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Jeremy Halford

Thank you, Tim, and good morning, everyone. I'll begin with an update on safety, which is a core value at GrafTech. We're pleased that our recordable incident rate improved further in the first quarter. Maintaining this positive trend will continue to be a point of emphasis with our teams as we proceed through the year. When it comes to safety, we remain among the top performers in the broader manufacturing industry, but we will not be satisfied until we achieve our ultimate goal of zero injuries.
Let me now turn to the next slide to discuss the commercial environment. On a global basis, steel production outside of China was approximately 209 million tons in the first quarter of 2025, which was modestly below the first quarter of last year. The global utilization rate for the first quarter also declined year-over-year but was in line with the quarter of 2024.
Looking at some of our key commercial regions using data published by the World Steel Association earlier this week. For North America, steel production was flat in the first quarter compared to the prior year. Specific to the US, World Steel reported a 1% reduction for the quarter, reflecting a modest decline in what has been an otherwise relatively stable steel region. In the EU, steel output decreased 3% year-to-date and remains well below historical levels of steel production and utilization for that region.
With that background, let's turn to the next slide for more details on our results. Our production volume in the first quarter was 28,000 tons. This resulted in the capacity utilization rate of 63%, representing a more than 500 basis points increase from the prior year.
For the quarter, production exceeded sales volume. This inventory build was planned and is a result of one of our cost savings initiatives, which is to level load our production for the year. On a full year basis, our focus remains on balancing production volume with our expectations regarding sales volume.
As it relates to sales volume, in the first quarter, we sold 25,000 metric tons. This was a 2% year-over-year increase and was in line with our expectations for the quarter. Of particular note was our success in actively shifting a significant portion of our volume to the US as we have discussed. In fact, we grew sales volume in this region by nearly 25% in the first quarter versus last year, which we are particularly pleased with given the 1% decline in steel production in this region that I mentioned earlier.
Our average selling price for the first quarter was $4,100 per metric ton, which represented a 20% year-over-year decline. This decline was largely driven by the substantial completion in 2024 of the higher priced LTAs that we have spoken to previously. Additionally, the lower average selling price in the first quarter also reflected the persistent challenges with industry-wide pricing. Our focus remains on mitigating these impacts in the near term, including the previously mentioned geographic mix shift toward the US.
Similar to all regions, average pricing in the US is below year ago levels, but it remains the strongest region for graphite electrode pricing globally. In fact, we estimate that the increase in our US volume for the first quarter boosted our average selling price by nearly $100 per metric ton. But coming back to my earlier point regarding the completion of the LTAs, when sequentially comparing our weighted average price for the first quarter to the more comparable non-LTA price we reported for the fourth quarter, we're excited to have achieved a price increase of approximately 5%.
As part of our initiative to actively shift the mix of our business, Western Europe is also a focus area. To that end, for the first quarter, we increased our sales volume in Western Europe by more than 40% year-over-year. As pricing remains soft in this market, this will not translate into immediate support for our average selling price. However, this is an important strategic market for the long term, given tariff protections and growth expectations that Tim will speak to in a moment. Increasing our share in the EU will position us well for recovery in this region. Given the muted demand environment, our success in growing sales volume in the key US and EU regions reflects our customer engagement strategy aimed at increasing our market share. It also reflects our compelling value proposition.
As we have noted, this includes unmatched technical capabilities related to our architect furnace productivity system, which is further supported by our world-class customer technical services team; ongoing investments in our research and development capabilities, further expanding GrafTech's leading position in graphite electrode and petroleum needle coke technology; a growing product portfolio, most notably with the recent introduction of our new 800-millimeter product; and our unique position of being vertically integrated into needle coke, providing surety of supply for our key raw material. Ultimately, we remain committed to strengthening our customer relationships for the long-term to achieve mutual success for years to come.
Let me now turn it over to Rory to cover the rest of our financial details.

Rory O’Donnell

Thank you, Jeremy, and good morning, everyone. For the first quarter, we had a net loss of $39 million or $0.15 per share. Adjusted EBITDA was negative $4 million in the quarter compared to adjusted EBITDA being flat in the first quarter of 2024. The decline reflected lower average selling prices partially offset by a 21% year-over-year reduction in cash costs on a per metric ton basis.
Let me expand on the cost favorability, which included a couple of timing related accounting items that had an outsized benefit in the first quarter. First, inventory written down in prior periods due to lower of cost or market inventory valuation adjustments had a $7 million favorable impact on COGS year-over-year for the first quarter of 2025. Second, the first quarter of last year included the accelerated recognition of $10 million of fixed manufacturing costs related to low production levels that did not recur in the first quarter of 2025.
Combined, these two factors accounted for approximately two thirds of the year-over-year decline in our cash cost per ton for the first quarter. The remaining decline reflected the impressive ongoing efforts of our teams in identifying and executing against cost reduction opportunities across various components of our variable and fixed costs. In addition, our cost structure continues to benefit from improved fixed cost leverage reflecting the increase in volume.
All in, this resulted in cash COGS per metric ton of approximately $3,650 for the first quarter of 2025. As we have noted previously, we will have periodic quarter-to-quarter fluctuations in our cash cost recognition as a result of timing impacts. However, the key point is that our cost structure continues to trend in the right direction.
On a full year basis, we remain on track to achieve our projected mid-single-digit percent year-over-year decline in our cash COGS per metric ton for 2025. This would translate into cash COGS per metric ton of approximately $4,100 for the full year. Our ongoing ability to reduce costs while continuously enhancing our customer service, our product quality and our performance remains an impressive accomplishment.
Turning to cash flow. For the first quarter, cash used in operating activities was $32 million. Adjusted free cash flow was negative $40 million compared to adjusted free cash flow of negative $11 million in the first quarter of 2024. The change primarily reflected timing related items in working capital, including the planned inventory build in the first quarter that Jeremy discussed.
For the full year, we continue to expect that working capital will be favorable to our cash flow performance in 2025. These working capital benefits will be realized through a combination of production cost improvements and inventory management while maintaining adequate safety stock of pins and electrodes. Overall, our use of cash in the first quarter was in line with our expectations. For the full year, we remain on track with the cash flow projections that underpinned our thesis for our recent capital transactions.
Turning to the next slide and expanding on this point. We ended the first quarter with total liquidity of $421 million consisting of $214 million of cash, $107 million of availability under our revolving credit facility and $100 million of availability under our delayed draw term loan, which is available to be drawn until July of 2026.
As it relates to our $225 million revolving credit facility which matures in November of 2028, we had no borrowings outstanding as of the end of the quarter. However, based on a springing financial covenant that considers our recent financial performance, borrowing availability under the revolver remains limited to approximately $115 million less currently outstanding letters of credit, which approximated $8 million as of the end of the quarter.
Overall, our strong liquidity position, along with the absence of substantial debt maturities until December of 2029, will support our ability to manage through near-term industry-wide challenges, which is once again consistent with our refinancing thesis.
Let me turn the call back to Tim for some final comments on our outlook.

Timothy Flanagan

Thanks, Rory. In summary, we've built a plan and we're delivering against it. As a result, we're growing our volume and market share, particularly with key customers in the US and the EU. We're reducing our cost structure and we're effectively managing our working capital levels and cash position. All of this reflects on our focus on controlling the controllable during a challenging time for our industry while putting GrafTech in a strong position for future growth as the market recovers.
To this last point, while much of our commentary today is focused on the US market, let me expand a bit on the EU. As Jeremy noted, steel production in the EU remains below historical levels. However, we're beginning to see initial signs that point towards potential recovery in the near to medium term. These include the EU Commission's recent announcements related to their steel action plan, which demonstrate the commission is taking steps to create policy backdrop that is more supportive of their domestic steel industry.
In addition, Germany's recently announced infrastructure investment plan, as well as EU-wide initiatives to increase defense spending, should significantly boost steel demand in Europe in the coming years. And last but certainly not least, the potential end to the war in Ukraine should lead to increased steel demand needed for reconstruction while boosting market confidence across the continent.
As it relates to these demand drivers, the impact could be meaningful. In fact, one analyst projected that these combined factors could lead to a low-double-digit percentage increase in annual steel demand within the EU in the coming years as compared to the current level of steel consumption.
Further, with graphite electrode inventories remaining at low levels in Europe, an increase in European steel production should lead to an outsized increase in graphite electrode demand. This is an important strategic market for GrafTech for the long term, and our current commercial momentum in the EU that Jeremy spoke to positions us well for recovery in this region.
More broadly speaking, as it relates to both the EU and beyond, we believe that decarbonization efforts will continue to reshape steelmaking in the years ahead. We're confident that the electric arc furnace will continue to increase their share of total steel production over time, which will drive higher demand for graphite electrodes. And with demand for petroleum needle coke, our key raw material also expected to rise, our vertical integration puts us in an advantaged position.
To this last point, the growth of needle coke market is expected primarily to occur to support the building of a western supply chain for electric vehicles and energy storage applications, and we share the market's confidence that this growth will be significant. The establishment of those Western supply chains from a raw material manufacturing through to the OEMs remains in its early stages.
However, we believe that the uncertainty caused by tariffs and the potential for international trade disruptions highlights the need for the west to continue to reduce reliance on other countries for continued critical minerals such as graphite and to accelerate development of a domestic supply with the support of policymaking.
While we're closely monitoring these developments, we have also continued to build out our technical capabilities and demonstrate those to the key market participants. Thanks to these efforts and our deep expertise in needle coke and synthetic graphite, we are confident we are well-positioned to be a valuable strategic partner in this space.
In closing, this is an exciting time for GrafTech. We've set out a plan to manage the current market dynamics, and we're successfully executing against it. As a result, GrafTech is in a strong position to benefit from long-term favorable trends that will shape the future of our industry. For these reasons, we're confident in GrafTech generating long term value for our customers, our employees, our shareholders, our communities and all of our constituents.
This concludes our prepared remarks. We'll now open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Bennett Moore, JPMorgan.

Bennett Moore

Good morning, Tim and team, and thank you for taking my questions.

Timothy Flanagan

Bennett, good morning.

Bennett Moore

In the past, you've talked about the US market having the highest pricing but also facing the most downward pressure. I guess I'm wondering with Indian material now facing at least 10% tariffs, has that changed the pace of declines at all?

Timothy Flanagan

Yeah, so maybe as a little bit of a backdrop. So historically, we have not seen any sort of trade protection around the US market from imports coming out of India. We have seen it from the Chinese. And certainly, I think, over the last two years, we've seen an influx of material coming from India into the US market. Albeit a relatively small share still compared to some of the Tier 1 suppliers, but that percentage certainly has increased.
Now, I would suspect that as we look out into the future to the extent that those tariffs remain in place, whether they're at the 10% or the announced 26% level, that that'll dramatically impact the availability of this market to the Indian competitors just given the incremental cost as well as the freight disadvantage. And I think that's where we look to capitalize the most in terms of our proximity to the US and the service that we provide to our customers here. So ultimately that is something that could be a bit of a landscape changer for us in the US market.

Bennett Moore

Thanks for that. And then, real quick, you've mentioned you've gained share in the US, which is great to see. I'm wondering how much more room you think there is to go. Or I guess said another way, where does your share stand now relative to Monterey temporarily coming off fine back in 2022?

Timothy Flanagan

Yeah, so I would say that while we won't give specific numbers, we're ahead of where we were previously. And certainly, we're very pleased with the effort that the commercial team has made that resulted in the 25% increase in volume in Q1. And as we stated in our comments, we expect to continue to grow that share throughout the year. I think we're not limiting ourselves to a specific percentage. I think I said that on the year-end call as well. We'll continue to partner with our customers in the US.
I think, in the US, in particular, our value proposition with Architect, CTS, the new product offering, the demands of the US market from a furnace performance perspective really align well to what we're doing at GrafTech from a technical quality basis. So we feel very good about where we're at in the US and North America more broadly and think there's still room for us to grow in that market. And that's not even including the benefits of a growing 800-millimeter market in the US.
I think we've commented in the past that we did trials last year. We're completing some additional trials here successfully in 2025, which gives us access to even a broader market of US customers, as well as just overall demand growth, whether it be from tariffs or just organic growth for growth in the US market from steel consumption. So we feel very good and think we have a lot of potential here in the US.

Alexander Hacking

Thanks for that, Tim. Best of luck.

Timothy Flanagan

Thank you.

Operator

Alex Hacking, Citi.

Alexander Hacking

Hi, thanks, morning. I guess a couple of things. I'm not sure if you're willing to, but could you quantify what percentage of sales are now coming from US and Western Europe? Is that north of 50% now for you guys, closer to 75%? Just trying to get some sense of the big market share gains that you've seen in the first quarter. Thank you.

Timothy Flanagan

Yeah, sure. I mean, we'll disclose as we do on an annual basis, but certainly, now if you look at Europe and the US from a volume and revenue perspective, we're well over 50% in both of those markets combined.

Jeremy Halford

Collectively, right.

Alexander Hacking

Okay. And then, in terms of your supply to the US, I assume the vast majority is coming from Monterey, but I guess what's the balance there of supplying US from Monterey versus Europe?

Timothy Flanagan

Yeah, so if you think about and kind of our commentary on all our calls, we really look at all three plants as an integrated system, right, and certain plants have certain capabilities. And I know we've talked on past calls that we continue to produce pin stock out of Monterey. So as a result, Monterey is supplying pins for our global production network.
So I would say a substantial portion of the material for the US market is coming out of Monterey, but we do bring material in from Europe to service US customers as well and meet the needs of this market, and we'll continue to do so, right? And think, as we talk about tariffs and what we laid out, we've got a pretty good action plan as to how we mitigate that.

Alexander Hacking

Okay, thanks. So then, when you said that there would be less than 1% impact on COGS from all of this, that's inclusive of whatever tariff you're paying on the non-US material from your (multiple speakers)

Timothy Flanagan

That's right. So when you think about the material coming out of the USMCA compliance, so Mexico to the US, as well as the material coming from Europe, we're bringing in semi-finished goods from Europe that ultimately are finished in the US, so there's a value added to that as well as the needle coke is all coming out of Seadrift. So with the structure of the tariff regime as it is today, that mitigates a substantial portion of the impact of those tariffs.

Alexander Hacking

So this value add happening in Saint Marys, that makes sense. And then, sorry, one final one if I may. Any commentary around like how successful that you've been with the 15% price hike on the non-contract customers. Is that something that the market seems to be accepting, given that your peers were also looking to push prices up?

Timothy Flanagan

Yeah, I mean, maybe I'll take an opportunity to provide a little bit of a broader comment here. I mean, we've consistently been saying we're in a tough part of the cycle, right? The demand is weak. I think pricing, I would still describe, is unsustainably low across the market. Capacity utilization rates in the industry are again unsustainably low. It drives up costs. This is a high-fixed leverage business. And I think, if you look at, at least, most of the Western participants or the Tier 1 competitors are operating at a loss. So really it is an unsustainable market if we stay in these pricing levels.
We've taken a lot of action first and foremost around our costs, our balance sheet, our capacity with the idling of St. Marys and some other capacity around our network and still invest in R&D products and technical services. And we did all that before we announced the price increase because it was important for us to show our customers who we view as partners that we're taking steps in the same action to improve the overall health of this industry, and we led with that.
Back in Q1, we did announce the 15% increase on sales that weren't yet committed, and we'll get into those discussions for second half volumes here in the coming months. But I would say, a number of our customers and many of our customers certainly understand where we're coming from. They appreciate where we're coming from. They acknowledge that we are indispensable to their business and that they need us to be healthy and the market to be healthy for them to be successful long term.
And also that we're a relatively small piece of their overall cost structure but we're as important as every ton of scrap they put in their mill or every kilowatt of power that they pump into their furnaces. So they get it, they understand it. But that's not to say that we won't have customers that push back or customers that it's a bit of a challenge. Not all markets are equal at this point in time.
So I'm still optimistic that we'll be able to drive pricing in the back half of the year, but we think we've done the work necessary to set up the groundwork and set the landscape so that we can have these constructive conversations going forward with our customers.

Alexander Hacking

Okay, thanks, Tim and team. I appreciate all the color. Best of luck. Thank you.

Operator

Arun Viswanathan, RBC Capital Markets.

Arun Viswanathan

Great, good morning. Thanks for taking my questions. I hope you guys are well. Yeah, I guess maybe first question would just be a quick update on the progress that you guys have achieved on some of the share recovery. Is there any way you can kind of frame that opportunities as far as maybe tonnage or volumes and what you expect kind of over the next year or so?

Timothy Flanagan

Yeah, I think, probably the important metrics or data points to keep in mind, we're reiterating our belief that we'll have low-double-digit growth in volume year-over-year, so we continue to have good visibility into our order book and think that we have a strong path forward to continue to increase sales broadly.
We've also grown our sales volume in North America or US in particular, but North America as well and Europe as well. We always talk about our two most strategic markets and the two markets that historically have been the best end markets for our products that also very much mere our operating footprint have been North America and Europe. And I think the team has done a fantastic job of growing sales in both of those regions and we'll continue to see that mix.
I think we'll be much heavier weighted into the Americas. If you think about our historic sales mix between the Americas versus Europe and the Middle East versus Asia Pacific, we've pretty much been [45, 45 and 10]. I think, you can expect us to be much more heavy weighted to the Americas, north of 50%. And Europe and the Middle East will hold, drop a few points, but we'll also see a decline in Asia Pacific again just given the competitive nature of that market on an export basis.

Arun Viswanathan

Okay. Thanks for that. And then, it sounded like, obviously, the long-term outlook for graphite electrodes is still positive driven by the long-term outlook for EAF steel production. But over the near term, I guess, where do you see kind of steal utilization rates going over the next, say, 6 to 12 months? I know there's a lot of uncertainty out there, but I guess -- and what are some of the drivers there? Would you say you're kind of feeling a little bit cautious just given kind of uncertainty on global industrial production and steel utilization? Or would you say that you're feeling a little bit more optimistic just given that you've gone through quite a bit of destocking and declines over the last few years already?

Timothy Flanagan

Yeah, I think, broadly speaking, right, everybody, every business, regardless of the industry that you're in right now, has to have an eye or an ear to the ground, if you will, to understand where the markets are going. I think you see a lot of differing views on how the tariff and the trade policymaking is going to play out. And I think it's probably changed since we started this call.
So I think we have to continue to remain diligent and continue to understand. I think we've put together a good cross functional team organizationally to assess kind of all the potential ramifications. I think, where they stand today, there certainly are opportunities for us both in the US and Europe that we'll look to capitalize on. But I think we're going to hear as we go through this earnings season, everybody's going to express some level of cautiousness or uncertainty. And I think we've heard that commentary already out of certain steelmakers that they're optimistic order books are strong, but they're also foreshadowing at least a little bit of uncertainty as to what end customer demand is going to be.
Right now, we feel good with who our customers are and what we're hearing from them in terms of our demand, and that gave us the confidence to reiterate our sales volume guidance for the year. And we do think there will be opportunities that come out of any sort of disruption. And that disruption could come from incremental demand or demand that materializes from the displacement of participants in the market. So I think there's a number of ways we can benefit, and I think we're well positioned to take advantage of that.

Arun Viswanathan

Okay. And then, the other question I had was just on pricing. So appreciating your comments on -- it seems like there's been some convergence in the market between spot and, say, maybe some other longer-term contracts. But how do we think about pricing going forward? I mean, we have got oil prices kind of lower which may drive needle coke lower, EV demand also lower, which may drive needle coke lower and that could ultimately result in lower graphite electrode pricing. We've got that uncertainty around demand, but then, maybe there's some support from tariffs. I don't know if that's necessarily the case.
So is there any kind of guidance you can provide for us on how you think pricing for both electrodes and needle coke would evolve from here? I guess, we've been bouncing along the bottom maybe on needle coke for a little while and so maybe there's some optimism that things could get better there but again, I don't know if it's feedstock driven or anything else, but yeah, it's just so opaque for us. Any guidance you can provide on some fair assumptions on price would be helpful. Thanks.

Timothy Flanagan

Yeah, I mean, as we always do, I'm not going to get into particulars of what we see next quarter and the quarter after looks like is we're always negotiating contracts. But I think -- and breaking it down between needle coke and electrodes, on the needle coke side, I think, we've been in the same trading range for probably almost 1 year to 18 months now, and I think you see some firm support at this level. So any sort of incremental demand for needle coke or any sort of disruption in the market, I would suspect we'll start to see better needle coke pricing as we go forward. And as we talked about on numerous calls, there's a direct correlation between needle coke pricing and electrode pricing.
So we do think there's still a lot of positive upside on that. But we will acknowledge, yes, there's uncertainty in the EV market. There's uncertainty around how that continues to develop, but I think if anything comes out of this current trade, I won't call it a trade war, but this trade discussion or trade negotiation is that the western governments are going to become less reliant on particular economies for critical minerals and supplies of essential items. So I do think we still have a very bullish outlook there.
On the graphite electrode side, I think, throughout '24, you saw a decline in in spot pricing. And I would say that's fair to say that across every region globally. Some held better than others, but from Q1 to Q4, prices were down. If we look Q4 to Q1, on a regional basis, I would say we're pretty flat. So well, I won't necessarily say that that's a floor because you still have people that are maybe irrationally chasing volumes in certain regions or making decisions that we won't necessarily follow or make.
We do start to see some price stability where we're at right now, and that's part of why we're announcing a price increase, part of why we're trying to shift our mix to those regions that all allow us to be positioned for a broader market recovery. We did see from Q3 through, I guess, the Q1, an increase in Chinese electrode prices, some of that was higher on the small diameter side, call it 10% to 15% on the small diameter side, 5% to 10% on the large diameter. Albeit still low and depressed from where they were in, say, 2022. That's a positive development because again that creates a little bit of a floor for the marginal volume that's picked up by the Chinese exporters.
So I think there's some things that are starting to provide some price stability and, I think, we'll continue to focus on where we're selling, who we're selling to, emphasizing what we're selling, which isn't just an electrode that we drop at your gate and walk away till the next quarter and come back. The service we provide, the technology we provide, and we think all of those things will position as well.

Arun Viswanathan

All right. Thanks a lot.

Timothy Flanagan

Thanks, Arun.

Operator

Kirk Ludtke, Imperial Capital.

Kirk Ludtke

Hello, Tim, Jeremy, Rory, Mike. Thank you for the call and all the detail. With respect to the tariffs, could you remind us how much of the US, how much of the graphite electrodes sold in the US are sourced from outside the US and if you can break that down by country of origin, that'd be super helpful.

Timothy Flanagan

Yeah, so we don't break down kind of plant by plant, supply demand dynamics, but I'd say, call it, roughly half give or take of the production coming into the US is going to come out of Monterey, and the balance is going to come out of the two European facilities depending on the product.

Kirk Ludtke

Right. No, I was talking about the overall market. Like I'm trying to think of how much of the US market will be subject to US tariffs -- incremental US tariffs. So I'm just -- you mentioned India was a --

Timothy Flanagan

Yeah, so if you look at the predominance of suppliers, right, the largest shares are going to be held by GrafTech, the two Japanese competitors. They're both going to be subject to tariffs on material that they don't produce domestically. They do produce some in Europe, some in Southeast Asia as well as their pin stock that comes out of Japan. And then, you have the Indians who have a share of the market, call it, mid-teens percentage of the market, they would be subject and probably the biggest impact of the four biggest buckets of producers that sell into the US market.

Kirk Ludtke

I missed the last part. So the Indian, about mid-teens -- like 15% of the graphite electrodes come from India.

Timothy Flanagan

(multiple speakers) Yeah, graphite electrodes.

Kirk Ludtke

And then, how much comes from Japan?

Timothy Flanagan

So I would say the remaining 85% is split between us and the two Japanese, and I would put us on the high end of that. I wouldn't just divide 85% by 3, I would put us on the high end of that.

Kirk Ludtke

Okay, you have the lion's share of that. Okay, that's super helpful. And out of the graphite electrodes that are sourced from outside the US, to what extent can those graphite electrodes use US needle coke, in other words, reduce the tariffs by sourcing US needle coke. I know it's a tough, really tough question.

Timothy Flanagan

Yeah, I mean, to the same extent that if we think about the global needle coke market, four major players. P66 us, and then two Japanese producers. Some of P66's production is in the US, some of it is in the UK. So to the extent that people are using P66 material out of the US, then they would be able to have the same benefit in terms of offsetting some of the tariff impact.

Kirk Ludtke

It sounds like most of those electrodes that are coming in from outside are also using foreign sourced.

Timothy Flanagan

Yeah, I can't comment on what the actual splits are, but some are going to have some US originated material, and some aren't. But 100% of what we produce has domestically produced needle coke.

Kirk Ludtke

It sounds like these tariffs are going to be -- could be a pretty significant positive for you.

Timothy Flanagan

We very much think that it'll be an opportunity for us to continue to increase our presence in the US market for sure.

Kirk Ludtke

Got it. And to what extent do you think that trade negotiations are going to lead to capacity reductions?

Timothy Flanagan

I'm not sure how to speculate on that. What I would say is without an improvement in the overall economics of the graphite electrode market, people are going to start to make decisions around capacity because again, while we were at 63%, we increased our capacity utilization here in the first quarter from where we were last year. Us running our business at 63% isn't where we want to be. Others are facing the same or lower capacity utilizations. And so everybody has to make the same kind of capital allocation decisions as they move forward.
So whether it's driven by tariffs, whether it's driven by dislocation of markets that people historically have served, that can't serve any longer because of profitability or pricing in that region or whatever the driver is. I would expect that you'll continue to see discussion around capacity reductions as we continue to see and hear from others to balance out the market and try to not only push prices in regions but also improve the overall profitability of the industry.

Kirk Ludtke

Got it. That's super helpful. Last question, so you mentioned that it looks like pricing is improving in the US. Have you noticed any change in the pricing outlook, rest of the world, particularly Europe, since April 2.

Timothy Flanagan

Yeah, it's probably too early to say what pricing looks like from April 2. I would go back to what I said previously, I think, pricing in all geographies declined year-over-year -- I'm sorry, from Q1 of last year to Q4. We're seeing stability from Q4 to Q1, but the US market, the North American market still is a significantly higher priced market than the rest of the world. So the $100 impact that Jeremy disclosed or discussed around, that's being driven by our shifting more volume into the US market and taking it out of less profitable markets.

Kirk Ludtke

Got it. You're benefiting from a shift in mix. I was just trying to think just apples and apples, how does the market look in Europe? You see that improving in Europe as well or --?

Timothy Flanagan

Again, price stability, kind of like over the last couple of years, we've talked about inflation and the rate of inflation is slowing versus not inflating. I think we're seeing price stability in Europe. I think, the commentary we provided around Europe, whether it's the EU action plan, whether it's the incremental defense spending that is being announced by the respective governments, Germany's infrastructure bill, we're starting to see impetus in Europe to support their domestic steel and domestic industrial manufacturing. I think all of that will start to promote and give greater support for electrode pricing, whether that manifests in Q2 or yet will be yet to be seen. But I think the backdrop and the opportunities are starting to present themselves.

Kirk Ludtke

Got it. I appreciate it. Thank you very much.

Timothy Flanagan

Thank you.

Operator

Abe Landa, Bank of America.

Abe Landa

Good morning. Thank you for taking my questions. How are you? Your sales volume in the first quarter is up 2.5% and you also affirm your sales volume guidance for up low-double-digits. I guess, how does that sales volume accelerate going forward? And then maybe embedded there just, how much of that volume for your double-digit guide is a committed volume and how much you have to go out there and win?

Timothy Flanagan

Yeah, so reaffirming our 10% or low-double-digit increase, year-over-year, I think Q1 is historically a lower or a seasonal timeframe as customers are managing Q4 inventory, so you see a little bit of flux between what happens at shipments at the end of the year. So there's always a little bit of inventory management that takes place. And just depending on the timing of when Q4 negotiations get wrapped, right, there's always a little bit of lag in terms of when you actually start delivering those volumes to those customers. So we think that and the reason why we continue to produce on a level loaded basis in Q1 is because we will be at that run rate as we move forward throughout the year.
So feel good about the volume prospects. I said before, we have good visibility in the order book. I would probably put us somewhere in the neighborhood of 75% plus committed at this point in time. So again, we have good visibility and on track with where we'd otherwise expect to be.

Abe Landa

That's very interesting. I could call on the 75%. And maybe kind of in my understanding, I think the US has like been pretty much fully committed for this year. I guess, if we're kind of thinking about Europe, I guess how are discussions in Europe given just that you have two very big competitors are reducing capacity by mid-year. I think one even talk about cutting additional capacity. Maybe how are discussions going in Europe?

Timothy Flanagan

Yeah, maybe let me go back. I'm not sure I would say that the US is fully committed at this point in time. I think, we've described in the past that typically that annual buy that takes place in the back half of the year is about 80% of the need. So we think there's always some opportunity for spot volume based on kind of normalized production levels. I do think there is potential for some upside as we think about the impact and where steel producers are running in the US and again both on increased demand but also potential displacement of tons in the market.
So with respect to Europe, I think you're right, you continue to hear discussions around capacity. I think, Europe is still well below historical levels from a steel demand perspective, but all of those factors that we've talked about a couple times in terms of demand for steel in Europe, those are going to start to manifest themselves in customer conversations. And we are hearing, I won't call it an overwhelming but a marginally more positive tone from some of our European customers that are looking to lock in some volume and get ahead of some stronger production aspirations in the back half of the year.

Abe Landa

And then, you kind of partially touched on this, but could you just maybe touch on this production volume disconnect and maybe tied to how your inventory went up? I think, you're kind of add some additional inventory in the US. And I guess if we're kind of thinking about going forward, should the production of volume kind of be a little bit more -- just maybe how to think about kind of the cadence of those two. That's it for me.

Jeremy Halford

Yeah, maybe just thinking about a couple of key facts here. The first one is that our goal is to minimize our production cost. And one of the ways that we can do that is by level loading our production so that at periods later in the year, we can avoid premium costs that we might otherwise be incurring. And so we made the decision that it was worth investing in a little bit of inventory right now in order to keep our costs lower as we head into the back half of the year.
And so we have also said and we continue to be committed to that over the course of the year, our production will generally align with our sales rate. And so the inventory build that we took in the first quarter of the year was planned and it was what we expected to do, and it's really just part of executing our annual plans. And that inventory will come out of the system over the course of the year as sales ramp in the back half.

Abe Landa

Thank you very much.

Timothy Flanagan

Thanks.

Operator

Thank you. This concludes our question-and-answer session. I will now hand the call back over to Mr. Flanagan for closing comments.

Timothy Flanagan

Thank you, Jenny. I'd like to thank everyone on the call for your interest in GrafTech. We look forward to speaking with you next quarter. Have a great day.

Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.