Graphite: Year in Review 2015

By IM Staff
Published: Monday, 21 December 2015

A roundup of the year's main events in the global graphite industry.

In what proved to be yet another tough year for demand and prices across all grades of graphite, 2015 was also remarkable for the expanding size of the exploration sector. Undeterred by markets hitting four-year lows, weighed down by stagnant demand from traditional consumers and delayed growth in the battery market, a handful of new graphite mining businesses emerged over the year, while other multi-mineral explorers also decided to dabble in the sector.

SUPPLY SECURITY

Perhaps the hardest thing to swallow about 2015 was that despite the dauntless optimism of the junior graphite sector, the two most recently reopened producers – TSX-V-listed Flinders Resources Ltd and ASX-listed Valence Industries Ltd – were forced to suspend operations just months after opening.

Flinders’ Woxna mine went into operation at the end of 2014, but when a deal to acquire Mexico-focused Canadian mining business Big North Graphite Corp. collapsed in January after the latter failed to satisfy due diligence requirements, keeping afloat proved too big an ask for Flinders. The company paused operations in June, saying it would keep the facility "production-ready" until demand and prices improved.

Valence Industries, meanwhile, was forced to halt production at the Uley plant in South Australia in December, having only come into full production the previous June.

In Madagascar, UK AIM-listed StratMin Global Resources Plc, which reopened the Loharano mine towards the end of 2014 ramped up operations over the course of 2015 and in December announced that it had achieved "operational breakeven".

Elsewhere, Magnesita Refratarios’ decision to abandon its Almenara graphite project in Brazil in the first quarter of this year left South American graphite production primarily in the hands of Brazilian miner Nacional de Grafite. This company is believed to be operating at reduced levels, along with Imerys Graphite and Carbon, which is understood to have scaled back output at its Lac des Iles mine in Quebec, Canada.

In China, despite closures of a number of graphite processing facilities on environmental grounds, IM understands that efforts to curb Chinese graphite output and consolidate the sector have so far been relatively ineffective. Production remains at high levels while mines have the potential to be exploited for many more years.

Exports of Sri Lankan vein graphite remain at low levels, but an anticipated downward revision in export prices was cancelled in the second half of the year, with the Sri Lankan government opting to wait and see what happens in the Chinese market.

There remains no shortage of new production potential, however, with new graphite projects appearing in Canada, Africa, Brazil, Europe and Australia over 2015.

MARKET DEMAND

Declining graphite consumption from struggling end use sectors for graphite, from traditional markets such as refractories, gaskets and lubricants through to battery applications, emphasised the extent of graphite overcapacity in the market in 2015. The graphite industry is not one that habitually stockpiles material, meaning that the problem is one of capacity rather than excess production.

This situation set the tone for the entirety of the year. Small pockets of demand revival were seen following and preceding Chinese winter closures in March and November, respectively, and after rounds of aggressive discounting by producers and traders, were not sustained.

Refractories continue to be the single largest end market for graphite, so the ongoing demise of the global steel industry is guiding the demand trend down. For synthetic graphite, the drop in steel electrode consumption is also having a negative impact on this industry. 

The recovery of the graphite market is beyond its own control, since even production cuts are unlikely to revive prices without a significant rise in demand, which, at the end of 2015 did not appear to be on the horizon. Shrinking demand has disrupted the entire supply chain. 

PRICE TRENDS

The graphite industry entered 2015 expecting to see prices fall and the first quarter of the year was characterised by modest declines, which were confirmed by a decisive shift down in flake values in May, when IM found that some prices had touched levels not seen since 2011. 

Currency fluctuations also came into play during the year, to the detriment of graphite prices. The June to August period was volatile for graphite trading, however relative stability in flake graphite prices crept in at the end of Q3 and appeared to hold for the remainder of the year.

Prices for amorphous graphite are coming under pressure from coke substitutes. In October, sources told IM that coke shipments from Russia, which has been an intermittent producer of graphite in the past, were reaching European customers seeking to replace natural amorphous graphite with cheaper material.

Prices for refractory grades of graphite are unlikely to improve until the second half of next year, or more likely until 2017, IM learned at the 5th Graphite and Graphene Conference in December. The apparent rise in demand for battery grade graphite has yet to materialise, traders said, noting that even prices for spherical graphite are stationary.

MARKET OUTLOOK

Industry observers do not expect graphite prices to improve before H2 2016 and with supply showing no signs of letting up, any increase will depend on a rise in demand, either from traditional markets or for the battery sector.

Some have suggested that if consumption of graphite in batteries rises sharply, there could be a brief shortage in spherical graphite availability, however this will not necessarily shift concentrate prices.

On the corporate front, predictions that graphite exploration companies would begin to disappear from public exchanges owing to a lack of funding to advance operations or meet bourse requirements did not look to be imminent at the end of 2015. 

Brazil is no longer expected to be the source of near term new supply, with eyes turning to large new projects underway in Mozambique instead. 

In Sri Lanka, the high concentration of new production capacity under development could pull prices down unless there is a reversal in the demand trend for high purity vein material.