Syrah cuts graphite supply to over-fed Chinese battery market

By Davide Ghilotti, Jon Stibbs
Published: Friday, 01 November 2019

Delegates at Fastmarkets' Graphite 2019 Conference in Berlin, Germany, in September said reduced volumes from Mozambique may gradually rebalance graphite prices, Davide Ghilotti and Jon Stibbs, write.

Australian graphite producer Syrah Resources’ announcement that it will slash production in the last quarter of 2019 was met with relief by delegates at Fastmarkets' Graphite 2019 conference in Berlin, fueling hopes that lower output may return the market to equilibrium.

Attendees hotly debated the situation of the Australian miner and the fate of its Balama project in Mozambique, which was set up as a key ex-China supplier of graphite for the battery industry, during the two-day conference, held in the German capital on September 10-11.

Syrah, which also has a Battery Anode Material (BAM) project in the United States, will cut its flake graphite output target at Balama to 5,000 tonnes per month for the fourth quarter of 2019, the company said on September 10. This is down from 33,000 tpm reported by the company in the fourth quarter of 2018.

Syrah said its decision to curtail production was influenced by falling graphite prices in China driven by the weaker yuan, cuts in Chinese subsidies for electric vehicles (EVs) which have weighed on battery graphite demand, and new production from Madagascar, coupled with a seasonal uptick in output from Chinese mines.

Syrah ostensibly supplies mainly small flake graphite to lithium-ion battery anode producers in China, although some market sources have cast doubt on how much of Syrah’s material actually qualifies for the battery market.

"In the six months to June 2019, China imported 105,000 tonnes of graphite, of which 75% was from Syrah, primarily consumed in the battery supply chain," Syrah said in its statement.

Market doubtful over Balama’s future

Jamie Deith, president of Canadian graphite producer Eagle Graphite, said Syrah’s production cut was not a surprise. "I felt for quite some time that the Syrah project was insane, from an economics [perspective]," he said during a panel discussion at Graphite 2019.

Deith’s view, seconded by other panelists, was that Syrah brought too much graphite into the market when demand was not growing at a sufficient pace to absorb it, resulting in weak prices and oversupply.

"Dumping huge quantities of graphite, where there wasn’t a huge shortage to begin with, wasn’t a great idea," he said.

Puruvi Poddar, group manager at Indian supplier Tirupati Graphite, said "prices may not increase [following Syrah’s production cut], but they will not go down any further."

But Stephen Riddle, chief executive officer of US supplier Asbury Carbons, said that prices may not have bottomed out yet. "They may not go down much more, but there is room to go down," he remarked.

Other delegates told Fastmarkets that they were not expecting such a sudden cutback from Syrah, although many questioned the long-term viability of the project, which they described as too large and as carrying high costs.

"Their costs won’t be going down much, because about 30% of your costs in a mining operation are fixed, from energy, fuel, labor and so on. You don’t have much room to act there," one delegate said.

A Syrah executive told Fastmarkets shortly after announcing the production cutback that: "it was the right thing to do in light of the market weakness. We will continue to produce."

BAM on track

In its interim results for the six months to the end of June, released on September 13, Syrah said its BAM project was making headway.

"We… continued to progress our Battery Anode Material Strategy[("BAM"] in the US, with qualification shipments of unpurified spherical graphite dispatched to target customers," the company said.

"Construction and commissioning of the purification circuit of the BAM facility in Vidalia, Louisiana, is nearing completion, and dispatch of purified spherical graphite for qualification purposes will follow," it added.

Syrah reported first production of spherical graphite at the BAM using Balama material at the end of 2018.