Syrah: EV boom will spur China’s shift to become net graphite importer

By Charlotte Radford
Published: Thursday, 22 February 2018

New market entrant Syrah Resources has forecast a macro change in global graphite supply in the coming years, with battery and electric vehicle (EV) end-markets leading China to become a net importer of the mineral.

The graphite market will undergo a shift in structure and pricing that could see China becoming a net importer of natural graphite to meet forecast local demand for EV batteries, according to Luke McFadyen of Syrah Resources.

Syrah, which brought online its Balama graphite mine in the fourth quarter of last year, expects China to gradually turn from being the single largest exporter of the mineral to an importer, while the battery sector in the country develops.

"China’s industrialization is nearly at its end – they’re just putting the finishing touches to it now – [so] demand growth for graphite is all dependent on electric vehicles," McFadyen, Syrah Resources’ market analysis and economics manager, said at the Advanced Automotive Batteries Conference in Mainz, Germany, which ran January 29 to February 1.

Graphite demand from the EV sector was 60,000 tonnes in 2015. Annual demand for the battery anode material is forecast to reach 350,000 tonnes by 2020, and 900,000 tonnes by 2025, delegates heard.

"The electric vehicle effect on demand for natural flake graphite is significant and imminent," McFadyen said.

China currently accounts for more than 60% of the world’s natural flake graphite production. The country is also the main exporter of the mineral, although domestic demand is increasing rapidly.

In the nine months to the end of September 2017, China imported 2,852 tonnes of flake graphite, up by 250% year-on-year, according to customs data. The country imported around 900 tonnes in July 2017 alone - more than it bought in the whole of 2014.

The value of these imports has more than doubled, rising by 215% to more than $1.2 million in 2017 from less than $400,000 in January-September 2016.

Various constraints during 2017 wreaked havoc in the local supply chain.

Production in China’s Shandong province was hit by environmental inspections and intermittent shutdowns.

Graphite prices have increased as a result of supply-demand dynamics. Industrial Minerals assessed the price of graphite flake, 94-97% C, +80 Mesh, at $1,050-1,210 per tonne fob Qingdao on February 8, 2018, up by 45% from a year ago.

The necessary shift in China’s buying patterns is likely to be a precursor to a shift in pricing structures in the graphite market, triggering a shift away from fixed-price long-term contracts, in favor of pricing linked to spot reference prices.

"The last time this happened was in iron ore and metallurgical coal in the early 2000s. [This shift in trade flows] will fundamentally change the graphite market. It’s like selling oil to Saudi Arabia," McFadyen said.

"[Graphite pricing mechanisms] might not become like gold or oil, but it’s not unrealistic to say we could have a situation [similar to what was seen in] metallurgical coal," he added.

As it stands, the structure of the market sees the majority of graphite committed in long-term agreements, which should protect prices from extreme volatility, conference delegates heard.

"Theoretically, graphite prices shouldn’t fall," McFayden said. "There’s not the spot liquidity for prices to crash. Every tonne we mine is pre-sold. This year [2018], we’ll produce 160,000-180,000 tonnes of graphite, and 100% of that has been pre-sold. In 2019, we’ll produce 250,000-300,000 tonnes and the reason we have that figure is because 100% of it is pre-sold. So prices won’t crash."

Syrah’s production at the Balama mine in Mozambique is scheduled to ramp up to 350,000 tonnes per year.

"We’re mopping up the incremental demand so there’s not that excess supply [to cause prices to fall]," McFayden added.

But in response to forecast 

demand from anode producers and the electric vehicle sector, Syrah is looking at options to further increase Balama’s output profile.

"We’re looking at expansion, because the market will need a lot more graphite in the not-too-distant future," McFayden said. "We’ve known about the [Balama] deposit for 130 years, it just took something like electric vehicles for it to be induced."