Those who had hoped for a recovery in the natural graphite
market in 2015 have been disappointed. The year turned out to
be one of the worst performing in the sector’s
industrial history, with demand and prices eroding to levels
not seen since before 2011, a year when selling values spiked
amid supply concerns and a surge of enthusiasm about new
With the exception of a few isolated upticks, graphite has
been heading south for more than four years and the slump has
taken all segments of the industry down with it.
The failure of prices to rebound in all end use sectors,
from "traditional" markets such as refractories, gaskets and
lubricants right through to the much vaunted battery
applications, emphasises the extent of graphite oversupply
which began to accumulate during the boom times and has now
become a structural problem for the industry. Looking at the
immediate picture, consumers have more than enough material in
inventory and ready at suppliers’ warehouses to
last them well into next year and, at the moment, demand
doesn’t look set to increase rapidly enough to
drive down stockpiles in 2016.
The recovery of the graphite industry is beyond its own
control, since even production cuts are unlikely to revive
prices without a significant rise in demand. Overcapacity has
been compounded by difficulties in the mineral’s
downstream markets – mainly the steel sector, which
remains the largest single end market for natural graphite
through refractories. Here, shrinking demand has disrupted the
entire supply chain.
There have been other external issues, too. Just as the
industry was beginning to come to terms with, and attempting to
negotiate, its deep-seated supply-demand imbalance, currency
markets aimed a further blow at graphite in the second half of
this year. The sliding value of the euro against the US dollar,
followed by the devaluation of the Chinese renminbi as China
scrambled to prop up sagging exports, posed new challenges for
Despite some local capacity closures, either in response to
weak market conditions or as a result of official orders to
shut polluting and inefficient facilities, China, the
world’s dominant graphite supplier, has maintained
its output. This has forced higher cost, lower profit
operations elsewhere to reduce or halt production levels, as
Chinese companies manoeuvre to outcompete domestic and
Looking at China and wider global economic growth
projections, it seems that the present slump in graphite
consumption will probably last longer than initially expected,
with next year likely to register yet another decline from the
2011 price peaks.
Trends in 2015
Fading flake demand
Demand for refractory products is linked directly to
consumption of steel, cement and glass, which in turn rely on
economy-led construction and infrastructure activity. In H1
2015, Chinese steel output fell by 4.3% compared to the same
period last year, while both cement and flat glass production
registered declines of around 9%.
The figures for H2 2015 are expected to show further
reductions in industrial output and lower usage of both flake
and amorphous graphite.
Shrinking demand from refractories manufacturers, which are
also facing overcapacity and a generally sluggish construction
market, caused Chinese flake graphite exports to drop by 30%
year-on-year (y-o-y) in H1 2015. Shipments to the US and Japan
declined considerably, while imports to Europe remained around
the weak levels seen since the global financial crisis,
signifying bleak demand conditions in major graphite-consuming
Domestically, China’s steel and subsequently
refractories overcapacity have forced many refractories
producers to operate at less than 60% capacity this
Steel slump drags down amorphous
Following similar consumption patterns to flake, amorphous
graphite, which is also used in refractories applications and
as a carbon raiser and similarly relies on steel as a major
demand driver, has been feeling the pinch of excess production,
declining consumption and increased competition from low-cost
coke products this year.
Lower consumption rates of amorphous graphite in
Europe’s top steel-consuming markets –
construction and automotive – contributed to a 34%
y-o-y drop in Chinese exports into the region in H1 2015.
Industry sources told IM in the second half
of this year that coke shipments from Russia, which has been an
intermittent producer of graphite in the past, are reaching
European customers as a cheaper substitute for natural
Falling Chinese amorphous exports prompted the
country’s only amorphous producer, South Graphite
Co. Ltd, to cut its prices in an effort to stimulate orders. On
the demand side, some relief came in the form of recovering
steel demand from Japan, owing to the country’s
preparations for the 2020 Tokyo Olympics, but this was not
enough to prop up prices.
Although the amorphous market has shown greater resilience
than flake material to price erosion this year,
IM understands that, in order to maintain
orders in the face of weak trading conditions, some suppliers
have agreed sales at price levels substantially lower than
those reported at the beginning of the year.
In the present heavily discounted market, as sellers
continue to negotiate orders of small volumes at the lowest
possible price levels in order to offload material, the market
could experience further volatility approaching the end of the
Vein loses market share
Despite being the world’s only commercial
source of this rare type of high purity graphite, which is used
in thermal and high friction applications such as car brakes
and clutches, Sri Lanka’s vein graphite producers
had another challenging year in 2015, in terms of production
and sales. This compounded an already fragile market situation
for the country, which only recently emerged from civil war and
possesses only rudimentary types of beneficiation
Sri Lanka recorded vein graphite exports of just 3,100
tonnes last year – a five-year low for the industry
and down by more than 40% on 2008. This figure is expected to
drop below 3,000 tonnes in 2015.
Despite these external factors, prices for vein material,
which are set by the Sri Lankan government, have held up. A
much-anticipated downward price revision of high purity vein
grades from Sri Lanka was called off this year after China
firmed up its stance on preserving its own natural reserves for
further value addition, giving Sri Lanka an excuse to maintain
its pricing structure, even though demand continues to fall
As a result, stable vein graphite prices are expected to
prevail into 2016.
Table 1: Flake graphite price declines
% Decline since 2014
94-97% C, +100 mesh -80 mesh, FOB
90% C, -100 mesh, CIF Europe
85-87% C, +100 mesh -80 mesh, CIF Europe
Spherical – slow and steady
Demand for battery grade graphite has remained stagnant in a
saturated market over the last 12 months. Although there are
firm indications that this industry is growing at a tangible
pace, the segment is also grappling with the familiar problems
of weak demand and overcapacity.
Flake graphite is used as a feedstock to make spherical
graphite, which in turn is used to produce anode material for
lithium-ion (Li-ion) batteries. Prices for processed spherical
graphite have not tracked the raw material price downward, but
have not increased either so far this year.
Spherical graphite exports from China, which dominates this
as a supplier, were down by 40% in H1 2015 compared to the
same time last year.
Demand from South Korea and Japan for Chinese spherical
graphite slowed considerably in the first nine months of this
year, as production of portable batteries for smartphones,
tablets and electric vehicles (EVs) has struggled to match the
strong sales seen in 2010 and 2011.
IM’s price for spherical
graphite today stands at $2,500-3,000/tonne for 15 micron,
99.95% C, uncoated material on an FOB China basis.
However, the proportion of natural graphite demand accounted
for by the battery sector is gradually expanding. Improved
consumption rates for batteries used in EVs and electronic
devices has fuelled confidence in this sector as a future
growth market. But, as the industry waits for higher demand
from this segment to translate into volumes, the arrival of any
significant additional capacity in current market conditions
could delay any upturn in prices.
Another factor to consider is that natural graphite is
competing against synthetic material for the battery market.
Synthetic graphite, produced primarily from high carbon
precursors such as petroleum coke and coal tar pitch, currently
accounts for around 60% of the total material used in battery
Synthetic graphite’s greater consistency in
purity and availability offsets a price disadvantage compared
to the mined form of the mineral, although a number of junior
graphite companies have claimed the ability to iron out quality
issues and guarantee supply of consistent natural material that
matches or even exceeds the performance of synthetic graphite
in battery and other applications.
Although dozens of new graphite mining projects continue to
be developed around the world, only a couple of mines have come
on stream since the 2011 exploration boom and at least one was
forced to close this year shortly after opening in the face of
tough market conditions. There are currently no signs of
notable capacity expansions in the immediate or near future,
but there are several on the horizon.
There is an expectation that new large flake graphite
suppliers will emerge within the next two years, but who these
are will depend on which new projects win the race for funding
to start up operations.
The present development timelines of even the most ambitious
juniors suggest that it will be 2017 before any significant new
tonnages hit the market. Many, on the supply side at least, are
hoping that this will
coincide with a seismic upturn in demand, otherwise prices may
be adversely impacted.
As IM’s price data suggests,
2015 has been one of the worst years on record for graphite
demand with markets in all major regions of the world feeling
the pinch at the same time. There has been no consistent demand
improvement at any point over the last twelve months that could
underscore a positive change of direction for the industry
Despite apparently declining Chinese flake graphite output,
a return to the pricing highs of 2011 remains unlikely. A
significant swathe of upstream businesses now view this as a
positive projection, favouring stability over volatility,
however many fear that further declines in prices from present
levels will rule out much of the new capacity under
Natural graphite prices for medium-to-fine mesh flake,
imported into Europe on a CIF basis, fell by between 15 and 22%
entering Q2 2015.
Medium mesh grades that have registered significant declines
since the start of the year are outlined in Table
Europe flake graphite prices, meanwhile, have fallen on an
average by 60% since 2011, with the most significant decreases
seen at the end of 2012.
However, higher mesh grades with a carbon content of more
than 97% – a purity achieved using either flotation,
or chemical treatment, or both – have shown greater
resilience than lower mesh grades to weaker demand.
While the junior side of the industry remains optimistic
that an upturn in demand and prices could be on the horizon,
led by growth in the battery sector and based on the fact that
the majority of graphite prices have remained relatively flat
since May 2015, further price decreases may be seen in Q1 2016.
With battery demand not expected to make a quantum leap in the
next three months, how prices fare will depend on consumption
of steel refractories in Europe and the US at the start of next
Chinese demand is not expected to pick up until after the
country’s New Year and Spring Festival holiday in
February, and even then, any resurgence may only be
While winter and holiday mine and plant closures in China
usually result in an uptick in prices before the
West’s Christmas break, as buyers replenish
inventories in preparation for supply stoppages, increased
supplies from Russia and Madagascar, coupled with weak Chinese
domestic demand, is likely to pacify any rebound this
As of now, the flake graphite industry is likely to face
even more challenges going forward as demand side pressures in
an oversupplied market continue to mount.