Graphite supply squeeze sparks China price rises

By Simon Moores, Albert Li
Published: Wednesday, 07 May 2014

List prices increase significantly despite slack demand; fears that Heilongjiang flake graphite action could spread to cleaner areas

China's flake graphite mining suspensions are causing some suppliers to increase list prices in anticipation of a possible supply squeeze.
Major government-enforced shut downs in Shandong province and impending closures in Heilongjiang, due to unacceptable air and water pollution levels, have led some producers to hold back from the market in the hope that a tightening of supply will induce price rises. 
A major producer in China explained to IM Data that its list prices, across-the-board, have been increased by between RMB 1,000/tonne ($160*) and RMB 1,500/tonne ($240) as a direct result of the potential closures.

Considering flake graphite prices in China – for 94-97% C, -100 mesh – can vary from $650-750/tonne, this could represent increases of up to 30%.
The move appears geared to exploit any notable upturn in demand as the Chinese buying season begins.
Nevertheless, today’s demand is still very weak across all major global markets. This is the first time the industry has seen such a significant demand slump from all markets and all regions of the world at the same time.
The prices quoted to us are yet to be submitted to IM Data’s price database, as they are not reflective of confirmed deals in the market. Should even a small amount of demand activity return, however, there is a high risk of panic buying – a major contributing factor to the price spike seen in 2011.

There is also a secondary risk that demand from refractories could return to significant levels at the same time as increased consumption from the battery sector. As both end-markets compete for the same raw material – medium flake graphite, 94% C (-194) – this could add further upward price pressure.
Heilongjiang pressures: spread to Luobei?

Imminent flake graphite closures in the world’s leading producing region, Heilongjiang, have now gained global attention from the story that was broken by IM Data and later picked up by China’s national, English speaking news channel, CCTV.

There are now fears in China that the government’s focus on the worst offending area, Jixi, could spread to the cleaner producing area of the province, Luobei.
Jixi and Luobei together accounted for 45% of China’s 220,000 tpa flake output in 2013.
A recent rumour, which has contributed to these fears, is that China is sending central government representatives to the region to monitor the situation. Any action from the central government – as opposed to the provincial government which tends to be more forgiving – could escalate the situation.
While sources close to IM Data have corroborated this news, there are yet to be confirmed reports of any meetings between high level representatives.
The developments have forced buyers to look towards smaller, peripheral graphite producers outside the country's major graphite hubs, Heilongjiang and Shandong. This has led to a rise in enquiries within the smaller producing provinces of Hubei, Hebei, and Hunan.
*Conversions made as of May 2014

Free report on China's graphite consolidation available here - IM Data | Graphite - China: Consolidation nation

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