Graphite industry prepares to spread risk beyond China

By Davide Ghilotti
Published: Friday, 08 June 2018

After a year in 2017 that was characterized by drastic supply cuts and rising prices in the graphite industry, 2018 to date seems to be continuing in a similar direction. The industry is keen to ensure security of supply throughout the chain, and is pushing for origins outside China to support a more balanced market.

China has historically played the role of puppet-master in the global graphite industry, due to the sheer size of its output and the heavy investment it has put into the sector. But the growth of strategic end-markets such as batteries may now support a shift in market share toward other origins.

The graphite market continues to be characterized by uncertainty of supply flows from China, while production volumes from other regions are on the rise because of the firm market conditions.

After an eventful 2017, when production areas across China were affected by government-imposed inspections and widespread shutdowns, 2018 seems to be promising more of the same.

Shandong province, the leading producing area for graphite in the East Asian country, saw another round of temporary factory closures in late May, local sources confirmed to Industrial Minerals.

The shutdown, officially the first in 2018, was in preparation for a government summit to be held in Qingdao in June. This situation followed a familiar pattern, seen on previous occasions: in the run-up to important events, authorities prevent local heavy industry from operating in order to improve weather conditions.

Producers in the province saw the clampdown coming but, at the time of writing, specific details about how long the limitations might last have been scarce. One local company said that it had been told to halt operations but "with no clear timeline."

Market prices have so far remained stable, despite the latest issues, but producers say that the prices of some grades may show upticks if the current supply situation persists.

One producer said that the price of spherical graphite, specifically, would "move up further on supply tensions" in the near term.

Flake graphite prices have so far remained stable, after the rises seen in previous months.

Market prices holding

Graphite prices were shaken-up in the second half of 2017 in a way that the sector had not seen in many years.

While graphite supply from China was drastically curtailed, steelmaking saw a progressive rebound after prolonged stagnation. And with that rising steel output, the demand for refractory raw materials, including graphite, surged.

This all made for a rapid rise in the market prices for graphite.

Industrial Minerals assessed the price of Chinese flake graphite, 94-97% C, +80 mesh, at $1,050-1,210 per tonne fob Qingdao on June 7. The price of this grade has appreciated by 45% since this time last year.

Similarly, +100 -80 mesh material, of the same purity level, was priced $800-940 per tonne, up by 30% from last year.

And -100 mesh material, also of the same purity, was trading at $655-790 per tonne, or 30% higher than in June 2017.

Spherical graphite prices were slower to react to the reduced output situation. Prices were flat or falling throughout 2017, before seeing repeated upticks in early 2018.

The end-markets again played a part. The growth in demand from the battery sector in 2017 contributed to the clearing of high inventories, and supported prices.

The price of uncoated spherical graphite, 99.95% C, 15 micron, was assessed at $2,800-2,900 per tonne fob China on June 7. This was higher by an average of $375 than at the beginning of the year.

But prices are just one component in the overall picture. Industry sources are adamant that the volatility that has been seen in the recent past was exacerbated by the fact that one country supplies so much of the international market. This, they claimed, must change.

End to China’s dominance?

At the 24th Industrial Minerals Congress in Barcelona, Spain, which concluded on June 7, one topic of discussion among delegates was China’s future role in the global graphite supply chain.

Far from it being a new viewpoint, many in the industry have been warning for some time that the current situation, in which China is seen as the main market maker, is an imbalance that could threaten security of supply.

And as we saw last year, with the drastic cuts in output from China, this threat is real.

The country accounts for more than 60% of natural flake graphite supply to the market, and is the single largest exporter of the mineral. But delegates in Barcelona asked whether it is going to be able to maintain that position.

"If they continue to reduce output the way they have done, something will have to give," one delegate said.

"With adequate market conditions, it is economical to produce and sell graphite outside China," another added, listing a number of new projects in the pipeline or near completion.

Syrah Resources’ own Balama graphite site in Mozambique is the leading example now in operation, but others are set to follow.

East Africa is poised to become a new hub for graphite supply, delegates said at the Congress. Other than Balama, several projects are in development in Tanzania and in Madagascar. In the south-west, Imerys and joint venture partner Gecko Graphite Namibia have been investing in Namibia’s Otjiwarongo graphite project.

"Yes, China is still the largest player in graphite, but it’s not far-fetched to imagine a more balanced share in market composition," another delegate said.

Others pointed to China’s rising profile as a graphite importer – which, until recently, was minimal. And yet, imports of graphite into China are growing, to feed its large domestic demand for multiple end-uses.

With the battery industry continuing to grow, and with China and South-east Asia in the forefront as a global battery-manufacturing hub, demand for graphite feedstocks suitable for processing into anode material usable in batteries is also due to increase. But if production were to be curtailed further, as we have seen last year and this year, local consumers may feel it worth their while to look for suppliers outside the country.

Syrah’s deal with anode manufacturer BTR New Energy Materials is a telling step in this direction.

Additionally, the new focus in Europe and the United States on setting up their own local battery-making capacities would support the development of new graphite operations able to serve those industries.

"Each 'wanna-be’ battery hub, including North America and Europe, will have to secure preferential sources of supply, which should not be China," one delegate in Barcelona said, noting that developing projects in East Africa, Canada and in the US itself could be crucial.

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