The Syrah Resources Ltd (ASX: SYR) share price fell 1.16% on the ASX yesterday, and is currently down 18% since Tuesday 23 July – so why is the ASX graphite miner’s sinking lower?
Graphite prices have slumped in 2019
The recent Syrah share price slump has occurred despite no significant ASX releases from the Aussie miner, and much of it has to do with global graphite markets.
In general, an oversupply of flake graphite in the market has created a supply-demand imbalance in global markets and sent the lucrative commodity’s prices lower.
Slowing demand out of China, in particular, hasn’t helped spot or futures prices for graphite, and given Syrah currently runs the largest graphite mine in the world at its Balama operations in Mozambique, this current pricing environment has hurt the company’s profitability.
Operational issues haven’t helped Syrah Resources
As recently as January 2018, the Syrah Resources share price was trading at $4.69 per share, while it reached a record high of $6.15 per share back in June 2016 when the graphite markets were booming.
However, the Syrah share price is now trading at just $0.85 per share with investors wary of the company’s history of cost overruns and operational delays with its Balama mining site.
While the company is making big strides towards having a reliable and fully-operational mine, the question now is how not to flood the market with its own supply and where the next source of demand will come from.
Also… Syrah remains cash flow negative
This last point is a big one for ASX growth stocks, with many investors preferring to invest in stocks that are cash flow positive and able to rely on their operations to fund further working capital requirements.
The Syrah share price surged higher on 4 April 2019 after reporting a strong quarterly result, eventually climbing 17% higher in just 2 days, but its soft half-year result in February left investors disappointed.
While I’m a holder of Syrah Resources shares and believe that the company has significant long-term potential, I’d be waiting to see a material uplift in the company’s profitability, after it reported a half-year loss of US$12.3 million (A$18 million) in its latest results.
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Motley Fool contributor Kenneth Hall owns shares of Syrah Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.