Tough times for graphite flake

By Jon Stibbs
Published: Monday, 06 April 2020

A softening market for graphite flake in Europe, followed by oversupply and the impacts of the novel coronavirus have combined to subdue prices.

European prices for fine graphite flake have remained stubbornly low although the biggest producer, Syrah Resources, slashed its output in September 2019. Since then, the market has tightened but the emergence of the Covid-19 coronavirus pandemic has damped any recovery.

Fastmarkets’ price assessment for graphite flake 94% C, -100 mesh, cif Europe, (-194) has been stable at $470 per tonne since October 17 last year, when it dropped by $5 per tonne week on week.

The price of -194 material had lost 27.7% since it was assessed at $650 per tonne at the start of 2019, when Syrah Resources began commercial production from its Balama facility in Mozambique. But even before Syrah began production, the market was already softening.

With substantial backing from investors, Australia-based Syrah had ambitious plans to ramp up production from the world’s biggest graphite mine, serve the steel sector, and take advantage of growth in the batteries sector.

"It might have worked out if not for the global trade wars, and cutbacks in steel production," a graphite producer said, "but the market clearly did not need the graphite in those quantities."

Graphite flake 94% C, -100 mesh, cif Europe, $/tonne

Syrah’s addition to the market of 91,000 tonnes of graphite flake in the first half of 2019 bloated a market that was already weak and helped to drive down prices.

In the final quarter of 2019, Syrah worked to ease the oversupply and raise prices by scaling back production by one-third, quarter on quarter, to 15,000 tonnes.

"The turning point in this narrative is the cut in production," the producer said. "This has allowed the market to stabilize somewhat, now that surplus production has been taken off the table."

Over the last three months of 2019, Syrah’s weighted average selling price recovered by 17.1% to $458 per tonne, the company said in January 2020, but the market was not strengthening.

"Inventory availability and weaker year-on-year growth in electric vehicle [EV] production suppressed global natural graphite prices during the [fourth] quarter," the company said.

Syrah introduced a flexible approach to production by tailoring its output to meet the requirements of the wider market. Actual production would be a reflection of the prevailing demand.

Exports to Europe from China collapsed by 43.1% to 18,687 tonnes in 2019 year on year, according to official but unconfirmed data seen by Fastmarkets. Seasonal winter production closures in China helped to cut down the quantity of available material. But other market participants said that the surplus of material remained while demand was still extremely weak.

"Chinese production is down but Syrah and the others are still meeting demand. Demand remains weak and there is no shortage of supply," a second producer said. "No one wants to buy at $470 per tonne but we are ready to sell."

The global economic outlook worsened with the emergence of the coronavirus outbreak, which now has Europe as its epicenter, according to the World Health Organization.

The virus is likely to severely damage European economic activity while Chinese production, especially from the graphite flake heartland of Heilongjiang province, recovers.

"I see more difficulties to come for all of us," a trader said. "I am concerned that demand will go down since European producers may suffer from the standstill of the economy in Europe, and that demand breakdown will cut prices again."

Currency depreciation – affecting the Russian rouble, the Brazilian Real and the Norwegian krone – mean that there could be the possibility of further price cuts by some producers.

Additionally, the slump in the oil price gives producers room to lower their prices, because this will help to reduce their costs.

The global oil benchmark Brent futures price sank to $24.88 per barrel on March 18, its lowest settlement since May 8, 2003.

"In the short to mid term, we are bearish for consumption and prices," a consumer said. "The oil crisis gives room for prices to come down, especially for producers in Africa, where they use more oil."

But producers may not be willing to lower their prices any further.

"The macroeconomy will certainly be very bad in the short term due to coronavirus, and this will curtail short-term demand," the first producer said. "However, we are not starting from a typical middle-of-the-road price point for graphite, but at historical lows. Down here, declines in demand are far more likely to result in production cuts than price cuts."

As a result, prices for -194 grade material could be stable until the virus outbreak has passed and demand recovers once again.

"Once the world economy is moving again [perhaps in July]," the producer added, "I would not be surprised to see a rapid upward correction."