Graphite industry looking to spread risk outside China

By Davide Ghilotti
Published: Thursday, 28 June 2018

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

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 support a shift in market share towards other origins. 

The graphite market continues to be characterized by uncertainty of supply flows from China while production volumes from non-Chinese players are rising amid 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 country, saw another round of temporary factory closures in late May, local sources confirmed to Industrial Minerals.

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

Producers in the province had seen it coming and, at the time of writing, specific details over how long the limitation may last for 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 some grades may increase if the situation were to persist.

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

Flake graphite prices have so far remained stable after the appreciation of previous months.

Market prices holding

Graphite prices have been shake-up since the second half of 2017 - something the sector had not experienced in many years. 

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

This all made for a rapid appreciation of market prices. Industrial Minerals assessed Chinese flake graphite, 94-97% C, +80 mesh, at a price of $1,050-1,210 per tonne fob Qingdao on June 7, up 45% since this time last year.

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

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

Spherical graphite prices were slower to react to the reduced output situation. Prices had been flat or falling throughout 2017 prior to repeated upticks in early 2018.

End markets again played a part. The growth in demand from the battery sector in 2017 contributed to the clearing of previously-built 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, an average of $375 higher than at the beginning of the year.

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

End to China’s dominance?

At the recently held 24th Industrial Minerals Congress in Barcelona, Spain, one point of discussion among delegates was China’s future role in the global graphite supply chain.

Far from being a new viewpoint, many in the industry have been pointing for some time to the current situation of dependence on China as main market maker, warning that this imbalance may put security of supply at risk.

As we saw last year with the drastic cut in output from China, this threat is real.

The country accounts for more than 60% of natural flake supply to market and is the single largest exporter of the mineral. But can it maintain its position, delegates asked in Barcelona?

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

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

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

East Africa is poised to become a new non-Chinese hub for graphite supply, delegates said at the Congress. Besides 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. 

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

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

As the battery industry continues to grow (with China and South-east Asia in the lead as a global battery-manufacturing hub), demand for graphite feedstocks suitable for processing into anode material usable in batteries is also due to increase. If production were to be curtailed further, as was the case last year and this year, local consumers may find value in looking for suppliers outside the country.

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

Additionally, Europe’s and the US’ new focus on setting up their own local battery-making capacity would support the development of new graphite operations able to serve those industries.

"Each wannabe battery hub, including North America and Europe, will have to secure preferential sources of supply, which should not be China," one delegate commented, noting that developing projects in east Africa, Canada and in the US itself, could be crucial to this purpose.

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