graphite - where are you going?

It's time to step back a pace or two, and look at the broader market for graphite companies. SYR's astonishing move to the head of the graphite market, with the largest deposit yet discovered on the planet, may have taken our attention away from the big graphite picture.

How big is the market?
How fast will it grow?
How much can SYR secure?

Currently, there is a little over one million tonnes of graphite produced per year, mostly of lower grade amorphous graphite, and mostly from China. A string of hopefuls are drilling furiously in Australia, Canada, Tanzania and, of course, Mozambique. It now looks as if SYR will be producing graphite before the end of 2014, with substantial volumes a year or two later. The important point is that SYR will be easily able to supply 20 - 30% of the world demand by then, at very low production cost.

Any new would-be supplier will need to be similarly low-cost, and high-grade. It's hard to see many of the present crop qualifying. The same thing is true of some present producers, who will probably be displaced by high-grade, low-cost graphite from Balama. We have to expect the world price to drop significantly, with this increased supply.

What about increased demand? Lithium-graphite batteries for cars, graphene for electronics components? The truth is these are simply not going to result in a huge rise in demand. Five million electric cars per year, using 50 kg of graphite each (which is the upper end of estimates) would only add 25% to current world consumption. Graphene uses very thin layers, consuming a negligible amount of graphite. Even a doubling of current world graphite usage by 2020 will be a big ask.

No, the SYR market is most likely to come from displacing existing suppliers - which they will be able to do quite profitably.

In that regard, we should not forget the vanadium content of the ore, which could add another 25%+ to the cash flow.

If this brief analysis is valid, two conclusions follow. First, SYR will be a very profitable company, but we shouldn't assume there are no limits to growth and profits.
Second, any other graphite company coming into production in 2015 or beyond, anywhere in the world, will need to yield high-grade, low-cost product - or go under.

SYR is clearly poised to be the new kid on the block, offering high-quality graphite at prices nobody in the world is likely to be able to match. Let's enjoy the ride.

Cheers, Prime