Graphite outlook

Published: Wednesday, 14 April 2021

The flake graphite market, especially for fines, looks set to come under pressure through 2021 while increasing supply outweighs the growth of demand, Jon Stibbs and Sybil Pan report.

The price of small flake graphite – graphite flake 94% C, -100 mesh (-194) – fell repeatedly from the first half of 2019 to the beginning of the fourth quarter of 2020 amid oversupply, weak demand and the fallout from the Covid-19 pandemic.
Fastmarkets’ price assessment for -194 fob China material was $630 per tonne on March 28, 2019. The price then dropped by 31.75% to hit a steady bottom of $430 per tonne in July-October 2020, while supply exceeded demand.
When supply tightened and excess material dried up in the market, the price gradually recovered to $560 per tonne by late January 2021. It has remained stable since then, with support from the seasonal winter stoppage of operations in Heilongjiang province, a Chinese production heartland.
There were indications, however, that the current balance would be disturbed when material from Heilongjiang and elsewhere returns to the market. Indeed, the price for -194 material was assessed at $550 per tonne on March 25 this year, down by 1.79% from the previous week.
The picture for large graphite flake – 94% C, +80 mesh, fob China (+894) – was different because the share of the material that is used in graphite processing accounts for about 20% of total flake graphite supply, according to market sources.
The fob China price of +894 material went through a downward trajectory in 2019 and the first quarter of 2020, holding at a two-year low of $820 per tonne from August 2019 to March last year. The market recovered to reach $1,080 per tonne in March 2021 on growing supply tightness.
While the market was relatively firm for the time being, sources doubted that the current market performance of both large and small flake varieties would be sustainable over the second half of 2021, given evolving market dynamics. The first indications of weakness were identified on March 25, when Fastmarkets’ price assessment for +894 material fell by 0.93% to $1,070 per tonne.

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Supply – China and outside
Production of fine flake material outside of China soared in 2019 when Syrah Resources began commercial production at Balama in Mozambique. But following the halt in Syrah’s graphite operations last March, in response to the Covid-19 pandemic, the flake graphite market has been increasingly balanced, especially for flake fines.

Since then, China has resumed its previous dominance as the world’s major exporter of graphite, with production accounting for an estimated 62% of total world output last year, according to the annual update from the United States Geological Survey (USGS). Over the past winter in the East Asian country, there has been a seasonal halt in production. And this significant cut in output has given added support to the flake market.

The expected restart of operations in two areas with strong graphite flake production capacity – Jixi city in April, and Luobei county in Heilongjiang in May – might add sufficient supply to disrupt the current market stability, market sources said. "There’s no shortage of small flake graphite, especially in Luobei county. It is clear to see where the market is likely to go in April," a graphite producer in China said.

About 500,000 tonnes of graphite concentrates were produced last year in Luobei county, enough to meet 62.5% of China’s annual flake demand, according to one source. Downstream production, including spherical graphite for anode manufacturing, reached 270,000 tonnes, sources told Fastmarkets.

Meanwhile, Syrah Resources restarted flake production in March and plans to achieve output of 15,000 tonnes per month. The company has told Fastmarkets that it is committed to adjusting its production according to market conditions, to avoid a return to oversupply.

But there were concerns among some market participants about the volumes of flake graphite that would accumulate over the next few months. "Supply from Syrah might not affect the graphite market in the first half [of 2021], given the lead time of one to two months, but the market could be under pressure in the second half of the year," a flake graphite trader said.

Soaring freight costs from China to major overseas markets could weigh on China’s fob export and domestic prices. One-third of seaborne demand in China could shift to other sources, increasing the supply in the domestic market, according to the producer.

High freight costs can be expected to support the cif markets, however.

While there were indications that the fob China fines market may soften, there may  also be downward pressure on prices for larger flake sizes in China. "A change in the market [for +894 material] could be attributed to weaker demand from the expandable graphite sector, as well as increasing shipments from areas outside China, such as Madagascar," a second graphite producer in China said.

The numbers of inquiries from the expandable graphite sector in the rest of the world have been steadily rising, according to a producer outside China. Imports of flake graphite from Madagascar into China, which were mostly larger flake graphite, soared to 7,646 tonnes during January and February 2021, from only 138 tonnes a year earlier, according to Chinese customs data.

This followed the expansion and marketing of Madagraphite/Établissements Gallois. Both Tirupati Graphite and Madagraphite/Établissements Gallois have programs to ramp-up their outputs from Madagascar.

While supply was expected to grow in the remaining months of 2021, market participants expressed concern over downstream demand for flake fines in particular. Applications for fine flake graphite include the traditional refractories sector, and spherical graphite production for anodes.

"While there is high demand for spherical graphite production," a third producer in China said, "the flake fines market will be under pressure if the recovery of the refractories sector is slow."