GrafTech International (NYSE:EAF) reported in-line quarterly results, yet the stock fell 10% at the open on Wednesday morning. The company's majority shareholder is continuing to sell down its stake, putting pressure on the shares.
GrafTech's graphite electrodes are a key component of steel manufacturing, and despite the pandemic the company is seeing demand for its product hold up pretty well. GrafTech reported first-quarter earnings of $0.37 per share, matching consensus, on revenue that at $304 million was down 4.5% from last year and close to what analysts were expecting.
The company also said that affiliates of Brookfield Business Partners, which took GrafTech private in 2015 and returned it to public markets in 2018, sold 30 million shares. Brookfield has been steadily selling down its stake since GrafTech's initial public offering, and post-sale is down to about 98 million shares.
Investors can't control Brookfield's actions, but they can be relieved to know that with this latest sale the total shares owned is rapidly falling, and hopefully the ownership overhang will soon no longer weigh on the shares.
As for GrafTech's business, CEO David Rintoul said in a statement, "We are encouraged by developments in the current market for graphite electrodes as we are seeing increased demand for our products, which is beginning to have a positive influence on spot prices."
Right now, about 70% of GrafTech's business is under long-term agreements that are priced well above spot prices. The long-term agreement business in the quarter was priced at an average of $9,500 per metric ton, compared to $4,200 per metric ton for the non-agreement business.
But a lot of those agreements end by 2023, meaning GrafTech is going to be more susceptible to spot prices. Instead of focusing on Brookfield, investors should keep an eye on spot prices, and hope Rintoul is correct that pricing is beginning to improve.