ASX-listed Syrah Resources Ltd.'s shares fell 33% by Sept. 10 trading close after it announced plans to drastically reduce graphite production in the fourth quarter due to a downturn in natural flake graphite spot prices in China.
The company will slash output to about 5,000 tonnes per month and will review more ways to cut costs, including expenses at its Balama graphite operation in Mozambique, alongside a strategic and operational review for 2020.
Syrah attributed the fall in prices to the Chinese yuan's depreciation as well as Chinese inventory level concerns negatively affecting talks over prices and contract renewals, additional output from Madagascar and China, and international trade tariffs.
Cuts in Chinese electric vehicle subsidies, effective from June-end, also weighed on near-term graphite demand growth for lithium-ion batteries in China. Syrah noted that there is potential for further weakening of prices into the fourth quarter. In the first half of 2019, Syrah accounted for 75% of China's total graphite imports of 105,000 tonnes.
Production and sales in the third quarter are expected at 45,000 tonnes.
Syrah also flagged a noncash posttax asset impairment of about US$60 million to US$70 million and an inventory write-down of about US$5 million in its interim results for 2019.
The company lowered Balama's 2019 production guidance in mid-June to between 205,000 and 245,000 tonnes, from 250,000 tonnes, saying that quickly increasing output at Balama may have a negative effect on pricing.
Managing Director and CEO Shaun Verner said the company will focus on "further increases to product grade and consistency" during the reduced operations to drive product differentiation.
"Although a difficult decision, we believe that this action is in the best interests of shareholders to preserve long term value," Verner added.
