The northern hemisphere winter used to be the favourite time
of year for graphite suppliers. Chinese mines would close,
meaning that supply would be short and prices for the mineral
would increase. Today, however, surplus production means that
the market no longer has to brace itself for shortages.
"We’ve been waiting for the winter to come, but
for graphite prices, it hasn’t; not for three
years now," one seller of refractory-grade graphite told
IM in November.
Until a few years ago, few would have foreseen such a
drastic downturn in the graphite market. Its thermal and
electrical conductivity make it suitable for use in batteries,
engines and fuel cells, while its resistance to high
temperatures and thermal shock, inertness and lubricity are
exploited by industries including refractories, lubricants and
friction materials. Such a diversified demand base usually
shields a mineral from sharp slumps in a single market. But a
combination of factors, including the composition of graphite
end markets, overcapacity and patterns of demand have weakened
the sector.
In terms of end use, refractories remain the single largest
end market for graphite. According to the IM
Graphite Market Outlook to 2021, in 2015 refractories accounted
for 40% of overall graphite consumption. Demand from other
industries is expanding; metallurgy accounted for almost 30%
last year, with the rest equally split between lubricants,
components and batteries, plus significant niche markets in
flame retardants and insulation (see box).
Large-flake graphite is used in refractory crucibles, bricks
and nozzles; in magnesia carbon bricks for steelmaking
furnaces; continuous casting applications in the form of carbon
bonded mixes; speciality silicon carbide-graphite bricks for
blast furnaces; and other heat-resistant products.
| Graphite end markets 2015
|
|
| Source: IM Graphite
Market Outlook to 2021 |
Refractories
Graphite’s high level of exposure to the
refractories market, which is principally reliant on
steelmaking, led to strong expansion in demand from the late
1990s into the 2000s. Following years of strong annual
growth, punctuated by a brief dip during the 2008-09 global
financial crisis, worldwide steel output peaked in 2014 at
1.66bn tonnes, according to World Steel Association
(worldsteel) figures.
By December 2015, steel production volumes had shrunk 3%,
wiping out 39m tonnes from yearly global output. China, which
accounts for about half of global steel production, has set out
bold plans to reduce its steel capacity by 100-150m tpa by
2020. This phased contraction is reducing China’s
demand for refractories.
After a weak start to this year, a strong recovery since the
second quarter has meant that 2016’s steel
output to date has been fairly flat with 2015. In
January-October, global crude steel production stood at
1.33bn tonnes, down just 0.1% on the same period last year.
Worldsteel expects global demand to grow by 0.5% next year,
as the outlook improves in key regions such as Central and
Latin America, North America (NAFTA), Europe, Africa and the
CIS.
The Chinese government has put forward a number of stimulus
measures that are expected to raise domestic steel demand,
through boosts to infrastructure spending, real estate and
the automotive sector.
At the same time, availability of cheap steel and oversupply
in the last few years has unbalanced the market. The steel
capacity utilisation ratio currently stands at around 70% of
global capacity, meaning that restructuring has to continue to
bring supply back in line with demand.
This will translate into more steel plants around the world
reducing output or closing, which in turn will continue to
reflect on demand and prices for the industrial minerals used
in refractory making, including graphite.
| China’s Natural Flake Graphite
Exports Jan-Aug 2012-2016 |
|
| Source: China
Customs |
Oversupply
"The issue for graphite mines is overcapacity – pure
and simple," one North American graphite market participant
told IM. "Demand today requires about 60% of
current global capacity."
Existing graphite companies need to remain in operation to
generate short-term cash flow. This has meant that supply has
remained steady, even as demand has ebbed. China, where
state-owned companies account for a significant proportion of
graphite production, was particularly responsible for this. As
Chinese inventories expanded, more and more supply was shunted
into export markets at heavily discounted prices.
While it is difficult to assess the extent of flake graphite
stockpiles in the warehouses of Chinese producers, market
sentiment assumes high inventories and that production is not
slowing down.
Many blame China’s government for this
situation. Chinese authorities have arguably been less strict
about reforming the domestic graphite industry than they have
been in other industries, such as rare earths.
Regulations to manage graphite supply have not been
implemented on an effective scale. This is in contrast to
Chinese government intervention two decades ago, designed to
boost the then nascent graphite sector, triggering the fast
sprawling of operators and sellers which reshaped the global
graphite market and put many Western mines out of business.
However difficult reining in China’s unruly
graphite sector might be, change is not impossible. In order
to bring about better transparency, foster standardisation
and solidify the rare earths industry, Beijing dictated a
sharp restructuring, starting last year. Six leading
companies were formed, each of them in direct control of
several small subsidiaries which had previously been
independent producers. This consolidation approach was
designed to reduce the number of small players in the market
and, thus, curb cutthroat price competition domestically and
in exports.
The success of this policy is debatable, but there are signs
that the Chinese rare earths sector is at least beginning to
stabilise.
To date, this has not occurred to a meaningful, nationwide
extent in China’s graphite industry. Local
producer associations have called for a clampdown on illegal
mining operations, stricter controls on permits and
production practices and for the industry to become more
concentrated.
According to the China Graphite Commission, there were 194
active Chinese graphite companies in 2015 – a number
which many feel is too high to be healthy.
The work of local industry bodies is meaningful, but without
backing from Beijing, it cannot force the consolidation that is
required to bring graphite supply under control.
 |
|
Flake graphite is processed and purified
to obtain spherical, battery-grade material, suitable
for battery anodes.
|
Graphite price trends
Over the past year, and for a good part of 2015, global
prices for graphite sourced from nearly all parts of the
world have moved downwards, while those that did not have
remained stubbornly flat.
Since 2011 when graphite prices peaked, values have fallen by
more than a third on average, continuing to edge down
throughout 2016, despite some short-lived rallies at various
points throughout the year.
Flake graphite grades have been among the hardest hit. As of
late November, prices for 94-97% C, +100 -80 mesh flake
graphite into Europe stood at $700-750/tonne CIF, while lower
purity 90% C, -100 mesh material was selling for $500-550/tonne
on a CIF EU port basis. Both grades have lost several hundred
dollars since early 2015.
Prices for Chinese-origin 85-87% C, +100 -80 mesh flake
graphite hardly moved from the $450-500/tonne FOB Qingdao range
for most of this year. The same trend was seen for 90% C, -100
mesh product, which remained flat at below $500/tonne FOB
Qingdao. Higher purity Chinese 94-97% C, +80 mesh flake traded
at an average $900/tonne FOB Qingdao during 2016.
In terms of demand, the trading environment for graphite was
mixed this year. Enquiries for the main grades of flake and
spherical graphite picked up only slightly in the second half
of the year, but overall volumes improved in 2016 compared to
the year before, when there had been a sharp drop in Chinese
exports.
In August, export prices for Chinese natural flake graphite
rose 42% on the previous month, nudging average prices for the
first eight months of 2016 1% higher year-on-year. After a
quiet September, flake graphite prices regained their positive
momentum from October onwards. Suppliers in India and China
told IM at the time that there had been a
sudden surge in enquiries from industrial consumers who had
previously resisted purchasing.
This did not force upwards price pressure, however. In a
market driven by buyers leveraging large available
stockpiles, sellers were unable to raise quotations despite
the higher demand in October-November.
Producers are not optimistic of a market turnaround in the
near future. "I do not believe the market has bottomed out
yet," one supplier told IM. "The issue for all
graphite mines is, which ones will run out of funding and be
forced to close and which will survive these difficult market
conditions," another source said.
The prolonged period of weakness may force some Chinese
suppliers out of the market, although this has been forecast
before without resulting in mass shrinkage in the number of
producers. Some of the most financially exposed companies may
have to shut or cut capacity, but unless this supply is
permanently removed most mines can reopen again as soon as
prices pick up, creating a vicious cycle.
Most agree that regulatory intervention is needed to
rebalance the market and reduce stockpiles, although others
think that market forces should be left to shape the
sector.
| Flake graphite
prices |
|
Market prices for
several graphite grades have remained under
pressure
for most of this year. Higher demand in H2 failed to
lift prices. (Source: Industrial
Minerals) |
Batteries: No easy way out
As the refractories industry appears to be locked in
terminal decline, current and prospective graphite suppliers
are looking for new markets. Most single out the battery sector
as the one that will inject new dynamism into graphite
demand.
The mass production of portable electronics and electric
vehicles (EVs), both powered by lithium-ion (Li-ion) battery
technology, have caused battery demand to surge. Graphite,
which is used as anode material in Li-ion batteries, is one
of the major raw material inputs – accounting for
considerably more of a battery’s volume by
weight than lithium.
But while lithium prices have skyrocketed this year,
graphite prices have not. On the one hand, a bottleneck in
lithium supply coincided with a sharp uptick in demand from the
batteries industry, which caused prices to rise more quickly
than they otherwise might have done, whereas graphite
availability has been plentiful.
Specifications for battery-grade graphite, or spherical
graphite, are much narrower and more demanding than those for
refractory or lubricant grades. Adapting flake graphite for
battery use involves a series of processing stages –
chemical purification, micronisation, spheroidisation and
coating – to achieve the spherical shape, size and
high conductivity needed for anode materials.
As with the raw material, China also has a monopoly on
graphite sphericising technology. Although techniques have
improved, the yield of spherical graphite from flake
processing remains less than 50% its original flake volume.
Chinese spherical graphite is consumed in domestic battery
production and exported in uncoated form to other
battery-producing hubs, such as South Korea and Japan, where it
is coated according to the requirements of local battery
makers.
Outside China, a number of companies are trying to set up
alternative spherical graphite operations using graphite
sourced from their own mines or in some cases from
non-Chinese partners. None of these have so far achieved
stable, large scale commercial production.
In contrast, Chinese exports of uncoated spherical graphite
reached a five-year high in January-August of this year, up by
55% against the same period in 2012. The uptrend was ascribed
to growing demand from the battery industry, but the weight of
supply meant that prices did not follow volumes, but rather
went the other way, falling by 6% from 2015.
The softening of prices highlights stark competition between
Chinese suppliers to win market share and demonstrates how new
producers will have to be able to compete with China on price
and be flexible with their production costs in order to secure
buyers.
 |
|
The global market for natural graphite
has been affected by severe
oversupply.
|
Synthetic alternative
Supporters of using synthetic graphite in many of the
applications targeted by natural graphite producers claim that
man-made material has inherent advantages in terms of supply
security and product consistency over its geological
competitor.
Synthetic material can be produced to fit specifics that are
harder to achieve in mineral ores owing to variations in
mineral structure, carbon content and impurity levels.
Synthetic production processes can ensure that the final
graphite product meets detailed criteria uniformly in mass
produced batches for exacting markets such as batteries.
Because of the energy-intensive process needed to make it,
prices for synthetic graphite are typically higher than those
for natural graphite, but are much less volatile.
At the same time, current availability of synthetic graphite
is low compared with natural graphite. Industry observers say
the synthetic market will most likely expand in the coming
years, but given the plentiful supply of cheap natural
graphite, the mineral will be difficult to unseat in most of
its established markets.
One possible outcome is a closer relationship between the
two materials, as R&D departments work out ways of
maximising the benefits of both types of graphite by combining
them or using natural and synthetic components within the same
products.
"There will [eventually] be a blend between synthetic and
natural," one market source told IM. They
stressed, however, that natural graphite will remain dominant
in terms of overall volumes consumed. "It could be a 75%
natural, 25% synthetic split," the source suggested.
 |
|
Junior developers hope the graphite
market will rebound following high demand for the
mineral from battery producers.
|
Junior projects
Exploration activity by junior graphite mining companies has
continued, although this part of the industry is significantly
less crowded than it was five years ago.
Despite the low prices and repeated warnings that the market
is oversupplied, graphite continues to attract investors
seduced by the prospect of a battery-driven market boom or
even a breakthrough in graphene technology.
Outside China, there are currently graphite projects at
various stages of development in North and South America,
Africa, Europe and Australasia.
Scepticism has grown over graphite’s investment
case, for reasons not unique to the sector, including long
project timelines of many juniors, the lack of financing,
sovereign risk and the huge cost of building mines in some of
the more remote locations.
The unremitting decline in graphite prices and the failure of
new applications to engineer a market turnaround has made
financing even more difficult to come by for graphite than
for some other minerals.
Graphite juniors are well aware of these challenges and many
have rushed to put forward optimistic possibilities for the
sector’s future. In a recent conversation with IM,
Alistair Smith, managing director of ASX-listed TanzOz Ltd,
which is developing a graphite project in Tanzania, suggested
that the high availability of cheap graphite could eventually
lead to the mineral being used as a carbon material in a much
wider range of applications than it is at present.
This would help clear existing stockpiles, Smith said, which
could bring the graphite market back into a position where
higher demand can lift prices.
Most industry observers agree that the Li-ion battery market
has the best chance of driving up consumption. Within this
sector, energy storage technologies are the most likely to eat
up large volumes of graphite, according to Smith. "There is
more potential to increase [consumption] with battery storage
than with EVs," he said.
There are convincing reasons why this might be true. First,
the EV industry is working to reduce the weight of its
batteries in order to increase the efficiency of the vehicles
they power, whereas stationary energy storage applications have
fewer restrictions on size and weight and therefore on how much
graphite they use. Second, energy storage is desperately needed
to make the renewable energy economy work. Strong government
backing for renewables around the world has led to explosions
of wind and solar capacity, but so far this has not been
matched by ways of storing the energy these generate.
Yet all these tantalising sensible arguments pointing to
growth in graphite consumption have so far not translated into
real demand. Instead, the sector is caught in a limbo of high
expectation and tough reality.
While some suppliers believe that the market has further to
fall, others insist that the only way is up.
It looks certain that there is not enough room in the market
for all of the currently active juniors to enter the supply
chain and the jury is still out on what project features are
necessary to ensure success. In the end, though, the direction
the graphite market takes from here ultimately depends on
Chinese reforms.
Flame retardants
Expandable graphite flake made from natural crystalline
graphite can be used as a fire retardant additive for
materials including wood, foam, plastics and other
construction materials. It can also be used to enhance the
performance of other fire retardant additives, such as
phosphates, halogens and nitrogen compounds.
The flame retardants industry is expected to expand in the
coming years, as will its share of graphite
consumption.
Growth in flame retardant demand is due partly to increasing
construction activity globally, which generates the need for
fire-proof insulation, cables, wires and interior furnishings.
Stricter health and safety regulations which have led to
the demise of halogenated, bromine-based flame retardants in
favour of less harmful, halogen-free materials have also
boosted graphite usage.
A major shift from bromine-based to halogen-free flame
retardants is not bound to happen overnight, but it is a
trend in the right direction for graphite demand. Research is
currently underway into expanding the range and versatility
of graphite-based flame retardants, including as foils and
resins.
Editor's note: the Graphite end markets 2015 chart was
corrected on 3 January 2017.