Brighter day ahead for EAF?Fundamental
EAF is a manufacturer of graphite electrodes and petroleum coke, which are essential for the production of electric arc furnace steel and other metals. Currently, approximately 60% of the world's graphite electrodes are produced in China. With the uncertainty in political tension between the 2 countries going forward, China could add tariff or constraint on their graphite electrodes export, which could act as a tailwind for Graftech, which is the most notable player in this field.
The industry demand for graphite electrodes is currently in the trough area in the cycle now, however, this is actually a good time to buy when it comes to industrial companies when their multiples look the worst. With potential brighter day ahead in the cycle, the price that we are traded now for EAF could be the bottom for the future.
A lot of insiders have also bought shares recently, which also acts as some positive signal.
EAF has a lot of debt, but their debt has been on the down trend year by year, which is the good thing. Furthermore, their debt is not maturing until 2028, so with the current pace of paying off debt, and rate potentially has peak, this could also be a tailwind for EAF.
Technical
From the technical side of thing, EAF is currently traded at the lower end of their downtrend channel. It could consolidate here for sometimes given their earning is not until august this year, but it does look like a solid bottom here with 1.17-2 seems to be a consolidated zone. Once this zone breakout, this could run all the way to the upper end of the downtrend channel, which is around the 4-6 area and higher.
Please note that this is a long term play. I would expect it would take EAF a few quarters to show that they are turning the tide around, so I am predicting 4-6 range to be traded in 1 year time, while a more optimistic range of 9-10 could be traded in the 2-3 years time horizon. This could happen with the cycle improves or some demand bottleneck happens due to either the green industrial acceleration or political tension with China.
PT1: 4-6
PT2: 9-10
