What happened

Graphite electrode manufacturer GrafTech International (EAF -1.86%) is still dealing with the ramifications of past issues while also signaling caution about the quarters to come. Investors aren't interested in riding out the uncertainty, sending shares of GrafTech down more than 20% on Friday.

So what

GrafTech has a significant role in the global steelmaking industry. The company is the world's largest supplier of graphite electrodes, a key component in the electric-arc steel furnaces that are growing in popularity because they have relatively low costs and a more environmentally friendly process.

GrafTech announced its second-quarter financial results Friday. The company lost $0.02 per share in the quarter on revenue of $185.56 million, largely in line with analyst expectations for a $0.01-per-share loss on sales of $180 million. Net sales were down 49% year over year due to lower sales volumes. That's the residual impact of a suspension of operations in Monterrey, Mexico, last year over regulatory concerns.

Production resumed before year-end, but the stoppage coincided with a commitment window for customer purchases for the first six months of 2023. With GrafTech unsure about the length of the suspension at the time, it was unable to aggressively court new sales.

Now what

But the lower sales volume was also partially attributable to industrywide softness in demand. Steel is a cyclical business tied closely to the health of the broader economy, and with interest rates on the rise and questions about the economy ever present, GrafTech's customers are taking a cautious approach.

That softness is expected to continue into the second half of the year. GrafTech lowered its full-year sales volume estimate to between 95,000 metric tons (MT) and 105,000 MT, from a range of 100,000 MT to 115,000 MT.

For long-term focused investors, GrafTech appears well positioned. The steel industry needs to decarbonize, and graphite-hungry electric arc furnaces are going to play a major role in that process. But there is little GrafTech can do to alter the business cycle, and in the near term there is little to get excited about.