1. China to remain the leading producer, but supply
restrictions will increase
We expect China to remain the primary supplier of flake
graphite. The country produced 61% of the worlds flake
graphite in 2012, over twice as much as its closest competitor,
Brazil, which accounted for 23% of global output.
As Chinas 12th Five Year Plan gains momentum however,
it is our expectation that supply restrictions on its flake
graphite industry will increase.
Active restrictions could include either tax increases (VAT
or export) or the introduction of export quotas on flake
concentrate as seen in the magnesia, rare earths and fluorspar
industries. Despite a commonly held view, there are no natural
graphite export quotas in place in China.
Alternatively, more likely restrictions could involve
passive or indirect supply restrictions. These might include a
crackdown on wasteful or small mines in a bid to curb natural
resource depletion and impose environmental restrictions
on the hazardous acids used in processing.
State-led consolidation, as seen in the amorphous market,
also remains a possibility, particularly in Shandong and
Heilongjiang Provinces which have a large number of small flake
graphite mining companies. This has already happened in Inner
Mongolia's flake graphite industry which could serve as the
2. Output to increase outside of China
Greater supply outside of China over the coming years is all
but guaranteed. In terms of extensions in the existing supply
infrastructure, Brazil is the only viable source of significant
expansion over 5,000 tpa.
The development of new deposits will therefore account for the
majority of any new supply. As a number of junior projects seek
to come into operation alternative supply chains are likely to
At present, projects in Africa (Mozambique, Madagascar) and
a handful in Canada remain the most likely prospects to come
on-stream over the next five years. Projects are also being
developed in Brazil, the US, Australia, and Europe and the
exploration boom between 2011 and 2013 has uncovered some high
quality graphite resources and reserves in other areas
of the world.
3. Supply chain integration
We expect buyers of graphite particularly higher
value graphite processors and refractory producers to
either begin to own flake mines or have stakes in operations in
a bid to secure long term supply.
This is in response to the price volatility and supply
uncertainty which has defined many other mineral markets over
the past decade.
Refractory producers are the largest volume users of flake
graphite and will be most at risk should any significant supply
restrictions be introduced in China.
According to the Industrial Minerals Natural Graphite Report
2012-2016, over 292,000 tonnes of natural graphite was consumed
by the refractories, foundries and crucibles sector alone last
year. Considering total non-Chinese output was only around
200,000 tonnes the over-dependency on Chinese output is
4. An increase in large flake
Greater output of larger mesh grades (> 80 mesh) is
expected as new mines come on-stream. At present, medium mesh
(100 to 150 mesh) flake graphite dominates the market,
particularly within China.
The majority of new mines in the pipeline, however, are
focused on producing large flake and high purity graphite
This is in response to an anticipated evolution in
downstream markets. Refractories companies are expected to
focus on higher quality products with a greater life-span in
coming years which will require higher quality raw
Similarly, many junior companies are building their business
plans on an expected uptake in demand from high-tech
5. Raw material competition
An upturn in demand for higher quality raw materials
threatens to exceed supply in the medium-term, which could
inflate prices at the larger flake end of the market.
The emergence of the battery sector will see increased
competition for large flake graphite material, especially as
western producers start to introduce spherical graphite
processing methods that use large flake graphite.
This will compete with the refractories market for the same
raw material, a dynamic that has not yet been seen in the