GrafTech International ( NYSE: EAF ) -5.6% on Wednesday after RBC Capital downgraded shares to Sector Perform from Outperform with a $7 price target, cut from $10, which said the company faces higher energy costs in Europe and lower average realized prices for long-term agreements.
Given the current macro environment and HRC steel prices, RBC analyst Arun Viswanathan sees "no need for EAF's customers to lock in LTAs and/or to lock in LTAs at prices significantly above current spot levels," and they likely would choose spot transactions instead.
"The biggest overhang on the stock is the upcoming LTA renewal cycle which should reset lower than prior cycles," Viswanathan wrote, forecasting a lower average realized price of ~$7K/ton due to shrinking demand.
Viswanathan expects macro headwinds will reduce electrode demand and sees an "elevated risk of a recession, especially in Europe, which should result in a cyclical downturn in construction and the need for steel."
Foreseeing waning momentum in graphite electrode pricing, Citi recently downgraded GrafTech shares to Neutral from Buy .
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GrafTech cut at RBC on higher costs, lower demand