Hopes for graphite price stabilization follow Syrah cutback announcement

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

Graphite prices could return to equilibrium after Australian producer Syrah announced a significant reduction in output.

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 September 10.

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 delegate said.

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 Resources said.

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.