What happened
Mexican authorities have suspended operations at a key GrafTech International (EAF) facility, raising questions about the company's ability to keep up with demand for graphite electrodes. Investors are selling the shares on the news, with GrafTech down about 10% in midday trading.
So what
GrafTech is one of the world's largest suppliers of graphite electrodes used in electric-arc steelmaking, a fast-growing part of the steel industry because of its relatively low costs and more environmentally friendly setup. But the company has apparently run afoul of Mexican regulators, raising questions about its ability to meet demand for the graphite up ahead.
On Friday evening, GrafTech said inspectors issued a temporary suspension notice to its Monterrey, Mexico, facility, instructing it to wind down operations within seven days. The authorities also said that the facility's operating license was no longer in effect.
GrafTech said it "strongly disagrees" with the course of action, but it is evaluating the notice and the allegations contained therein and would work with authorities to address the issues. The company said it is not yet sure how long the facility will be shut down.
Now what
It is impossible to say what exactly happened here, but regardless of who is at fault, the shutdown is bad news for GrafTech and its investors. The Mexico facility is responsible for about 25% of the company's total production, according to BMO Capital, and is one of the lower-cost facilities in the portfolio in terms of energy input costs.
Odds are that GrafTech and the authorities will be able to work out a deal to address the regulatory concerns, but as the company notes, that might take time. Investors hate uncertainty, and GrafTech shares are off sharply as a result.
