Why is the Syrah Resources share price tumbling 12% today?

This graphite producer is battling tough trading conditions.

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The Syrah Resources Ltd (ASX: SYR) share price is taking a tumble on Tuesday.

In morning trade, the graphite producer's shares are down 12% to 78 cents.

Why is the Syrah share price tumbling 12%?

The Syrah Resources share price has come under pressure today after the company released its quarterly update which revealed that trading conditions remain tough.

According to the release, the Chinese anode market continues to be impacted by high cell and anode inventories. This has kept graphite prices low and only a fraction above its costs of production.

For the three months, Syrah reported a weighted average sales price of US$688 per tonne and a Balama C1 cost of US$565 per tonne for the month of April. Production was paused in May and June in response to the oversupply of graphite and weak prices.

As expected, this meant that total production was just 15kt for the quarter, down from 41kt in the previous quarter.

At the end of the quarter, Syrah had a cash balance of US$101 million, including restricted cash of US$55 million. It also has up to A$150 million (US$102 million) in new convertible notes with AustralianSuper.

Operating mode

Unfortunately, it is uncertain when production will return to normal levels again. However, management has implemented a new operating mode that will be in action during the current quarter.

It has identified a way to operate with the following Balama C1 costs:

  • US$580 to US$620 per tonne at 10kt production per month.
  • US$378 to US$426 per tonne at 20kt production per month.
  • Shutdown periods costs of US$4 million per month

Though, it is worth highlighting that these estimates assume a diesel price that is lower than current levels.

Whatever happens with its production, shareholders will no doubt be hoping that graphite prices are strong enough to keep the company profitable during these tough times.

The Syrah Resources share price has lost a third of its value over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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