• by Alex Lightman
  • July 28, 2018
  • 0

2017 started off slow for graphite but, heading into the new year analysts and companies are optimistic about the future. While prices for lithium and cobalt have soared this year on surging demand for electric cars, prices for graphite, another metal used in the batteries that power these vehicles, have reacted less strongly.

However, by October prices were on the rise for the first time since mid-2016, according to Roskill. Fine flake graphite rose by 36 percent, the firm said at the time, hitting an average of $863 tonne, while medium-flake prices increased by 31 percent to reach $953 per tonne.

Fine- and medium-flake graphite are typically used to produce spherical graphite. Large-flake graphite is used in expandable graphite, and rose by 25 percent in October to average $998 per tonne.

Speaking more recently, Benchmark Mineral Intelligence analyst Andrew Miller said, “for the first time in over five years, we’re now seeing consistent increases in pricing due to supply-side pressures. At the same time, you have the emergence of new demand from value-added applications such as expandable graphite and spherical graphite for lithium-ion batteries.”

The chart above (via Benchmark Mineral Intelligence) shows the latest graphite prices by mesh 

Graphite trends 2017: Supply declining
Miller said policy changes have been the largest drivers of the flake graphite market in 2017. “At the start of the year, China removed its export duty, which dragged prices to new lows,” he explained. “Subsequently, the environmental restrictions [China has] imposed on production have had the opposite effect. [That] has created some major challenges for the country’s producers moving forward.”

According to Industrial Minerals, the Chinese government removed graphite from its export tax list causing producers to drop their prices by 10-15 percent in January due to uncertainty over the cancellation of the 20 percent tax. It introduced an Environmental Protection Law at the end of 2016 to tax producers that flout environmental measures; which will come into force on January 1, 2018 but already began to have an impact on supply. The government also conducted a second round of inspections in Shandong province in May. These efforts to curb pollution led to reduced supply of needle coke, a key feedstock material used for manufacturing graphite electrodes.

Graphite electrodes are made from amorphous graphite, and are used within the electric arc furnaces of steel mills because they can withstand the high temperatures used to melt down and recycle scrap steel.

Refinery shutdowns along the Texas Gulf Coast caused by Hurricane Harvey in late August and early September also impacted US needle coke production. At the time, an unnamed steelmaking executive reportedly told Platts that the world’s largest graphite electrode maker, GrafTech International (NYSE:GTI), had declared force majeure in response to supply issues caused by the storm.

By late September, Chinese graphite electrode prices had increased nearly ninefold, to $16,330 a tonne, from the start of the year. Globally, spot prices had increased more, reaching about $35,000 per tonne.

According to an October report from investment bank Jefferies, the graphite electrode supply shortage could last five years or more. In addition to capacity coming offline due to Hurricane Harvey, 10 percent of needle coke output is now being directed to the lithium-ion battery sector.

Graphite trends 2017. Companies weigh in
In a recent interview with the Investing News Network, Eagle Graphite (TSXV:EGA) CEO Jamie Deith said graphite supply has been unable to keep up with “a global resurgence of steel production” in 2017. Deith said he was informed by a Chinese supplier that “they may have absolutely no graphite available at any price for some of the standard grades. At the same time, Eagle Graphite is being approached by Chinese graphite buyers who can no longer meet their needs with domestic supply, and they think the Chinese government has made it too difficult to produce graphite in ‘the traditional way.’” He continued, “requests to send Canadian graphite to China were unthinkable in the past, so I would say this is emblematic of change in the market.”

Blair Way, president and CEO at Leading Edge Materials (TSXV:LEM), said 2017 was a year of “healthy, steady growth” in the sector. He noted that a significant milestone for Leading Edge was the announcement of R&D projects in Sweden, including cooperation with the Northvolt battery cell manufacturing project. He said the company saw some “strong movement” in terms of its share price performance over the year “with the usual ups and downs as some investors took profit.”

“As we transition away from a traditional resource story to the technology and specialty value-added materials of the green energy space, some investors move on to the more volatile drill programs and others start to follow us to get exposure to the longer-term story around providing these specialty materials for the future green energy market,” Way commented.

Graphite outlook 2018: Demand to rise
In the long term, Roskill notes that the continuing closure of processing plants in China to curb emissions has set the scene for speculation about rising graphite prices. The research firm notes that “prices for high grade material [are] forecast to continue rising through late 2017 and into 2018 as battery demand continues to rise and flake graphite producers rush to ramp-up new production.”

Eagle Graphite’s Deith noted that governments around the world are considering banning cars with traditional combustion engines, and said that “yearly demand for graphite for batteries will go up from around 30,000 tons to as much as 60,000 tons over the next year. These are 30,000 tons of new production that need to come online just to prevent the market from going into further shortage.”

Deith also commented, “eventually batteries will come to dominate graphite demand, and global production capacity will have to grow to over 10 times its current size before the draw from battery production even begins to slow down.”

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Alex Lightman is an MIT graduate (’83), attended graduate school at Harvard, and is the winner/recipient of four global technology awards, including the Economist magazine Reader’s Award for the “innovation that will most radically change the world” for this decade 2010-2020. He is a co-founder of Token Communities Plc., a Gibraltar corporation that invests in tokens; the CEO of a publicly traded energy company; and advisor to seven ICO/token sales, including Propy, Science, and Academy for Blockchain Technology mentioned in this article. He is the author of the first book on 4G wireless, Brave New Unwired World and the co-author, with Brett King, of the bestseller, Augmented: Life In The Smart Lane, which was no. 1 in seven different categories in 2016.