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GrafTech International (NYSE: EAF) is not your typical “cheap cyclicals” idea. At today’s price, the equity behaves much more like a levered option on a future recovery in graphite electrode pricing than a classic value stock backed by hard assets and normalized earnings power.

Our latest deep dive into the company’s SEC filings, recent results, and industry backdrop makes one thing clear: near-term upside in the stock requires fundamentals to change, not sentiment. According to the 10-K (2026), p. 28, management itself describes industry pricing as “unsustainably low,” yet still expects aggressive competitor pricing pressure to continue into 2026. That is not the backdrop you want when the business is sitting near cash break-even per ton and paying over $100 million in annual interest.

In this article, we walk through why our team currently rates EAF as a WAIT, where we see the base, bull, and bear cases landing, and which concrete datapoints we’re watching over the next few quarters before considering a more aggressive stance.

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What Does GrafTech Actually Do – And Why Is It So Cyclical?

GrafTech produces ultra-high power (UHP) graphite electrodes, a consumable input used in electric arc furnace (EAF) steelmaking. Demand is tied directly to EAF steel output and operating efficiency, not long-duration capex projects. As the company explains in the 10-K (2026), p. 4, electrode consumption averages about 1.7 kilograms per metric ton of steel in EAF facilities, so volumes scale with steel production.

A few structural realities shape the investment profile:

Customer concentration: About 96% of 2025 electrode volume went to EAF steel producers, and 94% of 2025 net sales came from EMEA and the Americas, with 59% outside the U.S. 10-K (2026), p. 7.
Pricing model: Revenue comes from a mix of short-term purchase agreements, multi-year purchase agreements, and spot sales, recognized at the point in time when control transfers—typically at delivery, per the 10-K (2026), p. 54.
Shift from LTAs to spot: Historically, long-term agreements (LTAs) created a “price umbrella.” Those largely rolled off by 2024, leaving GrafTech much more exposed to spot and short-cycle pricing. Management does not expect multi-year agreements to be the majority of the portfolio again 10-K (2026), p. 7.

That last point is crucial. The business has migrated from a relatively insulated, contract-heavy model to a commodity-exposed, price-taking model in a market currently dealing with oversupply and China-led exports. In plain English: volatility is structurally higher now than during the LTA era.

The Core Investment Thesis: A Levered Bet on Price Stabilization

Our team’s base framing is straightforward: GrafTech equity behaves like a levered call option on graphite electrode price stabilization plus incremental cost-down.

The recent numbers highlight why:

Q4 2025 realized price was roughly $4,000 per metric ton, down 5% sequentially.
Q4 2025 cash COGS per metric ton was $4,019, essentially at cash break-even before interest and sustaining capex.
Q4 2025 operating cash flow was -$21 million, and adjusted free cash flow was -$39 million according to the Q4 2025 earnings release (Business Wire, Feb 6 2026).
For full-year 2025, operating cash flow was -$82 million, while interest expense was $104.1 million, per the 10-K (2026), p. 50.

Management has executed a meaningful cost-down: a 31% cumulative decline in cash COGS per ton since the end of 2023, with a guided low single-digit percentage decline in 2026 vs. 2025 10-K (2026), p. 28. Unfortunately, that progress is being more than offset by falling realized prices as competitor discounting persists.

Why We Don’t See a Margin of Safety at Today’s Price

From a value-investing perspective, we always ask: what is our margin of safety? With GrafTech, our answer right now is: none.

Here’s why:

Unit economics are effectively at cash break-even before fixed charges.
The company carries substantial interest expense and plans to increase gross debt.
Liquidity—$340 million as of 12/31/2025, including $100 million of delayed-draw commitments—is a runway, not an asset-backed floor for the equity 10-K (2026), p. 28.
Inventory lower-of-cost-or-market (LCM) write-downs remain a recurring headwind: $18.3 million in 2025 and $24.9 million in 2024, per 10-K (2026), p. 54.

In our view, this is not a “buy it cheap and wait for mean reversion” situation. It’s a bridge-to-survival story where the bridge is only as strong as the next few quarters of pricing and cost execution.

Base, Bull, and Bear Scenarios for EAF Stock

To make sense of the risk/reward, we frame EAF through explicit scenarios anchored in the company’s own guidance and recent trends.

Base Case (50% probability): Narrowing Losses, Still No Pricing Power

Implied value: $6.50 per share
Key driver: Internal cost-down offsets weak pricing enough to narrow losses, but industry pricing power is not restored.
Operating outcome: Realized prices hold near ~$4,000/MT while cash COGS per ton falls a low single-digit percentage in 2026.

In this world, EAF becomes less bad rather than clearly good. The cost program continues to work, U.S. mix adds a modest pricing premium (company estimates +$135/MT to 2025 ASP from U.S. mix, according to the 10-K (2026), p. 28), and volume grows 5–10% in 2026 without cutting price to buy share. But the equity is still pricing an “endurance” story, not a clean recovery.

Bull Case (20% probability): Supply Rationalization and Flat-to-Up Pricing

Implied value: $9.50 per share
Key driver: Non-China suppliers accelerate capacity rationalization, easing competitive discounting.
Operating outcome: Sequential realized prices turn flat-to-up by Q3 2026 and quarterly Adjusted EBITDA recovers to $0–$25 million.

Here, industry dynamics do some of the heavy lifting. Peer actions such as Tokai Carbon’s roughly 50% reduction in Japanese capacity and exit from European manufacturing, as reported in the Tokai Carbon shareholder newsletter, Autumn 2025, help tighten the ex-China market. GrafTech’s cost-down and margin discipline let it translate flat-to-improving prices into real cash flow.

For the stock, this scenario offers solid upside but rests on external variables—namely, how quickly supply comes out and whether China’s excess capacity keeps pressing on export markets.

Bear Case (30% probability): Prolonged Oversupply and Cash Burn

Implied value: $4.00 per share
Key driver: China-led oversupply keeps imports flowing into the Americas and EMEA, locking in price pressure.
Operating outcome: Realized prices decline another 5% sequentially through mid-2026; quarterly free cash flow remains below -$40 million.

In this path, several pain points compound:

Realized prices keep sliding from the Q4 2025 base of ~$4,000/MT.
Cash COGS per ton doesn’t fall fast enough to hold the line.
Inventory write-downs persist, revolver availability may tighten further, and the company is forced deeper into the capital structure to sustain operations.

Under these conditions, the equity starts looking like an out-of-the-money option with rising default risk. For fundamental investors, this is where permanent capital impairment moves from theoretical to probable.

Is EAF Stock a Buy in 2026?

Given the above, how should a long-term investor think about EAF over the next 12–18 months?

Our current rating is WAIT, with a 6–12 month re-assessment window. That stance is driven by very specific triggers that would either improve or weaken our conviction.

What Would Make Us More Positive?

We would upgrade our stance if we see both of the following:

1. Two consecutive quarters with realized prices flat-to-up from the Q4 2025 level of ~$4,000/MT.

2. Adjusted EBITDA at or above breakeven by Q3 2026, signaling that price and cost-down have finally bent the P&L in the right direction.

These are not heroic assumptions; they simply require industry prices to stop falling and GrafTech to execute on its cost roadmap. But until we see them in the numbers, upside is largely theoretical.

What Would Make Us More Cautious or Exit?

Our thesis would weaken if:

1H 2026 average selling price (ASP) declines more than 5% quarter-on-quarter and quarterly adjusted free cash flow stays below -$40 million.
Sequential realized prices keep tracking down versus Q4 2025, contradicting the idea that we’re near a bottom.
Management reverses its stated discipline and starts accepting “unacceptably low” margin business to chase shipment targets, as discussed in the 8-K (2026), p. 4.

In those cases, we would treat the equity less as an out-of-favor cyclical and more as a value trap, where incremental capital faces a poor probability-weighted return.

If you own or are considering EAF, you should be tracking these pricing and cash-flow triggers quarter by quarter. Use DeepValue to monitor new filings, refresh full reports in minutes, and standardize scenario work across your whole watchlist.

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Will GrafTech Deliver Long-Term Growth or Just Survive the Downcycle?

Over the long term (2–5 years), the GrafTech debate is really about survivability versus earnings power.

What Needs to Happen Long Term

From our read of the filings and industry context, a durable bull case needs:

Contract mix that reduces volatility, even without LTA dominance. Management doesn’t expect multi-year agreements to become the majority again, per the 10-K (2026), p. 7. That means the business model must handle more spot exposure structurally.
Ongoing non-China capacity rationalization. Actions like Tokai Carbon’s European exit and Japanese capacity cuts are steps in the right direction, but the pace matters Tokai Carbon shareholder newsletter, Autumn 2025.
Balance sheet and liquidity discipline. With revolver availability already reduced due to performance as of 12/31/2025 10-K (2026), p. 37, management has less room for missteps.

If GrafTech can survive the current “unsustainably low” pricing period and emerge with a leaner cost base, it should be able to earn adequate returns in a more balanced cycle. But that’s not a given, and the equity’s sensitivity to small changes in realized price is unusually high.

The Moat Question: Is There Any Real Edge?

GrafTech’s advantages are real but subtle:

It meets demanding quality requirements for EAF applications and is one of a handful of scale producers outside China. The company estimates that the top five producers control ~75% of non-China capacity, per the 10-K (2026), p. 4.
It has proven it can take cost out—31% cumulative cash COGS/MT reduction since end-2023, with more to come in 2026 10-K (2026), p. 28.

What it doesn’t have today is durable pricing power. The filings make it clear that realized prices are driven by competitive behavior and oversupply, especially from Chinese producers whose exports pressure EMEA and Americas pricing 10-K (2026), p. 11. GrafTech’s actual advantage is the ability to hold its nerve—maintaining order-book coverage while refusing the truly uneconomic deals.

In other words, this is more of a tough-operator story than a classic moat story.

Balance Sheet, Liquidity, and the July 2026 Debt Draw

The other pillar of the thesis is capital structure risk. The company ended 2025 with $340 million of liquidity, including $100 million of delayed-draw commitments it intends to pull before their July 2026 expiry 10-K (2026), p. 28.

Why Drawing More Debt Can Be a Double-Edged Sword

On one hand, drawing the delayed-draw term loan:

Extends the liquidity runway.
Pushes out maturities to December 2029.
Buys more time for pricing and industry conditions to normalize.

On the other hand:

It increases gross leverage into an environment where the business still doesn’t cover its interest from operations.
It leaves the equity more levered to downside scenarios if prices keep sliding.

We treat the company’s stated intention to draw the full $100 million by July 2026 as a must-watch catalyst. If they fail to execute on that plan or disclose constraints, it will likely signal tighter liquidity than the headline numbers suggest.

“Time, Not Protection” for Equity Holders

Our view is that the current liquidity position gives GrafTech time to work through the downcycle, but it doesn’t offer a reliable margin of safety for common shareholders. Equity value is still highly contingent on a timely improvement in realized prices and maintained cost discipline.

For investors running a more systematic value process, this makes EAF a good example of where deeper, AI-assisted research can help separate cheap with downside protection from cheap with real impairment risk. Read our AI-powered value investing guide to see how we scale this kind of balance-sheet and pricing analysis across dozens of situations.

Market Sentiment: An “Unloved” Name with Tight Expectations

The market narrative around GrafTech has shifted over the last year, and sentiment is clearly negative.

According to multiple Investing.com articles from February 2026, the story is now framed as: GrafTech is executing on volumes and cost reductions, but industry pricing remains “unsustainably low,” and operational gains aren’t flowing through to the P&L. Sharp post-earnings drawdowns—the stock dropped around 20% after missing Q4 expectations—signal a market with very little tolerance for further negative surprises.

A few notable sentiment trends:

Coverage has moved from focusing on survival and listing optics (reverse stock split, NYSE compliance) to emphasizing relentless price pressure and lowered price targets, as flagged in Investing.com’s August 2025 and February 2026 pieces.
There is increasing skepticism that “execution” alone can solve the earnings problem while realized ASP keeps falling.
Analysts now lean heavily on “pricing is the problem” as the explanatory narrative, not volume or cost.

Ironically, this kind of pessimism can eventually create opportunity—if the fundamentals turn before the capital structure tightens too much. But we want to see early proof in the quarterly figures before leaning into that contrarian angle.

Management Quality and Insider Signals

We always look at how management behaves in the trenches of a downcycle. GrafTech’s team scores mixed marks from us.

What We Like

Margin over volume discipline: Management explicitly chose to miss prior 2025 volume guidance rather than take unacceptably low-margin volume, and reiterated this stance for 2026, per the 8-K (2026), p. 4. That’s what you want in a commodity downcycle.
Cost execution: A 31% decline in cash COGS/MT since the end of 2023 speaks to credible operational levers 10-K (2026), p. 28.

What Concerns Us

Persistent inventory and tax hits: Repeated LCM inventory charges ($18.3 million in 2025; $24.9 million in 2024) and the need to record a full valuation allowance on U.S. deferred tax assets (valuation allowance of $92.2 million at 12/31/2025) show the downcycle has been deeper and longer than management had anticipated 10-K (2026), p. 32.
Rising cash burn: Net cash used in operating activities jumped to $82 million in 2025 from $40 million in 2024, while interest expense increased from about $85.3 million to $104.1 million over the same period 10-K (2026), p. 37.

Insider Buying: A Tentative Positive Signal

We also flagged unusual insider trading patterns:

Director Jean-Marc Germain bought 50,000 shares in the open market on May 12, 2025 at $0.78.
Director Sachin M. Shivaram bought 30,000 shares on May 14 at $0.85 and 20,000 on May 15 at $0.84.
These were clustered, discretionary purchases in a week otherwise dominated by zero-cost director awards.

We view that as a mild positive signal—insiders thought the risk/reward looked attractive at those distressed levels—but we’d want to understand whether open-market buying is rare for these directors and whether any contemporaneous events influenced their timing.

How We’d Approach EAF as Fundamental Investors

Putting this all together, here’s how we’d frame GrafTech in a portfolio context.

Position Sizing and Time Horizon

Treat EAF as a high-beta satellite, not a core holding. The equity behaves more like an option than an asset-backed compounder.
Size small and scale only on evidence. Initial positions should assume a real risk of permanent capital impairment if pricing doesn’t stabilize by mid-2026.
Use a 6–12 month window for thesis validation. If sequential prices haven’t at least flattened and adjusted EBITDA hasn’t approached breakeven by Q3 2026, the upside case deteriorates quickly.

Metrics to Monitor Each Quarter

We would track three datapoints religiously:

1. Realized price per ton (ASP): Is it still falling, flat, or finally ticking up?

2. Cash COGS per ton: Is cost-down continuing at the guided low single-digit rate?

3. Order-book coverage and commentary: Does committed volume remain around 65% of anticipated 2026 sales, as per 10-K (2026), p. 28, and how is management describing competitive pricing pressure?

Layer on top the July 2026 delayed-draw execution and any new LCM or working-capital surprises, and you have a practical, repeatable monitoring framework.

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Final Take: When Could EAF Become Interesting?

We don’t think EAF is uninvestable. We simply think the setup right now doesn’t justify rushing in.

The risk/reward could become compelling if:

The stock trades meaningfully closer to our bear-case implied value while liquidity still looks adequate.
Quarterly prints show realized pricing has at least stopped deteriorating and cash COGS per ton is tracking guidance.
Management executes on the delayed-draw term loan, maintains margin discipline, and avoids value-destructive volume chasing.

At that point, you’d be looking at a levered, out-of-favor asset with line-of-sight to cash-flow breakeven—and then the contrarian upside story gets interesting.

Until then, our team is content to stay on the sidelines, keep the name on our watchlist, and let the next few quarters of data either de-risk the thesis or confirm that this cycle is deeper and longer than equity holders can safely underwrite.

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