On September 10th, a notice from the Australian Stock Exchange blew a chilly wind to the graphite market. Syrah Resources (ASX:SYR) said it plans to take “immediate action” to deal with the sudden drop in graphite prices and said graphite prices may fall further later this year.
Up to now, Australian listed graphite companies have to enter the “winter mode” due to changes in the economic environment: reducing production, destocking, and cutting costs.
Syrah has fallen into losses in the last fiscal year. However, the market environment deteriorated again, forcing the company to significantly reduce the graphite production in the Balama mine in Mozambique in the fourth quarter of 2019, from the original 15,000 tons per month to about 5,000 tons.
The company will also cut the book value of its projects by $60 million to $70 million in the interim annual financial statements released later this week and “immediately review further structural cost reductions for Balama and the entire company”.
Syrah reviewed its 2020 operating plan and expressed a desire to reduce spending, so there is no guarantee that this production cut will be the last.
Graphite can be used as a material for anodes in lithium-ion batteries in smartphones, notebook computers, electric vehicles and other electronic devices, and is also used in grid energy storage devices.
High graphite prices have encouraged capital to flow into new projects outside of China. In the past few years, emerging demand has spurred a sharp rise in graphite prices and opened up several domestic and international projects for Australian companies.
(1) Syrah Resources began commercial production in the Balama graphite mine in Mozambique in January 2019, overcoming a five-week blackout due to fire problems and delivering 33,000 tons of coarse graphite and fine graphite in the December quarter.
(2) Perth-based Grapex Mining received a $85 million (A$121 million) loan from Castlelake last year to advance its Chilalo graphite project in Tanzania.
(3) Mineral Resources partnered with the Hazer Group to establish a synthetic graphite production plant in Kwinana, Western Australia.
Despite this, China will remain the main country for graphite production. Because spherical graphite is expensive to produce, using strong acids and other reagents, the commercial production of graphite is limited to China. Some companies outside China are trying to develop a new spherical graphite supply chain that may adopt a more environmentally friendly approach, but it has not been proven Commercial production is competitive with China.
The latest announcement reveals that Syrah seems to have completely misjudged the trend of the graphite market.
The feasibility study released by Syrah in 2015 assumes that graphite prices average $1,000 per ton during mine life. In this feasibility study, the company quoted an external price study saying that graphite could cost between $1,000 and $1,600 per ton between 2015 and 2019.
Just in January of this year, Syrah also told investors that graphite prices are expected to be between $500 and $600 per ton in the first few months of 2019, adding that prices will “upward”.
Syrah said graphite prices have averaged $400 per ton since June 30, down from the previous three months ($457 per ton) and the prices of the first few months of 2019 ($469 per ton).
Syrah’s unit production costs in Balama (excluding additional costs such as freight and management) were $567 per tonne in the first half of the year, which means that there is a gap of more than $100 per tonne between current prices and production costs.
Recently, a number of Chinese lithium battery industry chain listed companies released their first half of 2019 performance report. According to statistics, among the 81 companies, 45 companies’ net profit fell year-on-year. Among the 17 upstream material companies, only 3 achieved net profit growth year-on-year, 14 companies’ net profit fell year-on-year, and the decline was above 15%. Among them, Shengyu Mining’s net profit fell 8390.00%.
In the downstream market of the new energy industry, the demand for batteries for electric vehicles is weak. Affected by the subsidy of new energy vehicles, many car companies cut their battery orders in the second half of the year.
Some market analysts pointed out that with the intensified market competition and accelerated integration of the industry chain, it is estimated that by 2020, China will have only 20 to 30 power battery companies, and more than 80% of enterprises will face the risk of being eliminated.
Saying goodbye to high-speed growth, the curtain of the lithium-ion industry stepping into the stock era is slowly opening, and the industry is also suffering. However, the market will gradually turn to maturity or stagnation, and it will be time to verify.
Post time: Sep-18-2019