Graphite supply switches as China consolidates and Europe expands

By Simon Moores, Jessica Roberts
Published: Wednesday, 06 June 2012

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

Taking in hand: China’s government is
pushing the consolidation of amorphous
graphite production in Hunan province.
Pictured is a graphite sample from
Qingdao Haida Graphite.

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 the Lutang area of Hunan province is seeing over 230 mines reduced to 20.

The majority of active mines in Lutang 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 a new entity called Southern Graphite Ltd.

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. 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 for the government 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 90,000 tpa will be noticeable. This equates to nearly 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 or alternative minerals 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/tonne, depending on the carbon content which ranges 70-85%.

Consumers of flake face prices of at least $1,500/tonne at the lower end and $2,200/tonne for higher end products, with higher purity and larger flake size. In May 2012, graphite prices fell for the first time since 2009 - dropping 12%.

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.

GK expands in Germany

While a previously abundant graphite source may be heading into undersupply, at the tighter end of the market there is expansion on the cards - in the form of Graphit Kropfmuhl AG (GK), which is to restart production at its KropfmŸhl mine in Germany on 21 June 2012.

GK is planning to produce an eventual 5,000 tpa from the Kropfmuhl facility, originally mothballed in 2005, with 500 tonnes targeted for its first year of production. The company told IM that all of this output will be used internally for the company’s graphite business, which produces concentrates, dispersions and parts.

As GK processes around 24,000 tpa graphite, output from Kropfmuhl will thus form a significant part of the company’s supply - reducing its dependence on external sources such as China. The new production from Kropfmuhl will supply GK’s processing plants where, depending on the purification method, it can be used in “many different grades”, Thomas Junker, GK’s director of sales and marketing, told IM.

In addition to its reactivation project in Germany, GK is looking to further strengthen its internal graphite requirements through the development of a project in Cabo del Gado province, Mozambique.

“We expect to receive the necessary extraction permits from the local mining authorities before the end of the second quarter, which will enable us to press on with planning and implementation,” Junker revealed.

At present, GK sources graphite from external suppliers in addition to its operations in Sri Lanka (through subsidiary Bogala Graphite Lanka Ltd) and Zimbabwe (Zimbabwe German Graphite Mines).