It has been quite a year for graphite, one in which security
of supply and price swings have pushed the mineral back onto
the main commodities stage.
Looking back on a year in which there were arguably more
changes than in the previous five or six years combined, one
thing is glaringly evident: Most market participants active
in graphite did not foresee the changes.
Major changes in demand patterns and in global supply led
some unexpected volatility.
On the positive side, growth in leading end-markets -
specifically steel - led to a rebound in demand for
refractory-grade graphite. Lithium-ion batteries - and
electromobility more generally - remain the talk of the day
and, with that, the focus is on main mineral raw materials.
Graphite seems to be starting to benefit from increased
demand although its journey has not been as exciting as that of
lithium or cobalt - not just yet.
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Chinese flake graphite exports
(January-September)
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Source: China Customs
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Supply: up and down they go
Securing sufficient supplies of graphite had not been
problematic for consumers over the past few years. Until months
ago, most perceived the global graphite market to be lingering
in a situation of oversupply and sluggish demand.
Sales to the battery sector were increasing while those to
refractories were weak but, overall, buyers knew they could
place an order on almost any day and be certain of finding
the material and at a good price. This was broadly the
sentiment among delegates at the IM Graphite & Graphene
conference in Berlin in March.
This year, however, the tide turned - and more than
once.
China ended its export duty regime, creating downward price
pressure on international sales. Shortly afterward, the
environmental-related clampdown on polluting industries led by
Beijing came to hit graphite processing as well, choking off
production in the country and triggering a rebound in prices.
Local sellers seized the opportunity they had been awaiting for
for years, drastically reducing availability, leading prices
higher still in the fourth quarter.
As with many stories in mineral commodities, China was the
epicenter. The country supplies more than half of the
graphite consumed globally; developments there have
wide-reaching effects.
Late in December 2016, the central government announced the
scrapping as of January 1, 2017 its export taxes - they had
been subject to a 20% duty - on international sales of natural
and amorphous graphite products.
The industry at the time believed that China wanted to
reduce internal pressure from high stockpiles by giving
domestic sellers the opportunity to pursue new business,
cutting already-low export prices further still. With the tax
scrapped, the theory was that there was room for a price drop
while keeping margins unchanged. Several sources feared a price
war might develop.
This is what happened - to an extent. By mid-January,
Chinese producers had reduced their prices by an average of
10-15%, depending on the grade. This affected both flake and
amorphous material. In practice, this meant a drop of anywhere
between $40 and $150 per tonne - a significant feat after years
of price declines.
This scenario characterized the market in the first and most
of the second quarter until environmental inspections
started.
Controls on industrial operations, which have intensified in
China since the start of the year in a quest to curb high
pollution levels, in the summer reached Shandong province,
where many graphite companies are located.
As with other minerals, production facilities were unable to
operate fully and new output was drastically reduced.
Plus mesh sizes have been particularly curtailed - these
require acid processing, which is one of the many points of
focus of the environmental controls because it is deemed
particularly polluting.
Crucially, this led to a rebound in market prices, albeit at
different paces. While high-purity grades and plus mesh
products enjoyed significant increases in the second half of
the year, lower-purity and minus mesh materials were
steadier.
Price developments
Until very recently, selling prices had trended consistently
lower - after peaking in 2011, prices fell gradually but
steadily, losing over a third of their value by 2016.
With the scrapping of the export duty, practically all
graphite grades took another downward turn.
By end of January 2017, flake graphite 94-97% C, +80 mesh,
had fallen by 14% on average to $700-855 per tonne from
$850-950 per tonne fob China before the duty cut.
Similarly, 94-97% C, +100 -80 mesh material fell 11% to
$615-720 per tonne fob China from $700-800 per tonne while
94-97% C, -100 mesh product also dropped 11% to $480-630 per
tonne fob China from $550-700 per tonne.
After several months of relative calm, markets moved again
around the end of June but in the opposite direction. Within a
month, +80 mesh material had gained more than $100, reaching
$800-960 per tonne by the end of July, reflecting curtailed
operations at Chinese facilities. The price uptick was more
moderate for the other two mesh sizes, which rose by around $30
and $20 respectively.
In the following months, all three grades increased rapidly.
At the time of writing late in November, +80 mesh stands at
$950-1,110 per tonne fob China, or 33% above its January level
after the duty was cut; +100 -80 mesh is currently at
$800-940 per tonne, 30% higher, and -100 mesh material is
at $555-690 per tonne, an increase of 12%.
While interruptions to Chinese producers affected output,
sellers were quick to capitalize, causing the first price
rise.
Several China-based graphite producers and sellers told
Industrial Minerals over the past month that were now serving
only those customers with whom they have a close relationship
and were not taking new orders. Advance payment in full was
requested as a necessary condition to commit to any
sale.
"When prices finally show they are beginning to rise, sellers
usually stockpile the products and wait for the price to
increase more," one graphite processor said.
So the perception of shortage is being exacerbated by
sellers themselves, who are holding back from offering and
creating the conditions for prices to rise further.
"Now that supply is short… producers hoard material
and don’t sell. By doing so, they are actively
worsening the situation. They contribute to create a shortage
so that they can sell at stellar prices," a graphite
distributor claimed.
While production cuts are the prime drivers of shortages in
minerals such as bauxite, alumina or magnesia, in graphite it
is being driven by a combination of lower output and
producers’ actions, he added.
While price increases are bringing in more revenues, profit
margins are not rising at the same rate because
producers’ costs are also growing.
"We are paying more for energy, feedstock ore and for waste.
Road freight has increased and the inspections meant running at
low capacity. All costs have gone up," one local producer
said.
Meanwhile, the European market - not only Chinese supplies
delivered to Europe but also non-Chinese producers selling in
the bloc - behaved differently in the first half of the year
although it subsequently witnessed the same price upticks in
China in the second half.
Prices on a delivered EU port basis were initially unchanged
after the duty cuts in China due to high China-Europe freight
costs and higher offers from European suppliers. Falling
availability over the summer months and a gradual increase in
demand put European sellers in a position to secure higher
prices. This did not affect all grades equally: High-purity
graphite grades took off while low-purity grades remained
stable.
Bullish sentiment among suppliers, both in China and in
Europe, is likely to govern short-term price direction. With
the winter now coming to mining areas in China, production will
stop or be reduced further for a few months.
The Chinese New Year festivities, which will fall in
mid-February 2018, will mean very little activity in China in
the run-up to the holiday.
So, little is expected to happen in China before March next
year. By then, some market participants not only in graphite
but other refractory minerals as well, are hopeful supply
patterns will tend towards some form of normalization, although
it is unclear if and how this will play out.
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Controls on Chinese graphite operations, such as the
one
pictured, meant that for some production came to a
standstill. |
Demand: refractories and batteries
On the demand front, arguably the single most relevant
factor supporting graphite trade this year has been the strong
performance of steel markets. Steelmaking is the largest
application for refractories, taking 60-70% of output of global
refractories.
In turn, as much as 40% of graphite is used in refractories.
The fortunes of graphite are intrinsically linked to the
performance of steel.
According to the World Steel Association, global steel
production increased by 5.6% in the nine months to September
2017 to 1.267 billion tonnes, with notable expansions across
all regions.
Leading the way was Latin America, where output rose 8% on
year-ago levels. Although the region remains the smallest
among steel-producing origins, this increase is nonetheless
indicative of an underlying strength in the sector after
several years of falling output and closures.
Steel output in Europe and North America grew 4% and 3%
respectively. China, which accounts for about half of global
output, rose 5% in the nine-month period to 399 million
tonnes.
This is good news for all industries that serve steelmakers,
which includes refractories. In fact, in their latest updates
to investors, leading refractories suppliers such as RHI
Magnesita and Vesuvius all highlighted improving steel markets
as a leading factor in growth in total business in 2017 to
date.
Graphite, especially large flake, is used in refractory
crucibles, bricks and nozzles; in magnesia carbon bricks for
steelmaking furnaces; in continuous casting applications in the
form of carbon bonded mixes; in speciality silicon
carbide-graphite bricks for blast furnaces; and in other
heat-resistant products.
Separately, the battery market continues to develop at a fast
pace, mainly due to an electrically minded automotive sector
that is keen to ride the wave of electromobility by shifting
output and resources towards electric vehicles (EVs).
This tendency is evident in practically all major markets,
including China, which according to forecasts is due to become
the single largest market for EVs globally.
Global sales increased 55% last year to 695,000 units,
centered on China, according to data from Bloomberg New
Energy Finance (BNEF).
Although EVs account for just 0.8% of the 84.24 million cars
sold worldwide in 2016, they are forecast to account for more
than half of new sales by 2040 - by that time, a third of all
cars on the road will be electric, according to BNEF.
Carmakers are jumping on the bandwagon to harness the
business opportunities that EVs offer. Volvo will produce only
hybrid or full-electric models from 2019, it has said; the
Volkswagen group said it aims to sell 1 million battery-driven
vehicles by 2025; and PSA Peugeot Citroen is working to produce
electric models of several of its compact cars by 2020.
Governments have done their bit, too, as they bring forward
sustainability-centered agendas. France and the UK will
ban the sale of combustion engine vehicles (ICEs) - petrol or
diesel cars - by 2040. Other countries are considering
similar timetables.
Graphite plays a crucial role in the chemistry of lithium-ion
batteries as the main component of the battery anode.
While any higher output of EVs would raise graphite demand,
this end-market remains at the development stage for graphite
suppliers.
According to the Industrial Minerals Research Graphite
Whitepaper 2016, a little below 120,000 tonnes of graphite goes
directly into battery production.
To achieve a graphite product suitable for battery use,
natural flake graphite needs to go through several processing
stages - chemical purification, micronization, spheroidization
and coating. The final end product is a coated spherical
graphite.
On the processing front, there has been some improvement to
ensure higher yield of spherical material from the processing
of the flake. Having the highest yield possible is crucial to
ensure it is economical for producers to consider manufacturing
spherical material at all.
At the same time, despite the improvement, yield remains
arguably the single largest hurdle for companies looking at
this market.
Current yield levels still hover around 50%: this
essentially means that half of the graphite fed into the
process is discarded as waste while only half of feedstock is
turned into sellable spherical graphite.
| Chinese flake graphite prices
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| Source: Industrial Minerals |
Spherical exports: a mixed picture
China mainly sells spherical graphite in its uncoated form to
other destinations in Southeast Asia, such as Japan, where
the coating is applied. Chinese exports of coated spherical
graphite are, by comparison, much lower.
In January-September, exports of Chinese spherical graphite
(including both coated and uncoated material) stood at 28,860
tonnes, up 12% from just above 25,000 tonnes a year
earlier.
In value terms, exports in the first nine months of the year
at $91.11 million were 7% lower at than $97.63 million a year
earlier.
Data for the past few years highlight a clear discrepancy
between exported volumes, which have gradually increased, and
value, which has declined.
Exports of coated spherical graphite alone are very
different. There were double-digit year-on-year decreases in
almost every month so far this year in both volume and value
terms. As of September, coated spherical exports accounted for
less than 300 tonnes.
What this may show is that, finally, additional demand from
the battery sector is directly translating into higher trade.
But the drop in value - and average unit price - suggests that
the stellar price boost the EV industry has delivered to other
battery raw materials such as lithium and cobalt has yet to be
replicated in graphite.
If the forecasts for EV consumption are to be believed,
batteries would take up an increasing share of graphite supply
in the coming years. Until now, however, for graphite this has
been a gradual and long-term adjustment rather than a rapid
surge.
Flake trade rebound: exports and
imports
After several years of slow but steady declines in exports,
2017 has finally brought about some respite to Chinese
sellers.
In January to September - the most recent data available at
the time of writing - natural flake graphite exports from
China (with HS code 25041010) reached almost 110,000 tonnes,
according to China Customs data - an increase of 20,000
tonnes of 35% from a year earlier and up 36% from 2015 and
23% from 2013.
Apart from February, traded volumes have risen in every
month of 2017 from the corresponding 2016 period. The value of
exports showed a similar pattern.
The rate of growth, however, may have started to ease in the
latter months of the year: in September, year-on-year growth in
natural flake exports was a mere 5% after double-digit
increases in earlier months. As well, September volumes were
lower than in the May-August period. This may reflect
production stoppages in main graphite-producing areas as
environmental inspections intensified.
The uptrend in exports in 2017 to date was supported early
in the year by the scrapping of duties and then by the
resulting price cuts, which led to more competitive prices from
China, boosting sales.
Subsequently, while the impact of further environmental
controls spread, several customers thought of covering their
requirements - and potentially of stocking up - while they
still could in the event of inspections affecting graphite
production.
This led to increased demand that, combined with the
disruptions in production that indeed materialized from the
third quarter, sharply curtailed availability towards the end
of the year.
At the same time, the volume of imports of graphite reaching
China also jumped.
In the nine months to the end of September, China imported
2,852 tonnes of flake graphite, up 250% year on year.
The country imported around 900 tonnes in July alone - more
than it bought in the whole of 2014.
The value of imports has more than doubled, rising 215% to
more than $1.2 million this year from below $400,000 in
January-September last year.
Local industry observers repeatedly highlighted this
tendency in discussions at the 30th Anniversary Meeting of the
China Nonmetallic Mineral Industry Association in October in
Changsha.
While the bulk of imports originated from North Korea and
Madagascar, other suppliers may soon join the list.
BTR New Energy Minerals’ deal with Syrah is due
to lead to the inflow of thousands more tonnes of graphite from
the latter’s African operation, for example.
African horizon: Syrah’s giant
mine
While customers grappled with reduced availability in China
and fast-rising prices, ASX-listed miner Syrah Resources was
commissioning its graphite mine in Mozambique.
First production at the Balama project was achieved in the
second half of October, with initial bagged volumes shipped to
customers in November.
Primary end-markets in the first year of production will be
refractories and metallurgy (carbon-raising applications),
Syrah told Industrial Minerals at the UniteCR refractories
conference in Santiago, Chile, in September,
But the company is also keen to establish a presence in the
fast-growing battery market, it added.
The deal with Chinese anode maker BTR New Energy Materials
is testament to this focus: BTR signed a binding agreement for
the supply of up to 30,000 tonnes graphite, sourced at Balama,
in the year to the end of 2018.
In the first phase of work, Syrah will produce two grades,
95% C and 96% C, each in four mesh sizes: +50, +100 -80, +80
and -100 mesh. It will then add 97% and 98% grades, with the
same mesh variations, from early 2018, expanding its
portfolio to 16 products.
There are no two ways about it: Syrah is doing things on a
large scale.
The Balama operation is forecast to produce 160,000-180,000
tonnes in 2018, up from the expected 140,000 tonnes. Once at
full capacity, output will reach 380,000 tpy, according to
company forecasts.
No other projects in development or production has similar
output.
Demand for its initial volumes was strong, the company said,
due to reduced availability from China for some grades but
also, according to company executives, a willingness to secure
alternative, non-Chinese sources of supply.
"Users see the necessity of diversifying their sources of
supply to avoid having to depend on China alone," an executive
said.
The existing shortage in several mineral raw materials due
to reduced Chinese output - such as magnesia, bauxite and
alumina - is strengthening Syrah’s business case,
he added.
Separately, the company is working with US battery technology
firm Cadenza Innovation on a project to develop and test
anode materials for lithium-ion batteries for application in
electric vehicles and grid.