Major themes are already emerging: supply chains are likely to become increasingly localized, the electrification of the world’s vehicle fleet is set to gather pace, and markets in general are becoming more wary of the monopolistic tendencies of some countries as regards commodities.
With its graphite production in Mozambique Syrah covers all these bases and, as its shares are currently trading at a relatively lowly A$0.31, also offers investors an entry point to the future at a reasonable price.
But what exactly is possible here?
Well, for context, it’s worth noting that when the Australian graphite boom was in full swing Syrah’s shares were trading at around 20 times higher than they are now. Back then though, there was a bubble mentality in the market and actualization of the company’s plans was still some way off.
This time round the market is in a fairly sober mood, following months of coronavirus-related lockdowns, but Syrah is now that much closer to becoming one of the world’s major players in anode graphite production.
Indeed, at the start of the year, as graphite prices stumbled, Syrah took the decision to cut back on production to some degree, in order to assist in balancing the market. Once you’re taking decisions like that, you know you’ve reached a position of some relevance.
The questions now are: what will that market do next, and what will Syrah do next?
A key point of departure when it comes to answering both of these questions is to consider Syrah’s ongoing expansion into upstream operations in the USA.
In 2019 the company sold of the order of 160,000 tonnes of natural graphite, of which around 120,000 tonnes of fines graphite went into the Chinese market, one of the biggest in the world.
That key market will remain in place for Syrah in the years ahead, but opening up America too puts the company much further up the value chain. Currently, 100% of anode precursor, the processed material that actually ends up being used in batteries, is produced in China. And 100% of coated precursor, the finished product, is produced in Asia.
But that is about to change.
“The aim,” says Syrah’s Kristian Stella, “to become the first ex-China vertically integrated producer of finished anode material from natural graphite.”
The anodes in question are the negative electrodes of lithium ion batteries, which almost everyone expects to proliferate in the coming years. Vehicle sales as a whole took a hit during the coronavirus crisis, but it was notable that in the US Tesla (NASDAQ:TSLA) outsold everybody else. Meanwhile, charging infrastructure is increasingly being rolled out and, with the word just having reminded itself of what a major reduction of atmospheric emissions would feel like, there is plenty of positive sentiment around.
And unlike many companies around, Syrah is already well positioned to take advantage. In 2018 the company bought a site in Louisiana, where it subsequently produced unpurified spherical graphite and sent out a batch of samples to potential customers.
“The intent ultimately is to address the ex-Asia market,” says Stella.
“We initially established in the USA, but since that time European electric vehicle sales have gained momentum. So, we see the potential to export from the USA and perhaps down the line to establish production in Europe itself.”
Now, add that back in to a global context, in which China has set a target for electric vehicles to comprise 20% of sales, and in which Chinese companies have committed upwards of US$26bn to the battery value chain, and it becomes clear that in terms of the overall size of the market the world is only just getting started.
In 2019, Syrah’s fines natural graphite sales to China from the Balama mine was approximately half the total volume of natural graphite used in lithium-ion batteries in that year.
But capacity at Balama stands at 350,000 tonnes, more than double the output in 2019. Currently the market might struggle to absorb production at that level, but given the projections for electric vehicle growth there’s a strong chance that it won’t be long before output will be able to hit that level without adverse effects on the price.
Indeed, there may come a point when the world struggles to meet the demands for graphite that are being imposed on it, at which time Syrah will return to its status as a darling of the markets. It’s already turned China into a net importer in 2019.
“We’ve got the potential to supply around 30% of the global graphite market,” says Stella.
“We expect this to be a fast-growing market.”
And it won’t be long before investors cotton on to the fundamental shift that is underway.