INTERVIEW: Syrah adopts flexible, scaled-back production approach amid graphite market imbalance

Syrah Resources has adopted a new, flexible approach to the flake graphite market following a dramatic year in which it began commercial production from its Balama facility in Mozambique and produced 137,000 tonnes in the first nine months.

The Australian miner then slashed its target production for the fourth quarter of 2019 to 5,000 tonnes per month.

“Looking at 2020, we plan to be flexible and respond to the market,” Joe Williams, marketing manager at Syrah Resources, told Fastmarkets on Tuesday November 5. “We are looking for inventories to reduce and the market to come back into balance.”

Over 2019, the combination of weakening demand and arrival of new material on the market has put downward pressure on prices for flake graphite.

Fastmarkets assessed the price of graphite flake, 94% C, -100 mesh, cif Europe at $470 per tonne on November 7, down by 28% from $650 per tonne at the start of the year.

“In the short term [and] in combination with other mine developments, Balama is larger and more productive than the market can currently absorb sustainably,” Williams said. “Additional supply has created an imbalance and this is why we remain dynamic to the conditions in the market.”

In response to the sharp fall in the price, Syrah is planning a new approach to the market. Production will be in proportion to demand and will be increased once prices have recovered – and it can be ramped up quickly in response to changes in the market.

“It does not currently make sense to front-run demand at unsustainable levels,” Williams said. “This is a market in transition to global integration and we continue to test the price against plant output and market balance. Ultimately, this will lead to a point where the price is higher than the production cost for enough of the cost-curve to be incentivized to produce.”

Williams conceded that the company had overestimated how much the industry would increase in size in 2019. “The market has not grown as much as we would have liked but the long-term fundamentals of the market are in place and very strong,” he said.

The company retains its full commitment to the Balama project, however. “There is no better graphite asset or plant out there,” Williams said.

Despite the decision to scale back production, Syrah is focused on the business need to produce on a large scale to bring down unit costs.

“On a long-term basis, supplying to the lithium-ion industry, small production volumes don’t make sense,” Williams said. “However, in the short term, we are making an investment to balance the market.”

Demand focused on battery sector
“The battery sector is about half the size of refractories currently, but growth for batteries is relatively very strong, especially in the mid-to-long term,” Williams said. “We are optimistic that things are moving ahead in the battery sector on the ground.”

About 260,000 tonnes of graphite will feed the Li-ion NG battery anode market in 2019, which would be a huge jump from the figures seen three years ago or more, he added.

Demand has also grown for expandable graphite but at a slower pace and from a lower base.

But demand in the graphite sector as a whole has been subdued this year, especially in Europe’s steel and automotive sectors.

Europe’s steel sector weakened in the second half of the year and there have been signs of softening in China. And there are long-term challenges to growth in the global automotive industry, with sales falling this year.

“The concept of owning an automobile runs counter to the megatrend of urbanization. Fleet growth must come from emerging markets,” Williams said.

Even China’s electronic vehicle sector, which has been very strong, has softened recently in response to changes in the country’s subsidies regime.

Development of spherical sector
Syrah has begun production of purified spherical graphite from its Battery Anode Material (BAM) plant in the United States, using flake from Balama.

“The plant is now up and running. The commercial case for it is contingent on successful qualification and participation from the market,” Williams said.

The initial project is on a relatively small scale but represents a development for the spherical graphite market, which is dependent on production in China.

The current plant represents a stepping stone toward a much larger plant that the company says could service the demands of a gigafactory.

“A large commercial plant is not yet de-risked from a business perspective, but there is huge commitment behind this plant, which is the first of its kind in production outside China,” Williams said.

Fastmarkets’ assessment of the price for graphite, spherical, 99.95% C, 15 microns, fob China has fallen by 11% since the start of the year to $2,500-2,600 per tonne on November 7. It was $2,800-2,900 per tonne on January 3.

Syrah is developing its trade relationships before ramping up production from the plant.

“Establishing a position in the market is critical before really scaling up,” Williams said. “This takes time and is contingent on the contract type – whether it is new or established – or partnership.”

The company can increase its production once the commercial relationships are in place, however.

“Scaling up can be done relatively quickly now that the plant has been established,” Williams said. “We would hope to have commercial product [sales] immediately after qualification – perhaps in six months’ time but probably longer.”

The company views the project as a mid-to-long term development.