Shandong, China ordered to halt flake graphite production

By Simon Moores
Published: Monday, 16 December 2013

Pingdu, Shandong province ordered by local government to halt production activities on environmental grounds; 20% of country’s supply put on hold

One of China’s foremost flake graphite producing regions has been ordered to halt production on environmental grounds.

Up to 55 miners and processors of graphite in the town of Pingdu, located in the east-coast province of Shandong, have been ordered by the local government to stop production after failing to improve wastewater, dust and gas emissions.

It has been called the strictest environmental action in local history.

The government has been cutting off electricity and water supplies to those companies that fall foul of the new ban. All graphite companies in the region have signed a letter of commitment to cleaning up Pingdu’s flake graphite industry.  

The action was a result of complaints by local residents dating back to the start of this year. On 30th October, the Qingdao Municipal Discipline Inspection Commission, the Ministry of Safety Inspection, and the Ministry of Environmental Protection launched a surprise spot check of 23 graphite companies in Pingdu.

This followed an inspection of 74 graphite suppliers by the local environmental protection ministry earlier in the year which saw action against eight companies for failing to have suitable environmental protection. Dust specifically has been cited as a major issue in Pingdu.   

The action is seen as the first step in revolutionising the country’s flake graphite industry which has gone untouched since the 1980s.

The region and the country’s graphite industry is in need of modernisation. China sees an opportunity to turn itself into a production powerhouse of value-added, hi-tech carbon products to complement some of the richest graphite resources in the world.

This move by the local government is a step change in the way it is approaching the industry. Until now, officials used to turn a blind eye to producers that fell below environmental standards because they relied on these companies for tax.

20% of China’s flake graphite on hold

Pindgu is China’s oldest flake graphite producing region and has a capacity of 100,000 tonnes. It is only second to Heilongjiang province in China in terms of production power which has a capacity of 280,000 tonnes and produced 120,000 to 140,000 tonnes in 2013.

The closures – which are anticipated to last until at least June 2014 or until companies can prove an acceptable standard of environmental controls – will bring 10% of the world’s flake graphite supply off the market, the equivalent of 60,000 tpa. It also equates to 20% of the country’s domestic production.

The regions known flake graphite resources have been dwindling for some time however and this could be the first step in closing mining in the region for good. Graphite grades in the ground are lower than 5% C and miners are having to spend more money and dig deeper for less graphite. 

Heilongjiang supply has replaced a lot of what Pingdu used to locally produce with many companies transporting it by rail to their processing plants. Importing from China's most northern province - a 1,700km trip - is for many a cheaper option than mining graphite on their doorstep in Shandong. 

How will prices react?

The loss of supply over the next six months has coincided with the annual winter shutdown of China’s graphite producers. The majority of suppliers will close their doors between November and February until after the Spring Festival. This is expected to minimise the immediate impact, particularly as much of the buying for the Christmas period has now taken place. 

Any potential rebound in demand in H1 2014 will be expected to add upward price pressures across the world should the supply gap not be filled by extra production from elsewhere, especially Heilongjiang.  The strength of the demand rebound after February will dictate the future direction of prices. 

A similar situation with Inner Mongolia – when a number of its flake graphite mines were closed in 2008 – caused a short term price spike. This equated to roughly half the production capacity of Pingdu.

Inner Mongolia in 2008/2009 - 55% price rise 

The red circle below highlights the price spike seen as a result of mines in Inner Mongolia being closed down as part of the country's consolidation efforts in the province in 2008. 

Prices increased by 55% in the space of 12 months and can really been seen as the start of price volatility in the graphite industry. 

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