By Davide Ghilotti
INDUSTRIAL MINERALS - Published: Tuesday, 21 March 2017
The performance of Syrah’s soon-to-come online Mozambique graphite operation will be key to ensuring investors’ continued interest in funding graphite projects, although it would not be easy for the company to gain market share in a tight-price scenario.
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Soil stripping at Balama's west pit. (Source: Syrah)
All eyes of the graphite industry are fixed on Syrah Resources as the company aims to start production at its Mozambique deposit later this year, with market participants saying that the performance of Syrah will set the bar for the rest of the industry.
The prospect of the junior graphite miner bringing online its large East African operation was one of the main topics of discussions among delegates attending the IM Graphite & Graphene conference in Berlin 16- 17 March.
"Everyone is watching what Syrah will do," a graphite seller told IM. "People are excited and concerned at the same time."
The seller echoed what several other attendees said throughout the two-day event, which wrapped up 17 March.
"They are very close now and they are the biggest, so they are now the barometer for the sector as a whole," said a second supplier in Berlin.
From its Balama graphite project in north-eastern Mozambique, Syrah plans to bring online an operation which, at full capacity, aims to deliver 380,000 tpa graphite material to the wider market. Construction operations are currently ongoing and approaching the final stage.
In the juniors’ space, the company is by far the largest single operator that is approaching production in the coming months.
The fate of this venture, delegates told IM, will set the bar for everyone else, for good or bad.
The sentiment among attendees is that, if Syrah’s operation is successful, it will show that there is real appetite for large supply sources outside China, and will mark a first step in a re-calibration of the market – which at the moment relies on China for just short of 70% of total supply.
Speaking 17 March in Berlin, Christopher Ecclestone, principal mining strategist at financial advisory firm Hallgarten & Company, told the audience: "End users don’t want to rely solely on Chinese supply," adding that there is a will to see a more balanced supply scenario.
At the same time, a number of attendees were sceptical about the viability of the Syrah operation in the long term, citing fierce competition from China and operational issues that could take place.
"They’ll have to run at high capacity to maintain the production costs as low as possible, and to be able to offer at better prices than the Chinese, to attract customers," one supplier told IM."But if China starts dropping their prices, how long can Syrah compete before affecting its own returns?" he asked.
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Storage facilities being built. (Source: Syrah)
Other delegates shared a similar concern – Chinese companies could choose to ignite a fierce price war to maintain their market share, they stated. This could have negative consequences on a price scenario across the graphite market which has already been stagnating for some years.
"It will be hard for a new player to compete on price, if the Chinese want to keep their customers at whatever costs," the second supplier said.
A buyer told IM he would buy "some quantities" from Syrah, but that it could not commit to shift a large part of his needs until supply consistency is ensured.
At the other side of the equation, the performance of Syrah will be crucial to ensure investors’ continued interest in funding projects in the graphite space. The concern here is that, if the operation is not satisfactory, it will dampen investors’ interest in graphite and shift them towards other commodities.
"Because of the high profile and the uptrend in the share price we have seen, they have set the bar very high in the investing community," a delegate toldIM. "Investors will want to see results, or else their will to get into these projects could change quickly."
Other junior companies are equally concerned about Syrah coming to market. As one junior developer told IM, "if they make it with those volumes, there won’t be space for others. But for the financial world, it’s key that they do well."
Another attendee summed up the dilemma that the industry is facing with Syrah starting its operation: "If they succeed, the other juniors are done for as no more supply will be needed for years.
"If they fail, the other juniors are done for because investors will be scared to fund graphite projects, and the money will run dry."
Syrah commented to IM: "Syrah Resources remains committed to delivering high quality, low cost, long life, customer focused natural graphite into the industrial and battery markets, and we are on track to commence production in the third quarter of 2017."
SYR Price at posting:
$2.60 Sentiment: Hold Disclosure: Not Held
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