Graphite 2015: Oil price slump hits synthetic graphite

By Laura Syrett, Myles McCormick
Published: Monday, 21 December 2015

Oil prices sink to $37/bbl in December; additives and electrode demand suffering, but Li-ion and fuel cells beacons of growth.

The synthetic graphite market is buckling under falling oil prices, which hit their lowest levels in almost seven years towards the end of 2015. Gerry Hand, vice president for marketing at Chicago, US-based Superior Graphite, told delegates at IM’s 5th Graphite and Graphene Conference in London in December that the decline has had a "devastating effect" on demand for synthetic graphite products used in the oilfield market.

The effects of the price decline continue to "trickle through the industry", Hand said, describing the market for graphite in drilling as being "under siege". The number of drilling rigs in the US has fallen to its lowest level since April 2002 and is down 59% from its October 2014 peak. OPEC has so far given no indication that crude oil production will be curbed, and crude prices fell below $37/barrel (bbl) on the Brent benchmark and below $40/bbl on the West Texas Intermediate (WTI) in December – their lowest for nearly seven years.

"[The industry is] building around 2m barrels per day in inventory – that’s only going to keep things depressed," said Hand. He described predictions that Brent prices would reach $100/bbl by 2018 as "optimistic". Goldman Sachs has said that prices could fall as low as $20/bbl.

Graphite is used in drilling fluids to provide lubrication. It also helps control fluid loss and strengthen wellbores. Its flexibility ensures the effective sealing of apertures, even in situations where wellbore pressures vary.

Conditions are little better in the steel industry, which uses synthetic graphite in the form of electrodes for steel furnaces. "Electrode prices are lower than I can remember and show no signs of recovering," Hand said, adding that the recarburiser market, which serves the iron and steel sectors, is also experiencing downward price pressure.

Cristoph Frey, managing director of ProGraphite, noted that the low oil price would also lead to less demand for synthetic graphite from the steel industry, partly because of the wider economic conditions associated with low oil prices but also because of the decline in demand for steel tube and pipe products used by the hydrocarbons industry.

A green lining

With traditional markets for both natural and synthetic graphite either flat or in decline, green energy applications remain the focus of growth projections for the graphite industry.

Lithium-ion (Li-ion) batteries are credited by many as being the sector with the greatest growth potential, although Corey Nolan, CEO of ASX-listed graphite junior, Sayona Mining Ltd, admitted that the so-called "green energy revolution" is not yet "as strong as hoped".

Li-ion is expected to provide 300,000 MWh of energy by 2025, of which 100,000 MWh will be accounted for by electronic vehicles (EVs), ProGraphite’s Frey said. 

Graphite’s status as the dominant material in the production of anodes for Li-ion batteries seems secure for now. "New developments are on the way, but it takes years to get from research to mass production," Frey said. 

The Li-ion battery market currently requires 70,000 tpa anode material, with graphite accounting for 95% of this. But as this figure increases – to 160,000 tpa in 2020 and 270,000 tpa in 2025 – graphite’s market share will decrease slightly, to 91% in 2020 and 88% in 2025.

Of this, the demand for natural graphite should increase by 70,000 tpa by 2020 and 151,000 tpa by 2025, Frey said. Natural graphite currently accounts for 55% of carbon used in the anode market, with synthetic graphite making up the remaining 45%.

Hand also highlighted fuel cells as a promising new demand area. He said that the fuel cell market was growing at a compound annual growth rate of around 29%. "Not every fuel cell uses graphite, but some do, and this is a bright spot for the industry," said Hand.