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GrafTech International Ltd. (NYSE:EAF)
Q3 2018 Earnings Conference Call
Nov. 2, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech Q3 Earnings Conference 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. If you would like to ask a question during this time, simply press "*1" on your telephone keypad. If you would like to withdraw your question, press "#". I would now like to turn the call over to Meredith Bandy. Meredith, you may begin.

Meredith Bandy -- Vice President of Investor Relations and Corporate Communications

Thank you, Julie. Good morning and welcome to GrafTech International's Third Quarter Conference Call. On the call with me today is GrafTech's Chief Executive Officer, David Rintoul, and Chief Financial Officer, Quinn Coburn.

Turning to our first slide, as a reminder, some of the matters discussed on this call may include forward-looking statements regarding, among other things, results, performance, and strategies. 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 also discuss certain non-GAAP financial measures, for which you will find reconciliations in these slides. These slides are posted on our website at www.graftech.com in the Investor Relations section. For your reference, a replay of the call will also be available on our website.

And now I'm pleased to turn the call over to Dave.

David Rintoul -- President and Chief Executive Officer

Thank you, Meredith, and good morning, everyone. I'll start as we always do with safety, a core value of GrafTech. Without exception, a safe plant is an efficient plant. We are focused upon continuous improvement of our safety performance and recognize that our team must continue to drive toward our ultimate goal of zero injuries. That means every worker goes home safe every day.

We've undertaken several noteworthy safety initiatives which will assist in that effort. For example, our companywide "Hands Off" campaign uses what we call no-touch tools to avoid direct contact with product or suspended loads. I am grateful for the hard work and enthusiasm of all our team members as we continue to improve our safety performance.

Turning to Slide 3, GrafTech delivered a strong third quarter, both operationally and financially. GrafTech earned third quarter net income of $199 million, or $0.67 a share, and adjusted EBITDA of $277 million, both above expectations. Quinn will share more details on our financial results in just a moment.

GrafTech continued to benefit from strong market dynamics for graphite electrodes. In October, the World Steel Association published its forecast for global steel demand growth ex-China of 2.1% in 2018 growing to 2.7% in 2019. Historically, electric arc furnace steel production growth has outpaced overall steel production growth due to the more environmentally friendly, flexible cost, and cyclicality-resistant EAF steel production model. Recent trends point to a continuation of EAF growth, which presents opportunities for GrafTech.

Demand for our electrodes remains good and pricing for high-quality, ultra-high-power electrodes, GrafTech's primary product, remains positive. GrafTech's third quarter revenues are up more than 200% from the prior year period due to higher pricing and volumes.

Structurally higher electrode prices are a result of higher EAF steel production and constrained graphite electrode capacity related to the tight supply of needle coke. Petroleum needle coke, the preferred raw material for graphite electrode manufacturing, is in high demand for both graphite electrode and electric vehicle battery production. As a result, the cost of third-party needle coke continues to increase in 2018.

GrafTech is vertically integrated into petroleum needle coke with our wholly owned Seadrift facility. This unique competitive position differentiates us from our competitors and gives us a secure and low-cost supply of petroleum needle coke. Seadrift produces about two-thirds of our long-term needle coke needs. The cost of producing electrodes with Seadrift costs remains significantly below the market price of third-party needle coke.

This vertical integration aligns with our commercial strategy to sell graphite electrodes on take-or-pay contracts. These contracts provide strong earnings visibility for our shareholders and reliable long-term supply for our customers. GrafTech has currently sold about two-thirds of our production through long-term, fixed-volume, fixed-price, take-or-pay contracts. Our de-bottlenecking initiative is well under way and on track for completion later this year.

Turning to Slide 4 for more details on our operations, at Calais, the installation of furnaces and a multipurpose crane was completed during the third quarter. In Pamplona, the new forming press is expected to start up later this year. We will exit this year at our target annual production capacity of just over 200,000 metric tons. St. Marys is graphitizing and machining some finished electrodes sourced from Monterey in order to leverage existing infrastructure.

We also expect to produce approximately 110,000 tons of petroleum needle coke this year. The previously announced planned maintenance outage at our Seadrift needle coke facility is on track for completion in a few days. This will impact fourth quarter needle coke production levels, however. We expect to increase needle coke production to approximately 125,000 metric tons in 2019, as we do not have a planned outage scheduled at Seadrift next year. This includes the effects of an efficiency improvement project which we are executing that will increase our annual production by about 5,000-10,000 tons. The project capital cost is small and the project is expected to be online by the middle of next year.

I'll now turn the call over to Quinn, who will discuss our financial results starting on Slide 5.

Quinn Coburn -- Vice President and Chief Financial Officer

Thanks, Dave. As Dave mentioned, we are pleased to report another strong quarter of financial performance. Third quarter revenues of $455 million were more than triple the prior year quarter, reflecting higher sales volumes along with higher pricing.

GrafTech's third quarter average realized price was $9,744.00 per metric ton. As a reminder, the average realized price reflects a combination of long-term contract pricing, carryover of lower-priced short-term contracts from last year, and minimal spot volumes. Due to the timing of our long-term contracts, there were fewer tons available to sell on the spot market in Q3. Approximately 79% of our third quarter net sales were to customers with long-term agreements. As previously disclosed, substantially all of our sales are contracted for the balance of 2018.

Turning to Slide 6, higher revenues translated into solid earnings and cash flows in the quarter. Third quarter net income totaled $199 million, or $0.67 per diluted share, up from a slight loss in the third quarter of 2017 and in line with the second quarter of 2018 results. During the third quarter of 2018, free cash flow increased to $216 million. That's the second consecutive quarter with free cash flow in excess of $200 million. Year-to-date free cash flow totaled $565 million.

Compared to the prior year, earnings, adjusted EBITDA from continuing operations, and free cash flow benefited from higher sales volumes and pricing. This more than offset higher raw materials cost, specifically related to third-party needle coke costs. As Dave mentioned, the cost of third-party needle coke continues to increase. Spot needle coke pricing is now as high as $4,500.00 per ton.

Now, turning to Slide 7, I'll quickly walk you through the third quarter adjusted EBITDA from continuing operations reconciliation. We began with $199 million of net income, add back $16 million depreciation and amortization, add back $33 million net interest expense and $25 million of income taxes. Finally, add back other adjustments of $3 million that includes $1.4 million related to foreign currency remeasurement and just over $700,000.00 related to discontinued operations. For Q3 2018, adjusted EBITDA from continuing operations was $277 million.

Now, turning to Slide 8 for a review of GrafTech's financial policy. GrafTech remains committed to a responsible and shareholder-friendly financial policy. We ended Q3 with total liquidity of over $346 million, including cash and equivalents of $103 million. We continue to manage the business in a responsible manner with appropriate levels of capital investment focused on targeted operational improvements.

Primary use of cash remains capital returns to shareholders. Our Board has declared our regular quarterly dividend of $0.085 per share. We continue to evaluate other potential dividends and share repurchases which, of course, remain subject to review and approval by the Board. For example, in August, we repurchased and retired 11.7 million shares from our majority shareholder using available cash on hand. The repurchase was accretive to all shareholders while helping to minimize potential equity overhang and maintain liquidity in the secondary market.

Current debt of $2.2 billion, or 1.9 times annualized adjusted EBITDA from continuing operations, is comfortably below our maximum target leverage of 2 times to 2.5 times. Our long-term take-or-pay contracts give us visibility and flexibility to manage our debt levels appropriately.

And I'll turn it back to Dave.

David Rintoul -- President and Chief Executive Officer

Thank you, Quinn. In summary, GrafTech is a leading provider of highly engineered graphite electrode services, solutions, and products to the growing EAF steel market. We delivered another strong quarterly result and we continue to execute our strategy to deliver long-term sustainable value for our shareholders. Ongoing operational improvements and vertical integration give GrafTech economies of scale and a competitive cost structure. This, in turn, enables us to offer secure, long-term contracts to our customers and strong earnings visibility for our shareholders.

That concludes our prepared remarks. We will now open the call up for questions.

Questions and Answers:

Operator

At this time, I would like to remind everyone that in order to ask a question, please press "*1" on your telephone keypad. Again, that's "*1" on your telephone keypad. Your first question comes from Arun Viswanathan from RBC Capital Markets. Arun, your line is open.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks. Good morning.

David Rintoul -- President and Chief Executive Officer

Good morning, Arun.

Arun Viswanathan -- RBC Capital Markets -- Analyst

A couple questions here. Good results. Good to see that. I guess, first off, I just wanted to understand your own needle coke supply and demand. I know that you're increasing it next year and you have kind of plans to increase it by 5,000-10,000, up to the 125,000. Can you give us any update on your progress in securing the additional 30,000 tons to restart St. Marys?

David Rintoul -- President and Chief Executive Officer

So, let me -- that's really a two-part question. I'll start with the raw material portion. We are continuing discussions with our needle coke suppliers to secure appropriate raw material supply to support our strategy. Those discussions are ongoing at this period in time and not concluded so that's really about as much as I can say about it.

The St. Marys question, which is really part of your raw question, the market, our market that we participate in will inform us, between the graphite electrode side and the needle coke side, if and when it's appropriate to restart St. Marys. That's really all I have to say about the St. Marys issue.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Okay. And so on that point of supply and demand for electrodes, it looks like, between your de-bottlenecking, adding 30,000 tons or so -- or 28,000 -- and then the possibility of Shodan or Ridgefield starting up as well, you'll have close to 10% extra supply of electrodes on the market. So, I mean, is it -- or maybe 8% or whatever. Is it safe to assume that I guess your comments are also implying that you don't feel that restarting St. Marys is a 100% certainty? I'm just trying to interpret what you're saying from an electrode supply and demand perspective. Thanks.

David Rintoul -- President and Chief Executive Officer

So, Arun, what I'm attempting to communicate is exactly what I said. We'll let the market tell us if and when it's appropriate to restart St. Marys. And we're still gathering data, if you will, on both those subject matters. We're not prepared to say -- we can't say anything more than that.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And then, just lastly, on the capital return side, you stated that all cash will be used for shareholder returns. I think you've discussed the possibility of a special dividend or buybacks in the past. I guess maybe can you just comment on your preference for either of those? On our numbers, free cash flow, as you said, is well over $500 million year-to-date, approaching $700 million this year, maybe $1 billion next year. When should we expect to hear more on your plans for distributing some of that cash? Thanks.

Quinn Coburn -- Vice President and Chief Financial Officer

Yeah. Hey, Arun, it's Quinn. So, as I mentioned in my comments, we review the capital structure and uses of the cash with the Board on a regular basis and we consider all options. And really the final decision there is at the discretion of the Board. And, obviously, whenever a decision is made, we announce that on a very timely basis. In terms of projecting any timeframe, I really can't project any timeframe for you. But, again, we review this with the board on a regular basis.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Okay. Thanks.

Operator

Your next question comes from David Gagliano with BMO Capital Markets. Please go ahead.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. Thanks. I had a few questions but I might switch gears a little bit on this. First question -- obligatory sort of question. Where are spot graphite electrode, UHP graphite electrode prices at the moment?

David Rintoul -- President and Chief Executive Officer

Good morning, David.

David Gagliano -- BMO Capital Markets -- Analyst

Good morning.

David Rintoul -- President and Chief Executive Officer

So, I think what we would say to that question this morning is that, if you look at our numbers in the third quarter, there wasn't that much spot volume in it. In fact, it was quite low, most of our capacity being consumed by LTA business and other previous short-term contract-type commitments that were made in '17. And so, candidly, I'm not sure we're in the best place to signal to the marketplace what the actual spot number is because our dataset is admittedly pretty limited.

I think what I might point you to is there have been some Q1 announcements by others, in terms of what their pricing is for Q1 business into the marketplace, in the $13,500.00 to $14,000.00 range. So, we would use that as informative to say, well, spot business must be somewhat marginally better than that. But I need to stress that our dataset in the third quarter an going into the fourth quarter is limited. So, we will be informed by some of these other announcements that you guys read about as well.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. I sense a bit of a shift in tone versus last quarter. So, last quarter, you gave us a range: $15,000.00 to $20,000.00 was the range that you gave. This time, you're not really giving a range. And I also sense with St. Marys' restart, last quarter, I'm pretty sure the commentary was around securing petroleum needle coke supplies opt restart St. Marys. This time, market conditions will dictate timing. So, obviously, those two together, one could read into that negatively. So, my question is why the shift in tone with regard to St. Marys, specifically, this quarter?

David Rintoul -- President and Chief Executive Officer

So, I don't think it's our -- certainly not our intention to signal negativity. I think it's our intention to signal that we will be -- because our dataset currently on the spot business is so limited, we don't want to be irresponsible and give you data based on a very small set of data, in the spirit of being fully transparent. So, don't read negativity into that as much as perhaps conservatism and being sure that, when we're answering the questions, that we're being as transparent as we know how so that we don't do anything that would create the wrong impression. So, we're not trying to send a negative signal. I would like to stress that.

In terms of St. Marys, we did say all along that we had to have -- the conditions had to be right. And because we're not finished on developing certainty on those conditions, we're just saying we don't know yet. Again, we're not intending to purposely transmit a negative impression. I understand how you might -- I understand your question and why you might otherwise, left on your own devices, get there. We just haven't decided yet and we want to be respectful of making sure that we do have the raw materials. And, second of all, that we can remain true to our strategy associated with longer-term type commercial arrangements.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. That's helpful. Thank you for clarifying. One last question. Near-term question. 4Q needle coke volume impact from the outage and also what's a reasonable assumption for graphite electrode sales in the fourth quarter? And, if possible, can you split that between purchased graphite electrodes and company-produced graphite electrodes for the fourth quarter? Thanks.

David Rintoul -- President and Chief Executive Officer

So, you're bordering on asking me to give some forward-looking guidance with those kind of numbers, which we've, I think, been pretty, again, transparent and clear from the point at which we did go public that we would avoid providing forward-looking guidance. I will go so far as to say that we don't -- certainly, there's nothing that we see in our fourth quarter performance that gives us pause for cause. But I want to stay true to our direction around avoiding forward-looking guidance.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. Thank you.

David Rintoul -- President and Chief Executive Officer

Okay. Thank you.

Operator

Your next question comes from Michael Gambardella with J.P. Morgan. Please go ahead.

Michael Gambardella -- J.P. Morgan -- Analyst

Yes. Good morning and congratulations on the quarter.

David Rintoul -- President and Chief Executive Officer

Good morning, Michael.

Michael Gambardella -- J.P. Morgan -- Analyst

Just to further this issue because your stock's just gone down 6% from where it was before the call started on this conversation, but, I mean, aren't you basically saying that, look, we can't restart St. Marys if we don't have the incremental needle coke and we haven't signed a contract yet so we can't say we're going to start or not start definitively. And then, if you take it further, if you can't get the incremental needle coke, doesn't that just imply that the market is going to be super tight and the pricing that gets repriced in the spot market, when those annual contracts that you signed in the summer of '17 come off, are going to be a lot higher pricing than you probably thought if you could get the needle coke for St. Marys. So, it's kind of tails, you win, heads, the customer loses, in the sense that they pay higher pricing. I mean, this seems like a win-win situation for you either way.

David Rintoul -- President and Chief Executive Officer

Michael, I like the way you're thinking. And that's certainly one potential extrapolation from the data as we have it now. And, candidly, you're hitting on the kinds of things we're thinking about before we rush out and make a move. We're being quite deliberate and thoughtful about how we go about and if we go about making any moves at St. Marys because, to your point, there is a tightness in the market. And I have not received any notes from a higher power that says that we have an obligation to resolve this tightness in the market.

So, if it's the right thing to do for our shareholders, when we do the analysis, as we get more clarity on both the graphite market and the needle coke market, then we will, of course, do what's in the best interest of our shareholders. And what we're trying to communicate today is not a negative position but rather one that we're being slow and steady and deliver ate about making the right decision for our customers and our shareholders.

Michael Gambardella -- J.P. Morgan -- Analyst

Yeah. And just you mentioned that you're seeing some spot needle coke going off at around $4,500.00 per ton. Was the contract pricing for 2018 in the marketplace somewhere around $3,000.00?

David Rintoul -- President and Chief Executive Officer

Well, the needle coke market changed during the course of '18, where more of the arrangements were on annual volume and then pricing got renegotiated first half/second half. So, that range that we gave quite some time ago, from $2,500.00 to $4,500.00, was, in fact, accurate over the course of the entire year. But not to be confused or suggesting that that reflects the second half number. Okay? So, the number that you're quoting, I think, which came from our previous presentations and releases, at the $4,500.00, is, in fact, correct and very much so for the period of time in which we're currently operating.

And we believe that the needle coke market will continue to evolve. Our crystal ball, at this point in time, is probably -- it might be marginally better than yours but we're not there yet because we haven't got our deals done. So, that's probably about as much as we can say. Needle coke remains tight. If you think about some of the graphs that we've provided in previous presentations and you look at the demand for needle coke over the next couple of years, it continues to increase. So, I think you have the -- it sounds to me like you have the right thought process when you're thinking about that subject matter.

Michael Gambardella -- J.P. Morgan -- Analyst

And then last question. How many tons do you have coming off of those one-year contracts that end calendar '18 that you had signed in the summer of '17 before pricing really skyrocketed?

David Rintoul -- President and Chief Executive Officer

So, because I'm going from memory so I don't want to give an exact number, it's not huge in the overall scheme. But I guess the numbers I would point you to is we did say in the past that we had about two-thirds of our capacity spoken for in long-term contracts, which would mean that one-third was a combination of spot and these other short-term or shorter-term arrangements. So, that gives you an order of magnitude of those. And I did signal and said that we didn't have that much spot business in the third quarter so I'll let you extrapolate a little bit from there. And also, we mentioned, we did show on one of our slides, I would say that we're holding true to our strategy of evolving in the long-term contract arena and have discussions taking place to continue on with that strategy.

Michael Gambardella -- J.P. Morgan -- Analyst

Okay. Thank you.

David Rintoul -- President and Chief Executive Officer

Thanks, Michael.

Operator

Your next question comes from Alex Hacking with Citi. Please go ahead.

Alex Hacking -- Citigroup -- Analyst

Yeah. Thank you. Good morning. First, let me say that if you are showing supply side discipline at St. Marys and not adding capacity that the market doesn't need, then I applaud you for that. So, my first question is on 2019 pricing. I just want to clarify that you have about -- round numbers -- you have about 140,000 tons contracted at about $10,000.00 a ton and then you have about 60,000 tons that right now is not priced and is going to be priced at spot next year. Is that correct?

David Rintoul -- President and Chief Executive Officer

Alex, the 140,000 number, I think, is in the right genre. You've clearly read through our materials quite well. So, I think you're generally in the right vicinity, yes.

Alex Hacking -- Citigroup -- Analyst

And then for the 60,000 tons, as of November 2nd, is not priced and will be priced at spot? 60,000 tons of capacity, I should say. Is that correct?

David Rintoul -- President and Chief Executive Officer

Yeah, I think, again, you're in the right ballpark. And that's to my comment around our discussions of continuing to move our strategy on long-term arrangements in a forward direction.

Alex Hacking -- Citigroup -- Analyst

Okay. That's a bit cryptic but OK. And then I guess my second question. I hear a lot of reports that China is exploiting graphite electrodes, including to the U.S., and the quality of them is reasonable and comparable with foreign-produced graphite electrodes. Do you think those reports are accurate and how much does that concern you?

David Rintoul -- President and Chief Executive Officer

So, I think I've made this statement elsewhere before. When you talk about that subject matter, there's two things that you have to -- or at least two things -- that you have to bear in mind. One is that not all electrodes are created equal and have the same service duty. Smaller diameter electrodes that are used in LMF furnaces are smaller in size and have a much less severe service duty. And, candidly, the Chinese have been in that market for some period of time. That's not new news. I think they are maybe in a greater presence but that's not a secret. That's not anything that changes the current dynamics. And I think they will continue to be there.

The larger size electrodes that they've not traditionally been, they're moving into that market domestically because they have to. There is a mammoth growth of electric arc furnace capacity, steelmaking production, in China and they're attempting to service their domestic market. And simultaneous to that, yeah, we know that they're dabbling ex-China. Our belief is that they will have quite a challenge on their hands servicing their own domestic market with the ramp-up of electric steelmaking capacity in China.

So, we still believe that they're not equivalent to, on the UHP side, to the balance of the ex-China producers. But we're also not suggesting that that's a permanent situation. I think the near-term, over the next period of time, and it's difficult to know what that is, but as long as the Chinese keep building electric arc furnaces at the rate they are, then we believe the Chinese graphite electrode capacity will be entertained servicing their domestic market. I hope that answers your question.

Alex Hacking -- Citigroup -- Analyst

Yeah. Thank you. Very hopeful. Just one more very quick one, if I may. I apologize. What's your understanding of how much additional needle coke capacity Phillips 66 is going to be bringing to the market over the next year or so?

David Rintoul -- President and Chief Executive Officer

Look, we need to be respectful of P 66. We're not running their business. We can only extrapolate, as we have in the past, and suggest that -- I think, as I recall, their earnings call was several days ago. And as I understand, the statement they made is that -- forgive me, I'm going from memory so I'm trying to be respectful of what they said. But something along the lines of they weren't putting major -- there was no evidence in their release about major CapEx to expand their capability. So, I can only glean the same thing you can from that comment. And really I would refer you to their earnings release and call material because that's all we have either. So, it's not like we have a great deal of inside information and we need to be respectful of their company and not be speaking for them.

Alex Hacking -- Citigroup -- Analyst

Thank you. Fair enough. Very helpful. Thanks for your time.

David Rintoul -- President and Chief Executive Officer

Okay. Thank you.

Operator

As a reminder, if you would like to ask a question, please press "*1" on your telephone keypad. Your next question comes from Sumangal Nevatia with Macquarie. Please go ahead.

Sumangal Nevatia -- Macquarie Capital Securities -- Analyst

Yeah. Good morning. Thanks for the opportunity. My first question is more on the fundamental side. Now we have the needle coke production technology and, of course, to add new volumes, we need purchase of needle coke from outside. So, in the decision of building activity versus buying, I mean, what are the constraints? Is it a feedstock constraint to build new capacity of needle coke or is it more a capital constraint or an environment constraint?

David Rintoul -- President and Chief Executive Officer

Well, as we've spoken and had some comments about this in the past, and our view on that hasn't changed, is that needle coke plants are capital-intensive, would require large amounts CapEx, would require a pretty significant permitting process because you can think of it in terms of a small refinery. So, it takes a good period of time to work any kind of project like that through the regulatory and environmental permitting process. And then, thirdly, net of the current producers, there's not a great deal of operating and technical resources across the world knowing how to operate these kind of plants. So, that may be the lesser of the three challenges but, nevertheless, it's there.

So, for all of those reasons, I think that's why you're seeing nobody yet, net of the Chinese, running out, talking about building petroleum needle coke facilities. And we're not suggesting that it wouldn't happen. We don't believe it's going -- we certainly don't have any intention at this point in time that it would be us. But your guess is probably as good as mine, if there are others out there, entrepreneurs, whatever the case may be, that might put their line in the water and give it a go. But it's certainly a capital-intensive and exhausting process so I think that's why you haven't seen any big announcements here for it.

Sumangal Nevatia -- Macquarie Capital Securities -- Analyst

Okay. So, is that also a feedstock constraint there as well in your opinion?

David Rintoul -- President and Chief Executive Officer

I'm not certain that there would be. There is adequate feedstock for what's operating now and because there aren't a lot of -- there haven't been a lot of news or discussions about anybody trying to build a needle coke plant, I don't know that that particular issue is well-tested. But it's certainly, in our current environment, something that we certainly keep an eye on relative to our own supplies but don't have a sense of future difficulties. But, again, there's only the four of us, ex-China, operating in the world at the moment and P 66 sources all of their feedstock internally.

Sumangal Nevatia -- Macquarie Capital Securities -- Analyst

Yeah. I understand. Okay. Second question is with respect, again, to needle coke. We read that P 66 has the de-bottlenecked by 50,000-60,000 tons. So, I'm not asking about your plans but since you are in the market, have you already witnessed any incremental supply in the market from this de-bottleneck capacity or is it still some time away?

David Rintoul -- President and Chief Executive Officer

So, again, the only comment I can really make about that is that we are in the process of working on procuring the appropriate needle coke supply that we would need to support our long-term strategy and optimistic that we will bring that to fruition. But, like all deals, it's not done until it's done. Right? So, it would be wrong for me to declare it as having been accomplished, other than to say that we're proceeding and at a rate that I think is satisfactory to all the parties involved.

Sumangal Nevatia -- Macquarie Capital Securities -- Analyst

Okay. Okay. Then just last question, again, on St. Marys. It's extremely confusing. I mean, given the changing statement, can we assume that, from where we were last quarter, we moved one step backwards? I mean, at least the thought now was the needle coke was ready but now you've added another element of market dynamics in the decision making. Or maybe needle coke was just not -- I mean, just doesn't exist. Would you like to comment anything more on this?

David Rintoul -- President and Chief Executive Officer

Well, I just have my comments earlier on this round of Q&A. It's not our intention to be making a negative signal. We're just stating what I would expect that our shareholders would expect -- I know they would expect from us -- is that we look at all aspects of both the raw material feedstock required as well as the market we're going to sell into and have those aligned in a favorable manner before we would make a decision to restart St. Marys. So, that's what we are about doing right now.

Sumangal Nevatia -- Macquarie Capital Securities -- Analyst

All right. Thank you and all the best.

David Rintoul -- President and Chief Executive Officer

Thank you.

Operator


 

Your next question comes from Gordon Johnson with Vertical Group. Please go ahead.

Gordon Johnson -- Vertical Group -- Analyst

Hey, guys. Thanks for taking the question.

David Rintoul -- President and Chief Executive Officer

Good morning, Gordon.

Gordon Johnson -- Vertical Group -- Analyst

So, I guess there's been a lot of questions around St. Marys. And I guess if it's value-accretive to ramp and others are ramping, I guess a question we have is why aren't you guys ramping that facility right now?

David Rintoul -- President and Chief Executive Officer

Well, you're absolutely right that we do the same calculations as you would expect us to do and look at, in the event that we did that, what would our input costs be, what would the market outcome of that be, and does the NPV over some period of time exceed the cost to get it going, which are not that great, and then make the appropriate decision. And, again, I want to stress that our comment today is that we're still doing the due diligence that we think is appropriate to make that decision. And we're just not complete with that yet for a variety of reasons.

Gordon Johnson -- Vertical Group -- Analyst

Okay. Thanks. That's helpful. And then with respect to your de-bottlenecking that you're doing, it seems like that's going to free up some capacity. Have you guys signed long-term agreements to account for the de-bottlenecking for 2021-2025?

David Rintoul -- President and Chief Executive Officer

So, remember that we signed our current LTA agreements late '17 that reflected our capacity and situation at that point in time. And I think, to one of the earlier questions, that capacity, I confirmed that 140,000-ish type number. So, now as we de-bottleneck and we are just over 200,000 tons, it allows us to begin and do some of the discussions that I referenced earlier around propagating our strategy of long-term thought processes. So, this is the point in time where we'll be thinking about and working through those opportunities with our customer base and we'll have more to talk about that once we get into the next quarter's call.

Gordon Johnson -- Vertical Group -- Analyst

Okay. That's helpful. And then just one last one for me and, again, thanks for the question. Just going back to St. Marys, with respect to, I guess, availability and the potential ramp, is it that, I guess, the needle coke isn't available to ramp St. Marys or would it be that maybe the costs are a bit higher than expected? Thanks again, guys.

David Rintoul -- President and Chief Executive Officer

So, in the spirit of being complimentary, you get full marks for being very thorough in your questioning. So, the answer to your question is that, if I went down that road and answered that the way you would like me to, I would be giving you forward-looking information about what we're doing. And, respectfully, I'm not in a position and we said all along we won't do that. So, we're continuing to look at both the supply side of the raw materials needed, how we would run St. Marys, how the market would receive that, and as we have all of that data, because some of it we rely upon others outside the company to inform us about that in our discussions, we will arrive at a decision about what to do at St. Marys. I want to reiterate that we're not trying to signal negative or positive. We're just telling you where we are at transparently and our thought process.

Operator

We have reached the end of our question-and-answer session. I will now turn the call back over to Mr. Rintoul for closing remarks.

David Rintoul -- President and Chief Executive Officer

Thank you, Julie. In conclusion, GrafTech is well-positioned to leverage our unique competitive position and execute our strategy in a structurally improved industry. We will continue to maximize the value of our vertical integration and low-cost production base to provide industry-leading services, solutions, and products to our customers and higher returns to our shareholders. Again, thank you for your interest in GrafTech and we look forward to speaking with you next quarter.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Call participants:

Meredith Bandy -- Vice President of Investor Relations and Corporate Communications

David Rintoul -- President and Chief Executive Officer

Quinn Coburn -- Vice President and Chief Financial Officer

Arun Viswanathan -- RBC Capital Markets -- Analyst

David Gagliano -- BMO Capital Markets -- Analyst

Michael Gambardella -- J.P. Morgan -- Analyst

Alex Hacking -- Citigroup -- Analyst

Sumangal Nevatia -- Macquarie Capital Securities -- Analyst

Gordon Johnson -- Vertical Group -- Analyst

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