GrafTech's Q4 2025: Navigating the Oversupply Phase of the EAF Steel Cycle

The long-term story for graphite electrodes is inextricably linked to a global industrial transition. The shift from traditional blast furnaces to Electric Arc Furnace (EAF) steelmaking is the primary structural driver, fueled by environmental mandates and operational efficiency. According to industry data, EAF technology already commands a significant 42.5% share of global steelmaking capacity, a figure that is set to grow. The International Energy Agency's net-zero roadmap explicitly targets 53% of global steel production by 2050 to be made via EAF. This creates a powerful, multi-decade demand tailwind for the electrodes that are essential to the process.

Yet, this long-term structural shift is currently colliding with a severe short-term headwind: global steel overcapacity. The industry is in its seventh consecutive year of expanding production capacity, which reached 2.55 billion metric tons by the end of 2025. This surge in supply, driven by planned additions in Asia and the Middle East, has created a massive surplus of 680 million metric tons. The result is a classic oversupply phase, where the fundamental demand story is being overwhelmed by sheer production volume. This dynamic is the immediate context for graphite electrode producers like GrafTech, where the long-term EAF growth thesis is being tested against a market drowning in steel.

A critical piece of this puzzle is China's role. The world's largest steel producer appears to be entering a new phase, with 2025 output dropping 4.4% to 960.1 million tons, its first decline below the one-billion-ton mark since 2019. This managed slowdown, aimed at addressing overcapacity, has profound implications for the global scrap trade and, by extension, the EAF cycle. As China's domestic production eases, its steel exports rose to a record high of 119 million tons in 2025. This reshapes trade flows, flooding markets in India and elsewhere with low-cost steel. For the EAF model, which relies on scrap as its primary feedstock, this creates a complex picture: ample scrap supply is available, but the resulting oversupply depresses steel prices and pressures margins across the entire value chain.

Viewed through the macro lens, the graphite electrode cycle is thus caught between two powerful forces. The first is the powerful, long-term structural tailwind of decarbonization driving EAF adoption. The second is the immediate, disruptive headwind of a global steel industry in a prolonged oversupply phase, exacerbated by China's managed production decline and record exports. This tension defines the current market, where the fundamental demand story is valid but temporarily obscured by cyclical noise.

GrafTech's Q4 2025: Volume Growth vs. Price Pressure in a Weak Cycle

GrafTech's fourth-quarter results present a clear picture of operational execution in a punishing market. The company's strategy was to grow volume where it could, while aggressively managing costs to protect cash flow. This approach allowed it to navigate the deep oversupply cycle, but the results underscore the severe pressure on pricing that defines the current graphite electrode market.

The volume story is one of deliberate geographic shift. Full-year sales volume grew 6%, but the real momentum was in the United States. There, shipments surged 48% for the year, pushing the US share of total volume to 31% from 22% a year ago. This aggressive push into the US market, where pricing remains relatively stronger, was a key tactical move. It helped the company maintain some pricing discipline by walking away from lower-margin business in more pressured regions, a strategy management called out as necessary amid "aggressive" and "irrational" competitor pricing.

Yet, this volume growth could not stem the tide of price erosion. The Q4 average selling price declined 9% year-over-year to approximately $4,000 per metric ton, with management noting the decline was also 5% sequentially from the prior quarter. This persistent drop reflects the ongoing competitive dynamics from a global industry drowning in steel capacity. The company's own guidance confirms the outlook is not improving, with management stating that "absolute pricing that we're observing thus far, as we head into '26, isn't better than what we're seeing at the '25 level."

In this environment, cost control became the critical lever. GrafTech's cumulative cash cost of goods sold per metric ton has fallen 31% versus 2023, driven by procurement, energy efficiency, and production initiatives. This discipline paid off, with the full-year average cash cost per metric ton coming in at just over $3,800, a 11% decline from 2024. However, even this significant reduction was not enough to offset the price drop, leading to a wider net loss in the quarter.

The bottom line is a company executing its playbook in a weak cycle. It grew volume where it could, focused on higher-priced US markets, and slashed costs. But the fundamental market imbalance-where supply far outstrips demand-means that even disciplined execution cannot prevent further erosion of profitability. The path forward, as outlined in 2026 guidance, hinges on maintaining that volume growth while continuing to drive down costs, all while navigating a market where pricing remains under intense pressure.

Financial Impact and Market Sentiment: The Cycle's Price Signal

The operational metrics from GrafTech's fourth quarter translate directly into a clear financial story: cost discipline has been the only shield against a collapsing price environment. The company's cumulative cash cost per metric ton has fallen 31% since 2023, a remarkable achievement that helped keep the full-year average cash cost at just over $3,800. Yet, this progress was not enough to offset the 9% year-over-year price decline in Q4, which saw the average selling price fall to approximately $4,000. The result was a wider net loss and negative adjusted EBITDA. More telling is the quarterly cost trend: cash costs for the quarter were $4,019 per metric ton, down 2% year-over-year but higher than prior quarters. This indicates that despite the long-term reduction, the company is still operating at a significant margin pressure, with its cost base hovering just above the current selling price.

This pressure is set against a backdrop of long-term market growth that provides a ceiling, not a near-term catalyst. The global graphite electrode market is projected to expand from $4.25 billion in 2024 to $6.95 billion by 2032, growing at a compound annual rate of about 6.5%. This trajectory reflects the enduring structural demand from the EAF steel transition. But for a company like GrafTech, the immediate challenge is navigating the current oversupply cycle, where the long-term growth story is being drowned out by near-term price destruction. The market's size and growth rate define the ultimate prize, but the cycle's timing dictates the path to get there.

The stock's recent performance is the clearest signal of market sentiment on this cycle. Following a strong run into early January, the share price has fallen roughly 20% from its high. This decline, visible in the daily trading data, reflects investor pricing in a persistent oversupply scenario. The market is looking past the company's aggressive cost-cutting and volume growth in the US, focusing instead on the fundamental imbalance where supply far exceeds demand. Management's own guidance, stating that "absolute pricing that we're observing thus far, as we head into '26, isn't better than what we're seeing at the '25 level," reinforces this outlook. The stock's move is a direct valuation of the cycle's duration, suggesting that the market believes the price erosion and margin pressure will continue for the foreseeable future, even as the long-term demand story remains intact.

Catalysts and Risks: The Path Through the Cycle

The path from GrafTech's current oversupply trough to a sustainable upturn hinges on a few critical macro and trade dynamics. The primary catalyst is the pace of Electric Arc Furnace adoption, which is now being accelerated by policy rather than just economics. Carbon border taxes, like the EU's Carbon Border Adjustment Mechanism (CBAM), are making traditional steelmaking more expensive for exporters, while industrial policy is actively promoting clean steel. This creates a powerful tailwind for EAF technology, which is essential for the structural demand story. The market's long-term growth projection to $6.95 billion by 2032 is built on this transition, and any acceleration in EAF capacity additions would directly boost graphite electrode demand.

Yet the key risk is that this long-term tailwind is being overwhelmed by a severe, persistent headwind: global steel overcapacity. The industry is in its seventh consecutive year of capacity expansion, with planned additions expected to bring an additional 109 million metric tons of new capacity by 2028. This structural surplus, estimated at 680 million tons, will prolong price pressure and delay the cyclical upturn. Even as EAF adoption grows, the sheer volume of new steelmaking capacity-much of it in Asia and the Middle East-means the market will remain flooded for years, capping any price recovery.

A crucial factor to watch is the evolution of trade flows, particularly between the US, China, and Europe. China's managed production decline and record exports are reshaping the global scrap trade, a vital feedstock for EAF mills. Any shift in US-China trade policy or European import penetration could directly impact scrap availability and steelmaking economics. For instance, if European protectionism intensifies, it could limit Chinese steel exports to that market, potentially easing some pressure but also forcing China to seek other outlets, further complicating global trade. The market's current setup, where steel production capacity expanded at its fastest rate since 2009 in 2025, suggests these trade frictions will remain a central feature of the cycle for the foreseeable future.

In this environment, GrafTech's ability to sustain profitability will depend on its agility. The company must continue to navigate the oversupply phase by focusing on higher-priced markets like the US, while its long-term viability rests on the industry's eventual move toward a balanced cycle. The catalyst is clear: policy-driven EAF adoption. The risk is that overcapacity and trade friction prolong the current weak phase, testing the company's cost discipline and cash reserves. The path through the cycle is not a straight line, but a journey defined by these conflicting forces.