Chinese graphite downstream players have surprised CRU Group by stating a preference for synthetic graphite over natural graphite as a route to anode production, but the business intelligence firm encouraged natural graphite hopefuls at a Perth, Western Australia conference that their product still had a better future.

CRU Senior Consultant Toby Green told the Lithium & Battery Metals Conference on March 20 that his firm was "taken aback" to find that in its survey in the second half of 2018 of 12 anode, spherical graphite and expandable graphite producers and "deep processing" companies, eight of them believe the market is heading towards synthetic.

While that defied much of the market rhetoric thus far which declares natural graphite as the more cost competitive route to anodes, CRU maintains that is still the case. Synthetic feed stocks are becoming tighter and environmental regulations are strengthening in China, but natural graphite is showing "very positive signs."

Green said the market is realizing that the steps towards creating a low-cost natural graphite anode are based on reducing the amount of loss through the spheroidization process by having a harder graphite flake, and by purifying the material more before it reaches the end user, so the purification steps at the end are not as emission-intensive.

Yet he warned that natural graphite hopefuls need first to "get past Syrah Resources Ltd., which can expand production in Mozambique with a brownfields development more cost effectively than any greenfields project."

Green also noted that some graphite hopefuls have been around for a decade or more without reaching production because of the considerable financing hurdle, even though it is not that capital intensive. He compared them to West Australian lithium producer Pilbara Minerals Ltd., which went from first drill hole to production in four years.

In graphite, Green said "the banks simply aren't confident at the moment that the story holds up to the capex" that graphite hopefuls are proposing.

He noted several strategies ASX-listed hopefuls are taking to jump the finance hurdle, including some who are targeting a different market than Syrah.

For example, Syrah does not have a large endowment of larger flakes, instead producing large supplies of small flake graphite used in lithium-ion batteries.

Different markets

Hexagon Resources Ltd. Managing Director Mike Rosenstreich, a former resources banker at Rothschild Australia, acknowledged the financing challenge but told S&P Global Market Intelligence on March 22 that he does not see Syrah as a competitor to his own McIntosh project in Western Australia, as they are aiming at different markets.

While he conceded that Syrah had an impact on the market volumetrically with its flake sent to China, its quarterly cash balances suggest it is receiving low prices for it.

He also understands that Syrah still has some processing challenges to overcome, as much reprocessing needs to be done in China to get its product to the quality to that which Hexagon or South Australia-based rival Renascor Resources Ltd. are looking to be producing concentrate.

Rosenstreich sees the "Syrah effect" as a "double edged sword," in that if it fails, the market will not believe smaller hopefuls can succeed, but if Syrah succeeds, then "everybody thinks they'll flood the market."

However, Green said it does not matter if the market is full.

"If you can persuade people you can come in at the lowest end of the cost curve then you will always find a room in some financier's heart, and displace existing material," he said.