Q4 2023 GrafTech International Ltd Earnings Call
Participants
Mike Dillon; Investor Relations; GrafTech International Ltd
Tim Flanagan; Interim CEO; GrafTech International Ltd
Jeremy Halford; COO; GrafTech International Ltd
Catherine Hedoux-Delgado; Interim Chief Financial Officer, Treasurer; GrafTech International Ltd
Matthew Vittorioso; Analyst; Jefferies Group LLC
Bill Peterson; Analyst; JPMorgan Chase & Co.
Alex Hacking; Analyst; Citi
Arun Viswanathan; Analyst; RBC Capital Markets
Curt Woodworth; Analyst; UBS
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the GrafTech Fourth Quarter 2020 Earnings Conference Call and Webcast. At this time, all lines are in a listen only mode in the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, February 14th, 2024.
I would now like to turn the conference over to Mr. Mike Dillon, Vice President, Investor Relations and Corporate Communications. Please go ahead.
Mike Dillon
Thank you. Good morning, and welcome to GrafTech International's earnings call for the fourth quarter and full year of 2023. And with me today are Tim Flanagan, Interim Chief Executive Officer; Jeremy Halford, Chief Operating Officer; and Katherine Delgado, Interim Chief Financial Officer. Tim will begin with opening comments. Jeremy will then discuss safety, the commercial environment, sales and operational matters. Catherine will review our quarterly results and other financial details, and Tim will close with comments on our outlook. We will then open the call to questions.
Turning to our next slide. As a reminder, some of the matters discussed in this call may include forward-looking statements regarding, among other things, performance trends and strategy. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investor Relations section of our website at www.graftech.com. A replay of the call will also be available on our website.
I'll now turn the call over to Tim.
Tim Flanagan
Morning, everyone, and thank you for joining GrafTech's Fourth Quarter Earnings Call. Let me begin by acknowledging a simple fact we operate in a cyclical industry and find ourselves in a challenging part of that cycle for our industry and for our business. And our results have fallen short of our expectations yet our optimism about the long-term prospects of our Company remain intact. On this call, we will discuss the actions we are taking in response to the cyclical downturn in demand, which include optimizing our footprint and improving our cost structure as well as the reasons for our long-term positive outlook.
With that backdrop, I will start with the macro environment, which continues to be impacted by economic uncertainty and geopolitical conflict. This includes the ongoing impact of above-target inflation combined with a high risk interest rate environment. In addition, there are multiple active military conflicts globally as well as strained geopolitical relations, all of which are contributing to expanding disruptions in commercial trade. These and other factors are having a significant impact on the economic performance and outlook for many regions, for example, in the EU, which is collectively the world's third largest economy in a key region for our business, 2023 represented another year of low industrial production and weak economic conditions, which are expected to continue for the foreseeable future. These factors have contributed to a constrained global steel industry, which has resulted in persistently soft demand for graphite electrodes. Further, graphite electrode prices remain weak and the industry has suffered from low capacity utilization and his comments, Jeremy will elaborate elaborate on both of these dynamics as weak demand played out in 2023. Graftech was also pressured by the impact of a temporary suspension at our Mexican operations in late 2022. We also experienced ongoing cost pressures, partially due to low capacity utilization. In response, we took a number of steps to help us navigate the headwinds, focusing on those things within our control. Our actions included proactively reducing our production volume to align with our demand outlook, closely managing our costs, capital expenditures and working capital levels and at the same time, making targeted investments to further improve our operational flexibility and product offerings and the impact in 2023 with significant initiatives to manage working capital led to more than 100 million of inventory reduction over the course of the year, resulting in positive free cash flow for 2023. Further, our efforts to reduce costs nearly drove a 10% decline in our 2023 period costs however, as we enter 2024, the softness in the commercial environment persists and in response, we must take additional action.
This morning. This morning we announced the implementation of a cost rationalization and a footprint optimization plan. This is a set of initiatives designed to reduce our cost structure and optimize our manufacturing footprint, while at the same time preserving our ability to deliver excellent customer service and to capitalize on the long-term growth opportunities.
Let me briefly walk through the three key elements of the program. First, we are indefinitely suspending most of the production activities at our St. Marys facility as well as indefinitely idling certain assets within our remaining graphite electrode manufacturing footprint.
As you know, last year, we announced our intention to restart production at St. Mary's as a primary component of our pin supply risk mitigation strategy. Since then, we've significantly advanced other elements of that strategy. Specifically, we proactively built up our in-stock inventory to exceed historical levels and prove out the capabilities of Pamplona to be a secondary facility for in-stock production, thereby giving us PIN production capabilities on two different continents with the advancement in these areas, we can adapt to the current environment and align costs and production with demand while remaining confident that our supply chains are well-positioned to meet the needs of our customers in all regions. Second, we are implementing actions that will reduce the company's overhead structure and expenses. This includes a thorough review of all our corporate and support functions globally to ensure we have the right structure and resources moving forward.
Third, we will continue to operate our remaining graphite electrode production facilities at reduced levels as needed in response to weak market conditions, thereby aligning our production with our evolving demand outlook. These actions will drive several key outcomes, specifically the suspension of production at St. Mary's and the reduction in corporate overhead will drive 25 million in annualized cost savings once fully implemented by the end of the second quarter. Excluding the impact of onetime costs, which are estimated to be approximately $5 million. Further, the indefinite idling of certain less-efficient assets across our remaining graphite electrode manufacturing footprint will reduce our stated capacity on a go forward basis from 202,000 metric tons to 178,000 metric tons, a reduction of 12% in light of current economic conditions and behaviors of others in the market. We view this as a prudent step. At the same time, it preserves our ability to meet our customers' needs. It gives us the flexibility to respond to future upswings in the market.
Lastly, these actions will support our efforts to further reduce inventory levels and manage working capital and capital expenditures in 2024. For all the reasons I've noted, we believe these are the right steps for the long-term health of our business. While the focus of much of our discussion today is on near-term headwinds and how we are responding, it's important not to lose sight of the fact that we operate in an industry with substantial long-term tailwinds. These include the expectations that the steel industry decarbonization efforts will continue to drive continued share growth for electric arc furnace method of steel production, thereby driving increased graphite electrode demand. In addition, demand for petroleum needle coke, the key raw material used to produce graphite electrodes is expected to accelerate, driven by it's used to produce synthetic graphite for the anode portion of lithium-ion batteries used in the electrical vehicle market. Graftech possesses a number of unique competitive advantages that support our ability to capitalize on these trends. These include the substantial vertical integration into petroleum needle coke as well as a distinct set of capabilities which supports a compelling customer value proposition.
For all of these reasons, GrafTech is well positioned to benefit from future growth opportunities and create shareholder value. I'll revisit these topics at the end of our pre-prepared remarks, but first let me turn the call over to Jeremy, followed by Katherine as they provide more color around our results and near-term outlook.
Jeremy Halford
Thank you, Tim, and thank you, Tim, and good morning, everyone. As always, I'll start my comments with a brief update on our safety performance, which is a core value at Kraft. We are encouraged that our 2023 recordable incident rate improved significantly from the prior year level and places us among the top operators in the broader manufacturing industry. Improvement in this area was a key point of emphasis with our internal teams in 2023. And I would like to thank all of our team members for their efforts yet we must continue to do better, and we will not be satisfied until we achieve our ultimate goal of zero injuries.
Let me now turn to the next slide to provide more color on current macro conditions and the commercial environment. Steel industry production outside of China continues to be constrained by weak demand due to global economic uncertainty. Compounding this has been the impact of steel exports from China, which reached a multiyear high in 2023.
Looking at data recently published by the World Steel Association on a global basis, steel production outside of China was approximately 830 onshore. And in 2023. While this level of production was in line with 2022. In total, there was a significant divergence among regions. In 2023, steel production increased 12% in India and 6% in China in Russia. However, this growth was offset by declines in most of our key commercial regions. Specifically, steel output in Europe declined 7% in 2023 as the ongoing slowdown in industrial production, subdued market demand and high energy costs continued to weigh on steel production in the Americas, steel production was down 3% in 2023, despite output in the US, the largest steel producer in that region being flat year over year as we move through the early part of 2024. We believe that a significant amount of global economic uncertainty remains as an overhang on steel demand and production in the near term. This in turn has resulted in ongoing industry-wide softness for graphite electrode demands. In addition, recent changes in competitive dynamics are having a further impact on graphite electrode pricing. First, despite the weak demand environment, we continue to see a healthy level of electrode exports from certain countries, including India and China into non-tariff protected regions such as the Middle East. These are typically lower priced electrodes with prices continuing to decline further of late second, given these export dynamics, we continue to see a knock-on pricing effect in tariff protected countries such as within the Tier one competitors have continued to lower pricing in these regions to support volume, as Tim will expand on during his closing comments, we view these as transitory changes in the competitive landscape. However, these are nevertheless dynamics that we must manage in the near term.
With that background, let's turn to the next slide for more details on how these factors have impacted our results and how we are responding.
The production and sales volume for the fourth quarter of 2023 were both approximately 24,000 metric tons. A key focus throughout 2023 was to proactively manage production volume to align with our evolving demand outlook, and we were pleased with our team's execution of this strategy. Fourth quarter shipments included approximately 5,000 metric tons sold under our LTAs at a weighted average realized price of $8,500 per metric ton and the 19,000 metric tons of non-LTL sales at a weighted average realized price of approximately $4,800 per metric ton. This weighted average price for non LTA sales represents a more than 20% year-over-year decline and a sequential decline from the third quarter of more than 10%, reflecting the pricing dynamics I referenced. Net sales in the fourth quarter of 2023 decreased 45% to the ongoing shift in the mix of our business from LT. eight to nine LTA. volume was the key driver of the year-over-year decline was lower lower overall volume and pricing also contributing for the reasons already mentioned, we expect industry wide demand for graphite electrodes in the near term will remain weak and pricing pressures to persist in most regions. In response, we are taking the actions that Tim outlined in his comments. In addition, we are being selective in the commercial opportunities we are choosing to pursue with a focus on competing responsibly. We believe that we provide a compelling value proposition to our customers, and we can compete on more than just price. Our value proposition includes a strategically positioned manufacturing footprint that provides operational flexibility and reach to key steelmaking regions being the only large-scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke offering, access to the architect furnace productivity system and customer technical services at no incremental cost to the customer and a focus on continually expanding our commercial and product offerings. For example, we remain on track to add 800 millimeter super-sized electrodes to our portfolio by the end of 2024 to serve a small but growing segment of the UHP. graphite electrode market.
As always, we remain relentlessly committed to producing the highest quality graphite electrodes and meeting the needs of our customers now and in the future. Let me now turn it over to Catherine to cover the rest of our financial details.
Catherine Hedoux-Delgado
Thank you, Jeremy, and good morning to all who have had a net loss of $217 million or $0.85 per share included a goodwill impairment charge of $171 million and the lower of cost or market inventory valuation adjustment of $12 million. Both of these non-cash charges reflect the near-term industry-wide dynamics, we have spoken to soft graphite electrode demand, weak pricing, both coinciding with higher cost inventory remaining on our balance sheet. Adjusted EBITDA was negative $22 million in the fourth quarter compared to positive adjusted EBITDA of $80 million in the fourth quarter of 2022. The decline in EBITDA reflected first, the continued shift in the mix of our business towards non-LTL volume, second, lower pricing, third, lower sales volume. And fourth, the impact of the lower of cost or market adjustment also contributing to the decline in adjusted EBITDA was higher year-over-year cost on a per metric ton basis. However, we did see a sequential improvement in this metric from the third quarter as we anticipated, as shown in the reconciliation provided in our earnings call materials posted on our website. Our cash COGS per metric ton declined approximately 7% from the third quarter of 2023 to the fourth QUARTER. The key driver of this improvement was a quarter-over-quarter reduction in the level of fixed costs that are being recognized on an accelerated basis due to low production volumes. In other words, these are costs recognized in the current period that would have been inventoried if we were operating at normal production levels. As a reminder, in the third quarter, we recorded approximately 18 million of such costs, approximately half of which was attributable to Seadrift being temporarily idled through the third quarter. In the fourth quarter, needle coke production at Seadrift resumed this along with a modest increase in graphite electrode production resulted in the amount of such costs recognized in the fourth quarter declining to approximately 10 million.
Now as it relates to 2024, we anticipate a low-teen percentage point decline in our cash COGS per metric ton compared to the full year cash cost per metric ton of 2023. In addition to the timing impact of the lower cost or market valuation adjustment that we recorded in the fourth quarter of 23. We expect the decline in cash COGS into 24 to be driven by three factors.
First, the impact of the cost rationalization activities that Tim discussed of the estimate of the estimated $25 million in annualized cost savings once fully implemented by the end of the second quarter, we expect approximately 15 million of the annualized savings will be reflected as reduced fixed manufacturing costs.
Second, market pricing for key elements of our cost structure including decant oil, energy and coal tar pitch continues to moderate as expected. Third, we expect a modest year-over-year improvement in our sales and production volume in '24, which would have a two-pronged impact on our cash COGS per metric ton, the anticipated increase in our production volume and capacity utilization rates. This will significantly reduce the amount of fixed costs being recognized on an accelerated basis. In addition, our fixed costs will be recognized over a larger volume base compared to the prior year.
Turning to cash flow. For the fourth quarter of '23, we generated $9 million of cash from operating activities and adjusted free cash flow of $4 million. This cash flow performance was supported by our ongoing focus on managing our cost managing our capital expenditures as well as our working capital levels, including another significant reduction in inventory during the quarter. I'm pleased to note that with our disciplined efforts in this area throughout 2023. This resulted in GrafTech being free cash flow positive for the year.
Moving to the next slide. We ended the year with a liquidity position of $289 million, consisting of $170 million of available cash and $112 million available under our revolving credit facility. This reflects the financial covenants that limit borrowing availability under our revolver in certain circumstances. More importantly, we do not anticipate the need to borrow against the revolver in 2024. And further, we have no debt maturities until the end of 2028.
Now let me turn the call back over to Tim for some additional comments on our outlook.
Tim Flanagan
Thanks, Catherine. Thus far, we've discussed the current environment and how we are responding. Let me spend the last few minutes of our prepared remarks by looking further ahead and beyond the near term challenges. To reiterate one of my opening comments, our optimism about the long-term prospects for our Company remains intact. We operate in a cyclical industry with which necessitates making tough decisions at times as we manage the things within our control as a company and a management team we've been here before and the actions that we announced today have been designed to preserve our flexibility to capitalize on future recovery of the market, and we expect the market to recover. Why do we remain confident while cyclical? We also operate in an industry with significant long-term tailwinds, decarbonization efforts are driving a transition in steel with electric arc furnaces continuing to increase share of total steel production.
The EAF method of steelmaking now accounts for nearly half of global steel production outside of China and an increase from 44% in 2015 with market share growth near in nearly every region. And this trend of YAS. share growth is expected to continue. In fact, we continue to see examples of governments providing incentives to companies to help fund investments in new EAF capacity. This ongoing transition towards EAF steelmaking is expected to drive demand growth for graphite electrodes over the longer term. Overall, considering planned EAF capacity additions based on steel producer announcements, along with production increases at existing EAF plants, we estimate that this would translate to global graphite electrode demand outside of China growing at a 3% to 4% kegger over the next five years. While we've seen a change in the competitive dynamic dynamics of late. As Jeremy indicated, this isn't entirely unexpected at this point in the cycle. We view these as being largely transitory, and we are well positioned to benefit from the long-term demand growth for graphite electrodes to note a few reasons. First, as prior cycles have demonstrated, the anticipated recovery in graphite electrode demand in coming years will help ease the current competitive pricing pressures. As a historical reference point, over the last 20 years, the selling price to our non-LTL volume has averaged approximately $6,000 per metric ton adjusted for inflation, which is significantly above current market prices.
Second, anticipated demand growth for petroleum needle coke, the raw material that we used to produce graphite electrodes will also present a pricing tailwind to expand on this point. Needle coke demand is expected to accelerate accelerate, driven by its use to produce synthetic graphite for the anode portion of lithium-ion batteries used in electric vehicle market. Growing demand for needle coke should result in elevated needle coke pricing given the high historical correlation between petroleum needle coke pricing and graphite electrode pricing with an inflation adjusted spread that has averaged approximately $3,900 per metric ton over the last 20 years. This trend should translate to higher market pricing for electrodes.
Third, in specific, the competition with Chinese with graphite electrode producers, we continue to view their opportunity for competitive inroads in our key markets to be limited over the longer term, the imposition of customs duties and other tariff protections in key EAF steelmaking regions, including the US and the EU, have served to limit the level of imports from China into these imports from China into these regions. Further, a quality gap still exists between Chinese electrodes and Tier one producers, which will become increasingly evident as new EAFs with more demanding applications come online in the coming years. As it relates to China's domestic graphite electrode demand, the country produces approximately 1 billion tons of match 1 billion metric tons of steel on an annual basis with approximately 90% still produced using the traditional method of steelmaking with even a relatively small percentage shift in the output to the more environmentally friendly EAF model. This would absorb a significant level of domestic graphite electrode production, thereby decreasing incentives for them to explore the export markets.
Lastly, and specific to GrafTech for all the reasons that Jeremy referenced, we provide a compelling value proposition to our customers and can compete on more than just price. As such, we continue to believe the GrafTech will get through this challenging period emerge as an industry leader and the preeminent supplier of mission critical products to the electric arc furnace industry.
Before concluding our prepared remarks, let me transition to a brief update on our efforts towards participation in the development of a Western EV battery supply chain. We continue to see potential long-term value creation opportunities in this space as we possess key assets, resources and know-how to support this industry. Our activities continue to advance in both the areas we have spoken to previously, first, leveraging our assets and technical know-how in the area of petroleum needle coke production. Given the expected demand growth for this key raw material. Second, leveraging our rapid innovation resources and expertise to produce synthetic graphite material for battery anodes. We remain excited about the opportunity and look forward to sharing more as we can.
In closing, we remain optimistic about the long-term outlook for our business and our ability to deliver shareholder value. We are an industry leading provider of a consumable product that is mission critical for the growing electric arc furnace method of steelmaking, we possess a distinct set of assets, capabilities and competitive advantages.
Lastly, as a result of our disciplined capital allocation strategy, we have ample liquidity to navigate the near term. This concludes our prepared remarks. We'll now open the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Matt Vittorioso, Jefferies.
Matthew Vittorioso
Yes, good morning and thanks for taking my questions. So I appreciate all the color on the steps that you're taking to navigate this market. Tom, I was hoping maybe we could just trying to frame this. You provided some color on expectations around cash costs down low 10s. If I do some rough math, that kind of seems to get you into the high 4,000, maybe 48 hundreds that kind of matches the current spot price or the non LTA realized price you had in the fourth quarter. That's just very rough kind of leads you to a neutral or zero EBITDA kind of environment. Is that sort of what you guys are picturing for 2024 as you navigate cash costs and realized pricing kind of being in the same ballpark?
Tim Flanagan
Yes, Matt, thanks for the question and appreciate it. And certainly, I think if you apply the current spot price here at the end of the fourth quarter and do the math the way you do. I think that's what it would suggest. But I would also just remind you that that cost guidance also reflects the fact that while we've said that we're going to improve, we're slightly increase sales volume year over year. We still expect to be running at a utilization rate kind of well below kind of normalized capacity. So we still think there's room for cost to come down as we move through as volumes pick up, we expect the cost to navigate down towards the lower 4,000 range over time. But in the current environment at spot pricing is what you said we recognized in the fourth quarter. I think that's a fair statement.
Matthew Vittorioso
Okay. And then I was hoping you could just talk about working capital. Obviously, you've done a nice job managing working capital throughout 2023 to ease the actually generate cash. Just what's the working capital or inventory opportunity that you see in 2024 on just as we think about liquidity and how that it sort of progresses over the course of the year?
Tim Flanagan
Yes. On. So we took out just over 100 million of inventory during the year. But we also commented we offset some of the reduction of our inventory on hand with building additional Penn stock, right? So a little bit of offset there. We think there's opportunities with the footprint optimization that we've just outlined to further reduce inventory levels. I'm not certainly to the order of magnitude that we've seen in 2023, but there's some opportunity to to relieve some additional inventory here in 24. That being said, as volumes pick up both on the sales and production side, over the course of the year, you'll get a little bit of a negative impact on working capital. So net-net, fairly balanced from an overall working capital perspective as we go throughout the year.
Matthew Vittorioso
Okay. And I think we've gotten the comment or question from a lot of investors, just given the current liquidity picture and I think you've outlined some nice steps today to manage and preserve liquidity. But as you see things today, any reason to raise additional capital or borrow additional money.
Now in the context of having $290 million of liquidity today?
Tim Flanagan
Yes.
I mean, you said at the end there right, we ended the year with $177 million of cash and the availability that's on the revolver. We feel good about the liquidity position and where we stand today. And really it's all in the context of the steps and what we've announced this morning with the idling of St. Mary's, the rationalization of the rest of our footprint as well as kind of the corporate and the overhead side of the business taking a hard look at that as well. We think all of those steps really position us well to manage in the near-term environment.
Matthew Vittorioso
Helpful. Last one for me. If I could just squeeze it in the other conversation we have a lot is just around customer relationships and it's contracting as it pertains to customers that have rolled off of those long-term agreements and maybe there being some ill will or just bad taste and certain customers miles post having those long-term agreements in place that were at higher prices. And I'm sure you're not going to provide specifics on conversations, but any commentary or feel or body language you can give us around like is that a persistent problem? Or are you making progress in sort of bridging that, that gap with customers. You talked about the long-term opportunity here, which seems pretty positive assuming you can and sort of get get customers back in your good graces So just any color or thoughts on that would be really helpful. Thanks.
Tim Flanagan
Yes, Matt, good question. And I know we're not going to comment on any particular customer interactions or relationships but I would say we went into the 24 negotiation process, which continues very it's ongoing throughout the year with a pretty difficult macro backdrop that we've talked to. And I think we're pretty pleased with the way that it's played out in terms of the level of engagement with customers, both in the Americas as well as in Europe and the rest of the world for that matter. So generally speaking, very pleased with where our customer relationships stand, and we're going to continue to focus on those customers where they value the long-term relationship and the value proposition that we bring to the table. It's the technical services. It's the continuous month furnace monitoring that we offer, those customers that value that are the customers that we build these relationships with and we're having the most success with. So we're pleased with where our customers stand at the moment.
Matthew Vittorioso
Okay, great. Thanks for the time.
I appreciate it.
Tim Flanagan
Thank you.
Operator
Bill Peterson, JPMorgan.
Bill Peterson
Yeah, hi. Good morning.
Tim Flanagan
Good morning, Bill.
Bill Peterson
Thanks for taking the questions. Yes, thanks. I guess how should we think about the shape of shipments as you see it today as we think about throughout 2024 on masking in the context of one of your Tier one peers now that they provide us some sort of sales outlook and expect the first half of 24 to decline versus the second half of 23, but also decline again in the second half of 24 relative to the first half. And I'm not really sure what their assumptions are on pricing, but they seem to indicate there's no expectation of improvement, at least from a shipment profile in the back half of the year. So just kind of wanted to get a view on how you're thinking about that?
Tim Flanagan
Yes, it's really tough to comment on somebody else's shipping patterns and the way they've contracted and the way that they manage kind of their customer relationships or how they do that. I think as we look out in the '24, as we've commented without providing specific numbers, we do anticipate an increase, modest increase in sales volume next year, and we'd expect sales to be in line Q1 from where we are we did in Q4 and then the new year will progress from there. I think as we look out longer as we head into 2025, we are anticipating volumes to continue to pick up and some months of market recovery.
Bill Peterson
Okay. Thanks for that. And I guess from your vantage point against some of our peers industry are responding in terms of supply. That appears directionally at a few of the peers are in fact reducing output, but they also have higher utilization than GrafTech. So I guess what is the risk to your share or may maybe continued price the pricing environment given that your peers are?
We're not really trimming capacity, it doesn't appear to be trimming capacity as much as you are.
Tim Flanagan
Yes. I mean, I think we again, are focused on taking the steps that we believe are right for GrafTech as a business that will not only position us best from a cost perspective, utilize our most efficient assets in the near term, but also allow us to continue to deliver electrodes to our customers in all regions. And we think the plans that we've laid out allow us to do that and absent of what our competitors are doing and what their drivers are in terms of their own respective business. But right now, I would generally say everybody's probably operating at less than optimal utilization levels and we're no different.
Bill Peterson
Okay. It sounds like you're comfortable with your cash position for the year. But I guess if demand and shipments were, I guess, to take another leg down or declined significantly, are you evaluating or are there other liquidity of alternatives such as asset sales, maybe secured debt issuance or anything else that could be on the table of shipping shipping is actually progressed worse? Just trying to get a sense of what alternatives you have?
Tim Flanagan
Yes. I mean, you know, there's always the risk that the market continues to move sideways or down further at this point in time, we have a fair portion of our order book lock for the year, just given the negotiation process that we just went through. And that certainly is something that we took into account as we we looked at the cost, the cost rationalization and footprint optimization program that we just went through. So again, we feel good about the steps we're taking and how it positions us this year on and you don't the world will play out as the world plays out going forward.
Bill Peterson
Okay, got it. Thanks for that. I'll leave it there. And take it offline. But good luck with navigating the environment here.
Tim Flanagan
Thanks, Bill.
Operator
Alex Hacking, Citi.
Alex Hacking
Yes, good morning, and I apologize if I missed this, but did you provide any color on the pricing outlook for the first half of this year? Thanks.
Tim Flanagan
Yes, Alex, thanks. And appreciate you joining the call, and we haven't provided any outlook for the pricing environment. And frankly, there's no benefit to us in terms of getting into a discussion around where pricing is you can look at pricing what we reported for the fourth quarter and use that if you want.
Alex Hacking
Okay. Thanks, Tom. And then I guess regarding India and China exports. Yes, I think as you mentioned, you know, Chinese steel production was probably up a little bit last year. Indian steel production was up strongly last year, yet they seem to be exporting more graphite electrodes. Do you have any color on what's happened? So capacity adds there? I guess what's driving the increase in and exports from those regions?
Tim Flanagan
Yes. So I think our commentary about exports was on the steel side. I think Chinese graphite electrode exports are maybe introducing some pricing pressures in the market, which we talked a little bit about in the third quarter from the year over year, Chinese electrode exports are actually down kind of double digit percentage. Indian exports, again, maybe up slightly year over year. But on a scale, there are a fraction of what the Chinese export market looks like. So So net-net, I don't think there's that much more material being put into the export market. But I think the pricing has been more aggressive, certainly and.
Alex Hacking
I'm okay, thanks. So I guess you say you haven't lost market share in India and Chinese material last year. In fact, if anything, you would have gained share against that if exports are down?
Tim Flanagan
No, I mean is it fair? I don't know if that's the way I would look at it. There are certain areas some in the non-tariff protected regions where you see more activity from those those players in those markets that we otherwise would not want to sell into, and we would otherwise import material into our core markets of the US and the EU.
Alex Hacking
Okay, thanks. And then I guess just finally, any comments around your market share in the US market in particular? I think it's the most attractive market for electrodes. We know that you've potentially lost some market share beginning of last year given the Monterey issues. And so any update on your US market share? Thanks.
Tim Flanagan
Yes. And I think we commented in the third quarter on this in particular about how the first step for us was to be able to go into the Q4 negotiation window with all of our customers, not just those customers in the US with the ability to commit to volumes for the full year. And we've done that. And as I said earlier in one of my responses to a question, we're very pleased with the way the those negotiations went in the volumes that we were allocated from all of our customers and we don't necessarily give specifics in terms of market share. And but again, the Americas is a substantial part of our business and will continue to be going forward.
Alex Hacking
Okay. Thank you.
Operator
Arun Viswanathan, RBC Capital Markets.
Arun Viswanathan
Great. Thanks for taking my question. And I guess the first question would be you noted that there's a significant cost per ton reduction. I understand the footprint optimization will help in that. But what kind of utilization rates should we think about as you move through the year and on our math, it would seem that you'd need to get into the 70s or 80s in order to get those that that cost per ton down into the 45 hundred or $5,000 per ton range. Is that required? And I know that you're shutting down St. Marys, but are there greater actions you can take, I mean running at 47%, it would it would imply that there's 50% or so of your capacity that's that's really not being utilized. If yes, would you consider shutting down maybe some of the other plants like Pamplona Calais? Or if you can just walk us through that.
Tim Flanagan
Yes. Thanks, Arun. And kind of a lot in that question. So if I miss apart, you please let me know. I guess first question with respect to your question on cost and how we get to levels below kind of what we're otherwise guiding to. And remember, that's not all going to come on the back of fixed cost leverage or fixed cost reductions, right? Fixed costs represent roughly 25% or so of our overall cost structure. So any increase in utilization will improve the cost structure, but we do anticipate further improvement from the price of needle coke as well as our other variable costs, right? So we're seeing kind of favorable trends in the market for all of those. And those will continue to to benefit us going forward, particularly in terms of energy prices in Europe.
In terms of I think your second part of the question was around would we shut another plant down again from the actions we've taken today with St. Mary's in our corporate overhead. It's predicated on our view of the world and our understanding of our business in market and don't necessarily, you know, let me say it this way we think we've taken the steps needed to be successful to navigate through this trough and get to the other side when we anticipate the market picking back up us running our plants in Europe and in Monterrey are important in our ability to deliver all of the products and make deliver on our commitments to our customers, but as well as being able to otherwise capitalize when the market picks up longer term, which again and we've said it a few times, we firmly believe that the market will pick up as we move forward both because of the decarbonization of steel as well as the demand for needle coke through to the EV market. So we're going to continue to run those assets. And but we're going to run them as efficiently as we can and the only refinement that has.
Arun Viswanathan
I'm sorry about that as unmute mute. Just one other question. Just could you elaborate on your plans to pursue commercialization of your needle coke into the EV market. Is there any support you can get from higher rates or any other strategic initiatives there?
Tim Flanagan
Thanks, Arun. I'll let Jeremy take that one.
Jeremy Halford
Yes, right. So a couple of a couple of things there. First of all, you'll recall that as we previously noted in July, we did file a permit application to significantly expand the capacity of production at Seadrift excuse me. And at the time we said that we would be able to add that if we went forward with the project, we would have the ability to increase the 140,000 tonne nameplate capacity by about 40% through a combination of calcine and pre calcine needle coke and so at the time we said that we would we would anticipate that process taking about a year and we don't have any reason to think that the permitting process will be any longer or shorter than that at this point. So continuing, we're continuing down that path.
In terms of actually commercializing in engaging with that with potential customers. We continue down that path, both from a needle coke as well as a graphic position perspective, we have as we have done trials with several customers and AMP, and I would say that the pace of activity there is increasing. And so we feel good about where we're at, but and nothing to nothing to announce at this point.
Arun Viswanathan
Great. And then just lastly, on the first, just wanted to ask again on that issue of potential electrode substitutes or of competition from Chinese and Indian electrodes. Presumably during the shutdown at Monterrey, there was some potential of your customers to maybe source electrodes from from other suppliers? What's the strategy to kind of get back that those volumes? I know you said in other cases, there's a value proposition and service that you provide, but it would appear that just given the pricing environment, that price would be the main lever to trying to get back from that share. Maybe just elaborate on some of the other services that you think would be helpful in regaining that share? Thanks.
Tim Flanagan
Yes, Arun, I mean, I think ultimately getting commercial relationship, right? It's the relationship and it's providing a compelling value proposition, not only through a quality product, which again, we think our electrodes are the best in the world in terms of quality, but it's also what else you offer your customers and how they view you as well. And I think it's important to remember that especially in the US market, in particular on prices and always the bottom line in terms of the determination, just given the fact that the US mills are still running at very healthy utilization rates, any sort of quality issues or breakage or interruption to their furnaces, ultimately cost them money. They're going to continue to err on the side of producing quality electrodes, and that's what we remain focused on.
Arun Viswanathan
Well, thanks a lot. Thank you.
Tim Flanagan
Thank you.
Operator
[Craig from Imperial Capital]
Hello, everyone. Thank you for the call. I'm just a few follow-ups. If I may on the competitive landscape, I completely recognize it's not all about price and cost can be a moving target. But where do you think your three plants are on the cost curve, maybe just which quartile do you think they are in yet?
Tim Flanagan
Sorry, I ahead outside the US, I thought you had a first further question or more more to that yes, again, we don't necessarily break our plants down separately. We look at the overall manufacturing footprint footprint as kind of a global net network. And we think we're very cost competitive we're exactly on the cost curve. I won't speculate, but we think we're well positioned from a cost perspective. And certainly as we continue to drive up our utilization at the plants that just makes those plants even more competitive given their overall size and scale.
Got it. Thank you. And with respect to competitors' idling electrode capacity is can you expand on that or do you have any any estimates of what what might be happening on that front?
Tim Flanagan
I can't comment on what our competitors are doing. It would just be pure speculation, but if they want idle capacity, I'm okay, I'm okay with that.
Okay, great. Thanks. On a last call, you mentioned that China was limiting the export of synthetic graphite is that any comments on that front?
Tim Flanagan
Yes. So I think I think the specific comment, what I had to do is synthetic graphite for use in anode materials and a it is kind of a recognition of the value of synthetic graphite as we start seeing further electrification of the fleet. And so and that continues to be continues to be the case perhaps a restricting or at least there at least requiring licenses from the producers before they're allowed to export that material. And you say now it's not something that we've got direct experience with. But we do know that that is a key driver of potential exports from there and kind of a recognition of the importance of synthetic graphite in the in the overall electric vehicle supply chain.
Great, thank you. And on Seadrift, how much would a 40% increase in capacity costs?
Tim Flanagan
Yes. So we haven't provided a specific number, but what we've guided to in the past is that a full replication of Seadrift would be north of $750 million and the the replication or the addition of that 40% isn't linear, right? If it's not 40% of seven 50, we can do it much more efficient than that. So yes, got it.
Super helpful. Last one on the order book, how much have you sold for fiscal 20 for how much volume?
Tim Flanagan
Yes. So we're at, but we haven't provided the exact numbers in terms of what total volume we expect for the full year. But we're we're well over 50% committed at this point and into it for the first quarter.
For the full year?
Tim Flanagan
For the full year.
Great. Thank you very much. Appreciate it.
Tim Flanagan
Thanks.
Operator
Curt Woodworth from UBS.
Curt Woodworth
Yeah, good morning, Tim. So just wanted to follow and Kurt on. So in terms of cracking the code around sort of the EV anode market, right? You have PSX that signed some deals with bottlenecks on the coke side. You've got some a lot of and EV anode development underway. And so on the one hand, you have competitive advantage on the petroleum coke side going into synthetic. And then you also have capability just on the pure equipment machining material process side of the business. So I guess the question is what where do you think the value in use is the most compelling in your portfolio, do you think it's more processing on the coke side? And then how should we think about like next steps on? Is it more likely that you would partner with someone to potentially expand the drift or and you have access to machining capacity that can be utilized to make synthetic. It's hard for us to really frame kind of the relative economics? And I know that it's early stages, but anything you could and help us think about would be greatly appreciated. Thanks.
Tim Flanagan
Yes. So let me start and then Jeremy, I'll ask you to chime in as well. And you know, the two areas that I commented on in particular, where we see the opportunity as it relates to us, is utilization of our graph innovation assets as well as our expertise and Seadrift as a facility, whether as it is constructed today or if we were to pursue an expansion on both of those are pretty compelling because both sets of assets are really dual use assets, right? The process for graphite anode material isn't really any different than the process for creating electrodes that we do and have been doing for decades and decades. So really, it's an opportunity for us to not only maximize our utilization of our assets, but also there's an arbitrage opportunity to go after the markets that have the best margin longer term?
Yes, in the short run rate, there's really no benefit or upside in 24, right? These are all kind of longer-term opportunities in place for us, but but still are certainly exciting ventures as we head out the way we think about it from a balance sheet perspective and what the construct looks like there's a dozen different ways that this could play out or more than a dozen different ways this could play out. But but certainly given kind of the challenging environment right now, we wouldn't do this on our own in most cases, right. Given the capital outlay or any sort of significant expansion of Seadrift, we wouldn't be in a position nor would we want to take on that, that cost on our own. Jeremy, do you want to add to that?
Jeremy Halford
Yes, I think I think you've hit the key points, Tim this is this is an opportunity that will be comparatively small in the near term, thinking 2024. And as we accelerate through 2025 and into a later the latter part of the decade is really when we see the Western supply chains developing it and are seeking to be a participant.
Curt Woodworth
Okay. And then in terms of needle coke in the past, you've commented on third party pricing data that you have. Can you give us a sense for where you think needle coke is at? And then I know you're hesitant to provide any commentary on pricing for electrodes, but directionally speaking, order of magnitude, should we think that your 1Q non non LTA price will fall similarly in fashion as the last Q on Q or any comments would be helpful. Thanks.
Tim Flanagan
Yes. So let me start on the electric side, and then I'll let Jeremy comment on the needle coke. Yes, we're not going to provide kind of any sort of specific outlook, whether directional or not beyond the macro kind of commentary we provided, right. We're still negotiating orders on a daily basis and it doesn't benefit us to signal where we think those prices are going to go.
Jeremy Halford
And if we look at to look at needle coke, we did see some further softening of the needle coke market. Again, we rely on some import export data to tell us where the market's trading, and that does tend to lag by a couple of months, but we did see Q4 spot pricing for needle coke in the $1,300 range, which was a further decline from from where we were in the third quarter. But this is something that is a very highly volatile market. We can that we can see in the recent past prices as high as $3,000 a ton in 2022 when in fact, they were closer to $1,000 the year before that. So where it's pretty volatile, we still believe in the long-term trends on needle coke, but really the softness right now, I think is a reflection of the soft graphite electrode market without an offset in the form of the expanding Western EV supply chain yet.
Curt Woodworth
And would you would your captive cost as Seadrift be below as well, below 1,000?
Tim Flanagan
Yes. So again, we didn't we haven't historically given a lot of detail on Seadrift because we do see it as a competitive advantage, a competitive advantage for us, even in this sort of needle coke market, given the quality of the Seadrift needle coke, it is still cost competitive in this market.
Curt Woodworth
Thank you very much.
Tim Flanagan
Thanks.
Operator
Abby Landa, Bank of America.
Good morning. Thanks for squeezing me in just a few questions for me. I kind of want to maybe touch on for regional differences, what you're seeing and kind of on the outlook side, primarily between U.S. and Europe. Like just what do you see in terms of competition differences between those two areas, maybe how it relates to what you're seeing graphite electrode pricing there and kind of maybe a sense of your capacity utilization by regions? Thanks.
Tim Flanagan
Yes, thanks, Dave. And in terms of the outlook by region again, I mean, it really follows the macro story more broadly, right? The US has remained to be a fairly healthy market for U.S. steel utilization rates continue to be in the mid 70s. Europe is a market that is certainly more challenged from an economic standpoint, I think capacity utilization in Europe, it ended the year in the 50% or 53% range. So there, thereby you can kind of deduce kind of the overall quality or intensity of those markets.
In terms of other competition from, you know, we do have tariff protections in the US and in Europe on U.S. where there's tariffs in place against Chinese imports in Europe. It's both the Indian and Chinese imports. So some of the markets are kind of where they're at. Again, capacity utilization. We look at our network certainly I have and will continue to going forward as a global manufacturing footprint. So we don't provide kind of capacity utilization by plant. You don't I don't think is really relevant in terms of how we look at our business.
Is that non-Tier one is competition kind of different in Europe versus the U.S. or the intensity of it and its impact on pricing. Do you notice any differences or not?
Tim Flanagan
No. I mean, I you don't see much of a presence in Europe of either the Chinese or the Indians, right. That's the your Tier one players are the ones that are there are for the most part, the incumbents in that market. You do see a small Indian presence in the US, but I don't know if I would say that the intensity is any different.
Right, got it. And then kind of on your view on your OR cost rationalization and footprint plan, you kind of mentioned on this, the third point, the operating at reduced levels, and I think you kind of mentioned taken your from 200 to 200, 78 times. Can you just walk us through that, how you're thinking about implementing that and how you expect that different kind of over the year?
Tim Flanagan
Yes. So really, there's there's three things there on. One is the idling of St. Mary's, right? So we're taking down most of the production activities at our St. Mary's location. We also looked at all of our assets across the again, our entire footprint of assets and said, which are the ones that are most efficient and how can we best optimize utilization of our assets. So there's another subset of assets in the other plants that we're continuing to run and that that will stop running and won't otherwise consider those as part of our productive capacity. The combination of those two things and the remaining footprint is what will inform the 178 million sorry, 178,000 metric ton capacity that we'll measure our utilization against going forward with respect to the commentary around matching our production of our operating footprint relative to ARM commercial demand. Again, it's the 178,000 tons that are part of our capacity, we will we will scale our production to our demand, right? We need to be conscious of our working capital where we on a run as efficiently as possible, and we'll continue to operate much like we've done here in 23 where and we've scaled back operations at various points in time to ensure that we're in alignment with overall demand.
So it seems like you potentially have some room to maybe at all certain assets for longer to kind of better match it. If for some reason, the market takes a further downturn but the right way to maybe look at it?
Tim Flanagan
Yes. I mean, again, I would say that we've idled the assets that we think best position us to navigate our view on the market as it exists today. And as we look out forward, you certainly we can we can slow down other assets at various points in time during the year. But again, we want to have those assets ready in a position to and begin production or continued production as the market recovers. And as we look out over the long term and my last one. It's kind of a follow-up to some previous questions.
When you think about your liquidity, especially on the cash side, is there like a minimum operating cash number they you'd be comfortable operating?
Tim Flanagan
Yes. I mean, I think we've said in the past, the 50 million just from an operational standpoint is a very effective or easy number for us to manage the business on. But I think just to overall liquidity, we're sitting again and a very healthy liquidity position as we look out into 2024.
That's it for me. Thank you very much. Thanks a lot.
Operator
Thank you. This concludes our question and answer session. I will now hand the call back over to you, Joe Flanagan for closing comments.
Tim Flanagan
Thanks, Dean. And I'd like to thank everyone for your call or your interest in our call today, and we look forward to speaking with everyone next quarter. Have a great day.
Operator
Thank you. That does conclude the conference for today. Thank you all for participating. You may all disconnect.
