Syrah Resources of Australia, major producer of flake graphite in Mozambique, has reported no production from its Balama operation in Q2 2020 as a result of the effects of COVID-19. It highlighted on-going travel restrictions which have limited the mobility of its workforce, and weak end-user demand due to lockdowns. In particular, it references economic uncertainty surrounding EV sales.
While recovery rates for the EV battery sector are expected to be robust in the long-term, immediate weakness in the market means Syrah Resources’ timing for re-commencement of production is uncertain; restart time is expected to be 2-3 months once the decision is made.
While production is suspended, the company is looking for ways to increase its cash reserve, including a labour restructure with a 65% headcount reduction.
Syrah Resources became the world’s largest non-Chinese producer of flake graphite in 2018 but began to scale back the ramp-up of its Balama operation in Q4 2019 due to market imbalance caused by weaker than expected electric vehicle sales in 2019, which negatively impacted end user demand for natural graphite.
Syrah Resources produced more than 104kt of flake graphite from Balama in 2018 and continued to ramp up during the first three quarters of 2019, however, the company scaled back production significantly in Q4, outputting 15kt, down from 45kt in Q3. Production for the full year 2019 was 152kt, but this was still far below initial targets which saw final planned capacity for the project at 350ktpy. With continued weakening of the EV market and the impact of COVID-19, the company’s production in Q1 2020 declined to 12kt and ceased altogether during Q2.
The EV battery market was weak prior to the effects of COVID-19 in early 2020 because of EV incentive cuts in China that began to impact the battery supply chain throughout the second half of 2019.
Despite the current downturn, the battery sector is expected to be one of the most robust applications for graphite coming out of COVID-19 recovery, with a quicker response time and a return to much higher rates of growth compared to most traditional steel-based graphite applications. In the short term, recovery will be boosted by an extension to EV incentives in China to 2022 (these were originally due to be scrapped in 2020). Roskill expects long term demand for graphite in batteries to grow by 19%py between 2021 and 2030, (using its base case growth scenario for lithium-ion batteries).
The EV battery industry is of great importance to Syrah Resources. Much of the company’s flake graphite has previously been exported to China, where it is processed into spherical graphite and supplied to China’s rapidly growing domestic EV battery sector for use in lithium-ion battery anodes.
Syrah Resources hopes to move into added value downstream production itself and is currently constructing a battery anode materials plant in Louisiana, USA. It reported first production of purified product in November 2019 and first battery-grade purified material in July this year. It is now looking to achieve commercial-scale qualifications. It plans to become the “first ex-China vertically integrated producer of Active Anode Material (AAM) from natural graphite”.
Roskill’s NEW Natural & Synthetic Graphite: Outlook to 2030, 13th Edition report will be published soon and will include full analysis of the impact of COVID-19 on supply, demand and prices, as well as forecasts out to 2030. The report will also include profiles of the main producers and an industry cost curve for spherical graphite. Click here to find out more.
Roskill’s Lithium-ion batteries: Outlook to 2029, 4th Edition report was published in May 2020. Click here for more information.