural gas stays very affordable, I think you are going to see EAF really enjoy that growth. If you travel in China, most of the cities, you can barely see across the street some days. This is downtown financial district, because the pollution is so bad. If you are on the ground like we are in China, China is getting very serious on pollution. They've got a long ways to go. All of that is just another factor that plays into why EAF will have a good run and good growth in China.

I've been going to China since the 70s when most of the homes were heated with charcoal briquettes. You don't see any of that anymore for exactly the reasons you say. They do have a lot of electric furnace capacity. But, they feed most of it from blast furnace hot metal.

Yes.

Do you hear anything about developments of the natural gas in China? I've got a study showing that they have got twice as much as we have.

Exactly. What we do see is a lot of talk and efforts around shale, natural-gas-type work in China. The big run-up, 30%, 40% up on iron ore makes those items even more viable. I think you're going to see China, who has to import 65%, 70% of its iron ore needs, really try to change that equation if they can. If they can use natural gas to get DRI and supplement that with scrap reservoirs that 10 years, 15 years from now are going to be very sizable, you will see them do that. Then you will see less of what you are talking about, using the blast furnace to put some hot metal into an EAF. Because it won't make economic sense.

[Thomas Haran, Accord Capital].

I think you had a question on the last call, somebody had mentioned something about CapEx spend depreciation being in excess of one. I know you said that was due to a lot of the acquisitions that you made over the last few years and the position the market had been in. I was just wondering now with the lower CapEx guidance due to the environment, if there was any rough estimate of what you could use for modeling purposes, as a long-term maintenance CapEx number?

Tom, good question. As you see this year, we've guided to lower CapEx. We've given you the breakout of maintenance and growth. The total is around $105 million. That is split $60 million to IM and $45 million to ES, the total numbers. We have brought down maintenance and growth capital. If we look at the maintenance, IM is going to be about $55 million this year, and ES is going to be $10 million. So call that around $65 million of maintenance capital. As we've talked on prior calls, for planning purposes, there is years we can do this. We've cut way back. Typical maintenance, you should think closer to $90 million or maybe even $100 million for us.

The reason is this. The needle coker is going to celebrate its thirtieth year this year. Our newest graphite electrode plant is over 30 years old. We have some that are over 50 years old. What I would put to you, in a heavy manufacturing, high-temperature environment that's very tough on the assets, as graphite production is and needle coke production is. That for planning purposes, we are going to be a little bit at the higher end of that little formula, or it should be the same as depreciation. So, we will be $90 million to $100 million. That's our typical.

Can we squeeze down some years like we are doing this year, in this tough year? Yes, but it will need to come back up closer to $90 million at some point down the road. Then, just to be clear in our D&A, we have $90 million, $92 million of D&A this year. Remember, about $20 million of that is purchase-price accounting. So, take $20 million out of that, so it's $70 million, call it $70 million. Our typical maintenance to have great operations, reliable productivity improvements through our [lien] program, is probably closer to $90 million and maybe $100 million some years.

Sal Tharani from Goldman Sachs.

I wanted to ask you about the super premium needle coke. Do you get a premium selling that, or is it gives you a better market share?

It's higher priced. There's ourselves and two other producers in the world. So, yes, it's always been a higher price. So, it's got a bit better margin. It definitely has a higher price. It's used in the largest-diameter, toughest applications. That is a space, building on all the dialogue we've had, the largest furnaces, DRI, some of those kinds of applications is where you would want a super premium needle coke in your electrode.

Your take-or-pay contract, is that mostly for super premium?

No. It's both. It's both normal premium and super premium. What some of those players have done over the years, if you want super premium, you have to buy so much normal premium. So, why we make a point that this breakthrough in super premium needle coke is important to us, it really frees us.

Arun Viswanathan, Longbow Research.

Could tell me a little bit more detail, out of the IM segment revenue of $1 billion or so in '12, how much was electrodes? How much was Seadrift? And how much was the refractory portion?

Arun, great question. It's a breakdown we do not give because of strategic and competitive reasons. So in that number, there is electrode sales, there's needle coke sales, and there is our refractory sales.

Can you just help us out with the refractory is then?

What's that?

Can you help us out with an order of magnitude for refractories?

Yes, what we've said historically for refractory is it's very small numbers. (multiple speakers) Needle coke and graphite electrodes are the big part of that. We don't give that breakdown, because, as you know, we are the only back-integrated, graphite electrode producer that produces needle coke. So, it's a competitive reason we don't share that.

So refractories is definitely less than 5% of those sales approximately?

Yes, it's small. Jody, if that's it, any other questions?

No, sir.

Okay. Jody and callers, thank you very much for your questions today. Look forward to talking to you at the end of Q1. Have a great day. Thank you.

Thank you, that concludes today's conference call. You may now disconnect.