Chinese Spherical Selling for US$2500-3000

Hi all,

As I mentioned before uncoated spherical out of China is selling for the above mentioned price.

I have gone away for the past few weeks and read as much as I can on the sector and I just cannot see how these basket prices of "$2400 per tonne" are even close to being near reality?

If spherical is selling for this price what are they paying for the actual raw material per tonne?

If you use the basic numbers people talk about on this forum and that there is 3 tonnes of graphite to produce a tonne of finished product and then at best to convert to spherical results in a 50% yield loss then it is taking 6 tonnes of material to produce 1 tonne of spherical. By that measure the Chinese are paying no more than $400-$500 per tonne for the raw material to produce battery grade spherical and they would be losing money at this price.

I also came across a Morgan Stanley report relating to Syrah that I would like to post but I can't seem to upload. I'm happy to email it (as well as the price list) to anyone who would like it. It is based upon Synthetic v Natural and the pros and cons.

These are the two most disturbing quotes from this report : " High End Ev' s (with high price tags) seem to be using anodes composed of synthetic graphite only. The reasons behind this in addition to the beneficts highlighted above includes the fact that Battery Electric Vehicles (BEV) have large battery packs (including a large number of cells), the algorithms that draw power from these perform better with synthetic graphite."

"Lower-end EV's may use some natural graphite, but mainly used in 3C eletronics"

But finally : "Pricing differential smaller than earlier thought : Our checks tell us that synthetic graphite typically trades at an average price of ~ US $7,000/t, and can trade up to ~US$14,000/t for the highest quality product in China. In comparison, the average price of natural graphite is ~US$6,000/t, with high end product being sold up to ~US$8,000/t. In our view, with the average prices for synthetic and natural graphite only - US$1,000/t apart, the cost saving benefit attributable to a switch from synthetic to natural seems limited - particularly given that both these products are close substitutes for one another."

"It typically takes ~2 years to qualify new graphite products , with limited focus on beneficiating techniques used".

Quite simply the market in this product is too opaque. It seems as though as a producer at the moment you are nothing but a price taker and that probably is why the people next door can't lock in a western customer. I'm guessing they've been offered an offtake but the price isn't $2400/ tonne its more like what I explained before.

I can't see how any of these up and coming projects will be able to be debt financed with this lack of clarity. When SYR goes into production it will be the first instance of where a pure graphite producer can be measured in terms of what this product sells for and what type of product is really demanded. I would think that everyone in the sector should be hoping that SYR goes into production successfully because if they fail then I think the future for the rest of the sector looks poor.

Even with all the capital they raised and the cash they had in the bank they still couldn't get financing. NPV's are irrelevant because anyone can use a theoretical priocing model. At the moment if one is happy to use that basket price then one should also be prepare for approximately $400 million in equity dilution which would be another 6 billion shares at 7 cents. I'm only using using 7 because it is today's price but even at 10 cents its still bad.

Finally I don't think one can ever invest in a commodity where there is a substitute like natural and synthetic because it will always limit the upside of one or the other.

For these reasons I've sold out because i cannot see any upside at all regardless of the PFS because as I said there is no clarity around any of the assumptions. There is also no institutional money of note from what my research tells me apart from the money that has financed SYR and that isn't going well at the moment.

As always do your own research but as I've said before when I talked about previous commodity cycles long term increase in demand doesn't always mean increase in price.