One of Chinas 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
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 Pingdus
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 countrys flake graphite industry
which has gone untouched since the 1980s.
The region and the countrys 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 Chinas flake graphite
Pindgu is Chinas 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 worlds flake graphite supply off the
market, the equivalent of 60,000 tpa. It also equates to 20% of
the countrys 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
How will prices
The loss of supply over the next six
months has coincided with the annual winter shutdown of
Chinas 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
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
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
Prices increased by 55% in the space of 12 months and can
really been seen as the start of price volatility in the