Syrah Agreement Sparks Supply Crunch Buzz

Syrah Resources Ltd. (ASX:SYR) saw its stock prices jump 13 percent since news broke of an agreement with Chinalco Mining Corp. (HKG:3668) Tuesday.  The medium-cap company signed a 3-year contract to supply graphite to the Chinese company, which sent shock-waves through the market and fueled talks of a graphite supply crunch.

As quoted in the press release:

Syrah’s Balama deposit in Mozambique has yet to go into production, due in 2016 – but 35% of its supply for the first three years in business is already sold. It tells a lot about the supply/demand interaction ahead, and it means large flake graphite deposits are going to be a hot commodity.

The Chinese move was surprising. At present, the country is the world’s largest producer of natural graphite, accounting for approximately 70% of total supply in 2014. That figure is down from 85% global supply just a year before, and supply is expected to drop to between 50-60% in the next 3-5 years, according to a report by Benchmark Mineral Intelligence. That’s a sharp drop of an increasingly valuable mineral on the cusp of booming demand, in less than the time that it takes for a newborn to reach elementary school. Supply lines will strain and the price of graphite will reflect that.

Canaccord Genuity Mining analyst Luke Smith commented:

(This)…confirms to us that the world’s largest graphite producer is running out of graphite reserves at a time when demand for graphite appears certain to grow strongly. This Chinese customer appears no longer able to rely on Chinese domestic supply, but is seeking large tonnage of supply from outside China.

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