Graphite: Syrah increases production but prices are still below target

Syrah Resources continues to ramp up production at its Balama project in Mozambique, stating in its Q1 interim report released in March, that it expects total Q1 output to be 45kt (at the low end of a production target of 45-50kt). Average weighted prices for the quarter are expected to be US$460-470/t, with a mid-point 18% below its guidance range of US$500-600/t.

Syrah Resources blames the low prices on ‘product mix and final vessel scheduling weighted towards sales of fines graphite’ and ‘faster than anticipated progress towards close out of lower priced contract volumes from 2018 (approximately 25% of Q1 2019 sales) to extinguish those contract volumes from the sales book’. The company hopes to achieve higher pricing though the next three quarters of the year.

Earlier in March, the company reported no impact on production of shipping from its Balama operation as a result of Cyclone Idai.

Roskill view:

Syrah Resources continues in its pursuit to become the world’s largest producer of flake graphite. In 2018, it produced a total of 104kt of graphite concentrates (as stated in its 2018 annual report, also released in March). Although this was only around 65% of the low end of its initial target for the year of 160-180kt, it still represented around 15% of global flake graphite production in 2018. Even if Syrah Resources were to continue to produce to Q1 levels throughout 2019, total production for the year would reach 180kt, and the company plans to continue ramp-up. Initial production targets for 2019 were 250-300kt and it is possible that the lower end of this target could now be reached. At 250kt, its production could account for almost a third of global flake supply this year.

The current prices being achieved by Syrah Resources, however, are unlikely to sustain production long-term. In its annual report, the company reported cash operating costs (FOB Port of Nacala) above US$400/t. The company has been looking to reduce its costs from US$550/t down to US$400/t in 2019.

The graphite producer is also looking to improve its margin by diversifying its product mix and increasing shipments of higher value, larger flake sizes. In late 2018, it secured a deal with Qingdao Freyr Graphite, a Chinese manufacturer of expandable graphite, for supply of 6ktpy of large size flake. The majority of Syrah resources sales, however, are of smaller size flake suitable for use in the lithium-ion battery industry.

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