Graphite special focus

Materials World magazine
1 Mar 2015

In the second half of a special focus on graphite, Guy Richards looks at its market prospects over the next few years.

As discussed in the February 2015 article, graphite has had a range of applications since Neolithic times and continues to be an important material in established industries such as lubricants, refractories, steelmaking and, of course, pencils. However, these historic uses have tended to constrain demand for graphite and, when Chinese producers flooded the market in the 1990s to generate foreign exchange, its price slumped – essentially halting any new exploration or mines – and did not start to recover until about 10 years ago. 

Since then, the graphite market has been steadily improving and industry analysts are expecting particularly strong demand for graphite over the next three to five years. However, that is set to coincide with a fall in supply levels. 

The biggest factor in this fall in supply is China, the world’s leading producer of natural graphite. It holds a large portion of the world’s reserves, but they are not high grade, and while that hasn’t mattered too much until the past couple of years, many of its mines have now become uneconomic in the face of rising labour and extraction costs as well as growing environmental pressures. Its graphite industry has had to start modernising and consolidating some operations, while cutting output from others. 

According to Simon Moores, analyst at consultancy Benchmark Mineral Intelligence, 2014 saw China’s output fall by 15% in just one year, to levels not seen since the mid-1990s. By 2020, its output will have fallen to 50–60% of global production, down from an all-time high of 85% in 2013. ‘China will continue to be the world’s number one supplier of all natural graphite in the long term,’ he says, ‘but one thing is clear – the days of low-cost, abundant graphite from China are over.’ 

The emerging market

Existing natural graphite markets such as the steel industry will continue to grow, but the biggest rise in demand is predicted to come from its use for the anodes in lithium-ion (Li-ion) batteries, particularly those in hybrid electric vehicles (HEVs). 

Minerals research consultancy Roskill Information Services is due to publish a new edition of its graphite report later this year, forecasting out to 2020. According to Suzanne Shaw, senior analyst, ‘One of the major end uses for natural graphite will continue to be refractories, which accounts for about 20% of global demand and will grow by 2–4% a year to 2020. The largest growth in demand will come from batteries, with increases of 10–15% a year. We conservatively forecast production of HEVs to increase by up to 2.5m vehicles by 2020, and those based on Li-ion batteries may account for about 1.7m of this increase.’ 

Li-ion batteries contain some 10–12 times more graphite by weight than lithium, so to meet that expected demand companies such as Tesla Motors, LG Chem and Foxconn are building battery super-plants, with LG Chem expected to be the first in operation, in China, towards the end of 2015. 

As an illustration of the scale of these plants, Tesla’s so-called Gigafactory, to be built in Nevada, will alone manufacture the equivalent of 2013’s entire world cell production. Even based on present economics, it will be so big that at capacity it will cause demand for battery-grade graphite to increase by 152%, says Moores, who adds that at the moment there isn’t enough suitable graphite available to satisfy such a plant as well as existing global demand elsewhere. 

The finer details

And that’s the key – obtaining suitable graphite – because, as Moores explains, ‘Graphite is not just graphite. It is not a product you can easily buy off the shelf from any producer and use directly in your batteries. Whether or not you can use your chosen graphite product depends heavily on where it is from and how it is produced. It depends on the impurities in the product as much as the economics of the contract.

‘It also depends on what nature has given you as much as the expertise of the company mining and refining it. In principle, it is also the same for lithium. These battery raw materials are actually specially engineered products, not commodities. They are as akin to chemical processing as they are to mining, so the need to grasp the supply chain of the right grade of product is paramount.’ 

Of course, graphite miners know all this, and there are some high-grade deposits around the world that are either coming back on stream or are in the pipeline. 

One project that has been restarted is the Woxna mine, in Sweden, which was bought by Flinders Resources in 2011 and then taken out of care and maintenance. The mine’s life is put at 13 years and production, which began again in July 2014, is designed to be up to 16,600 tonnes per annum (tpa). In October 2014, it signed a deal with part of the ThyssenKrupp conglomerate to supply 2,000–5,000tpa over the next 10 years. 

A little further off is the Bissett Creek project in Ontario, owned by Northern Graphite, which hopes to be in production in 2016 and is expected to produce an average of 20,800tpa. The life of mine is estimated to be 28 years. 

Looking at the longer term, one of the most significant projects is Syrah Resources’ Balama mine, in Mozambique. Although no production start date has been announced, Syrah recently produced samples of battery-grade graphite and the deposit is said to be large enough to provide the world’s entire current demand for natural graphite for around 1,000 years. Initial production is expected to be about 300,000tpa, and the company has already signed offtake agreements – one of them with a Chinese aluminium producer – to the tune of 180,000–250,000tpa. 

Another example is Focus Graphite’s Lac Knife project in Quebec, also with no official production start date but which also already has an offtake agreement, this time with a Chinese conglomerate. The mine’s life is estimated at 20 years, and the deal is for up to 40,000tpa – nearly the entire planned production. These two projects suggest that China is now becoming a customer as well as a competitor, as it looks beyond its borders for new supplies. That alone could add an interesting dynamic to the market, for the exploration industry in particular. 

Facing the future

All of this new production raises two questions – will supply actually meet expected demand or even exceed it, and, if so, what will it do to prices? 

In response to to the first question, Roskill’s Shaw says, ‘Total supply of graphite is likely to meet demand in the coming years, although any future discrepancies in the supply-demand balance depend on decisions to be made in the Li-ion battery market, which will need to be made soon in order to bring on adequate graphite capacity by the time it is needed’. 

As to the second question, in November 2014, Credit Suisse analyst Michael Slifirski publicly stated, ‘The graphite market has been somewhat constrained by supply. There are plenty of very good applications where graphite is by far and away the superior product to use, but because the market hasn’t been able to supply the volumes that some of these new applications would require without pushing up the price, those market opportunities simply haven’t developed. 

‘If we have a deposit that is able to supply future demand without a price response then I think these new applications can drive a big volume increase. I think that’s going to be a step change for the graphite market.’ 

And so the story of this remarkable material continues. Stone Age people used it to decorate their pots, medieval artists used it to help them create some of the greatest works of art of all time, it has been a vital commodity in steel-making for hundreds of years and now industry is clamouring for it for a host of applications that, until comparatively recently, belonged to the realm of science fiction.