Operating income for the Industrial Materials segment was $25 million in the first quarter of 2012, as compared to $34 million in the first quarter of 2011. The decline was primarily due to lower sales volume for graphite electrodes related to the reduction in global steel production and customer inventory destocking. Positively impacting operating income was the carryover benefit of lower costs associated with higher graphite electrode utilization rates in the fourth quarter 2011, which flowed through to our results in the first quarter of 2012 contributing approximately $0.03 per share to earnings. Subsequent quarters will begin to see the impact of higher fixed cost per unit of production associated with the reduction in operating rates as well as increased raw material costs.
As previously reported and planned, we took actions in the first quarter to lower our operating rates to better align to expected customer demand and level our utilization rates throughout the year. Accordingly, we are building inventory in the first half of the year and will deplete inventory as we respond to greater customer demand expected in the second half of 2012. We expect to exit the year with modest increases in our inventory levels versus year end 2011.
Engineered Solutions Segment
Net sales for the Engineered Solutions segment increased 12 percent to $48 million in the first quarter, as compared to $43 million in the first quarter of 2011. The increase was largely driven by continued growth in our advanced consumer electronics product lines and incremental revenue associated with the acquisition of the Fiber Materials, Inc. (FMI) business. Operating income for the Engineered Solutions segment was a loss of $1 million, as compared to income of $3 million in the 2011 first quarter. The decline reflects the significant slowdown in the solar market, resulting in a less favorable product mix, and increases in our sales coverage and research and development to support future growth.