5 trends in 5 years for flake graphite

By Simon Moores
Published: Friday, 27 September 2013

Industrial Minerals Data outlines five trends that could define the flake graphite industry over the next five years

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 world’s flake graphite in 2012, over twice as much as its closest competitor, Brazil, which accounted for 23% of global output.

As China’s 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 blueprint. 

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 emerge.

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 clear.

4. An increase in large flake production

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 products.

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 materials.

Similarly, many junior companies are building their business plans on an expected uptake in demand from high-tech industries.

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 industry. 

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