Syrah Resources, the ASX-listed graphite producer, is set for...

Syrah Resources, the ASX-listed graphite producer, is set for amoment in the sun with demand for the key battery material expected to sendspot prices up by more than 50 per cent, according to brokers at UBS.

Stock in Syrah surged nearly 15 per cent following thepublication of the investment bank’s analysis on Friday, which estimateselectric vehicle automakers will adopt cheaper lithium iron phosphatebatteries.

LFP batteries, which requires large amounts of graphite, are aform of lithium-ion battery. This type of battery is not as robust – itrequires more frequent charging – but UBS expects automakers will look pastthis to embrace its cheaper cost and lower carbon profile.

Syrah is the largest verticallyintegrated graphite producer outside China.

Lachlan Shaw, the lead author of theresearch, forecasts natural graphite prices will fetch $US850 per tonne by theend of the decade, due to a six-fold increase in demand to 6.3 million tonnesby 2030. That’s a 50 per cent recovery from the $US570 per tonne spot price onFriday.

“We thinkthat the market is more focused on spot graphite prices which are down 30 percent from 2022 highs versus the potential upside ahead from continued EVmomentum and potentially increasing natural graphite share,” he wrote in a noteto his clients.

UBS anticipates Syrah, which owns the Balamamine in Mozambique, is well-placed, alongside Talga Resources, a pre-revenueexplorer hoping to build a graphite mine and battery processing facility inSweden. “In natural graphite we marginally prefer ASX-listed Talga over Syrah.In a quickly growing market this isn’t a zero-sum game,” Mr Shaw said.

Graphite is one of 50 minerals listed by theUnited States as being critical to national security and economic growth. The US and its allies are seeking to break from China’s dominance over critical minerals, which are crucial for electronics and defence applications including weapons systems. China supplies about 85 per cent of the world’s battery-grade graphite.

“The extent of substitution with synthetic graphite, where Chinais dominant, remains the key debate and makes a scarcity pricing moment (likelithium in 2021/22) unlikely,” Mr Shaw observed.

“But supply chain localisation makes our expectation of growing[supply] deficits by 2030 in both synthetic and natural graphite feasible.”

Syrah, AustralianSuper’s preferredbattery minerals miner, offers one of the few options outside of China for those seeking the material.

The strategic importance of the company to the US was revealedthis year when the Biden Administration awarded it a loan of $US107 million($145 million). Syrah plans to use it to more than double the size of itsgraphite processing plant at Vidalia, in the state of Louisiana.

Syrah has faced strong set-backs this year, halting production in April when graphite prices plummeted due to high inventory in China and weaker sales growth for electric vehicles. Syrah’s shares are down 74.63 per cent from $2.01 since the start of the year.

Syrah’s chief executive Shaun Verner told TheAustralian Financial Review that operating cost per tonne in “campaign mode” – where it continues to mine and stockpile rather than sell output – was approximately $600 per tonne.

“That cost decreas[es] to below $400 per tonne once Balamaoperates at full capacity... Reset shipping costs and increasing productioncosts in China are improving our competitiveness in supply,” he said.

Syrah disclosed last month in its full-year results it had notsold any graphite to customers in May or June.

“A return to continuous operation at Balama will be dependent onconsistent demand improvement,” Mr Verner said on Sunday.

Talga’s share rose 1.27 per cent to $1.20 on Friday. Theexplorer is aiming to develop a vertically integrated battery facility inSweden, which will process output from its proposed nearby mine in thecountry’s north.

“We like Talga due to its geographical proximity to Europe’shigh growth, emerging battery and EV supply chain as well as the continent’sbuilding support for the regionalisation of critical supply chains,” Mr Shawsaid.