ANALYSIS: Graphite braces in wake of China cuts

By Simon Moores
Published: Tuesday, 17 April 2012

Amorphous consolidation in Hunan and implications for world graphite supply

The consolidation of China’s amorphous graphite industry is set to impact the supply demand balance for 2012 and 2013 and will result in a loss of global supply.

The continuing government-backed consolidation programme in Hunan province is seeing over 230 mines reduced to 20.

The majority of active mines in the Lutang area are small to medium size sites that have been active for decades, but there have been questions over their safety and environmental impact.

This has forced the government to close and merge the vast majority of the mines, which are now all run through Chenzhou Lutang Hunan.

As reported by IM, the overhaul – which began in September 2011 – will see a significant loss of supply from an area famed for producing 96% of the world’s amorphous graphite. Production capacity will fall from 600,000 tpa to a capped 510,000 tpa.

This has come about because of China’s desperation to control its mining industry. Until now many of its major industries including coal, phosphate rock and graphite have been a collection of many small to medium mines. Mining has developed and sprawled over the last 30 years.

China’s goal is to have a handful of major producers controlling the vast majority of supply. It allows the government to closely monitor and control supply.

This is much like the rare earths industry, in which one significant mine in Inner Mongolia feeds into a centralised processing plant – a neat package that is easy to monitor and control.

Phosphate has also seen a similar situation with the government handing out free loans to the industry’s biggest producers to buy out smaller competitors – in essence forcing consolidation.

Graphite is next on the agenda.

The loss of 100,000 tpa will be noticeable. This equates to 10% of annual global graphite supply or 16% of the amorphous market, according to IM’s Natural Graphite Report 2012.

This is also a supply shortage that no other country in the world has the capacity or capability to fill in the short to medium term despite there being amorphous mines in Mexico and Austria.

The question remains whether buyers of the lower value amorphous graphite – used in many products including in lubricants, in refractories and as a steel additive – will switch to the higher value flake graphite to fill the demand gap.

There could also be a situation where flake graphite fines are in higher demand – this is the lower-end of the flake market and a product that every mine produces and sells in abundance.

One amorphous graphite company told IM: “For some end markets industry will change to fine flakes, but for many applications that will not be possible, so producers will have to change to other sources of amorphous or to alternative materials like carbon black.”

There is a significant price disparity between amorphous and even the lower end of the flake market. Today amorphous graphite sells for $500-800/tone, depending on the carbon content which ranges from 70% to 85%.

Consumers of flake face prices of at least $1,500/tonne at the lower end and $2,500/tonne for higher end products, with higher purity and larger flake size.  

Graphite prices across the board have been rising for the last 18 months on the back of a supply squeeze taking the industry to price levels rarely ever seen. The amorphous situation in China, although expected, will start to have an impact from now until the end of 2012.

The industry will now wait to see how amorphous prices will react, what the Chinese suppliers will sell their products for in the wake of this increased bargaining power, and the knock-on effect to the flake market.

For queries about IM's upcoming Natural Graphite Report 2012 contact Simon Moores on smoores@indmin.com



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