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."
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."