Plans by Australian graphite producer Syrah Resources to
slash production in the last quarter of the year were 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 during the two-day conference, held in the German
capital on September 10-11.
Syrah will cut the output target for flake
graphite from its graphite mine in Mozambique to 5,000 tonnes
per month for the fourth quarter of 2019, the company said on
Reactions to the news of Syrah’s
reduction in output reverberated in the conference room
starting from the first panel discussions and continued to be
among the leading
topics of conversation during the event.
A number of critics of the Syrah project said the
market may now work toward pursuing a new balance between
supply and demand.
Jamie Deith, president of Canadian graphite
producer Eagle Graphite, said the announcement should not take
the industry by surprise. "I felt for quite some time that the
Syrah project was insane, from an economics [perspective]," he
said during a panel discussion.
His perception, shared by other executives on the
panel, is that Syrah’s project brought too large a
volume of new material into a 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 added.
Puruvi Poddar, group manager at Indian supplier
Tirupati Graphite, said Syrah covered a large part of the
additional consumption of graphite that the industry required
over the past couple of years, since the beginning of its
operation in late 2017.
The lower output the company will deliver as a
result of the production cut will have a stabilizing effect on
market prices, she said, adding: "Prices may not increase, but
they will not go down any further."
"Capacity and supply are so much greater than
demand: it’s a buyers’ market,"
Stephen Riddle, CEO of US supplier Asbury Carbons, said.
"Prices have not necessarily reached the bottom. They may not
go down much more, but there is room to go down."
Neither speaker admitted to have been taken by
surprise by the announcement, although a number of other
delegates in conversations with Fastmarkets during the event
did say they were not expecting such a sudden cutback.
Other delegates questioned the viability of the
project in its current form, citing too large an operation
carrying high costs, which even at a reduced rate may prove
difficult to contain.
"Their costs won’t be going down much
[whenSyrah reduces production], 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," a
Discussion was vibrant between delegates during
the breaks in the conference about the outlook for Syrah. One
delegate said the company would need to be ruthless in cutting
staff, shifts and production, while increasing the grade of its
output. In this way it could severely cut its costs while
raising its income per unit.
The undeniable presence of Syrah’s
graphite deposit and the high-spec infrastructure it has
developed means the influence of the Balama project would
continue to represent a force to be reckoned with in the
market, another delegate said.
In the short term, extra production from
Madagascar and a seasonal resumption of output from northern
Chinese graphite miners added to the amount of material in a
well-supplied market and resulted in an unfavorable outlook for
the flake graphite market in the fourth quarter, Syrah
One Syrah Resources executive told Fastmarkets:
"It was the right thing to do in light of the market weakness.
We will continue to produce," adding the cutback would support
a market recovery.