China’s target of choice – graphite – is also unsurprising. While the US and EU have focused primarily on securing cathode active material supplies in recent years, focus on anode active material supply has been lacking, a vulnerability that Fastmarkets has highlighted repeatedly. The lack of focus by non-Chinese markets on graphite has been a strategic error. Ex-China investors have largely ignored graphite because it represents only 10% of lithium-ion battery costs, however, graphite comprises approximately 50% of the weight of the battery, rendering it critical in the lithium-ion battery raw materials supply chain. China is exposing this oversight and resulting weakness.

While fledgling ex-China graphite projects have largely struggled to secure adequate investment and are struggling with delays and extended material qualification times, China has moved to increase its dominance in graphite supply over the past year, particularly in synthetic graphite supply. China is moving both to expose EU and US vulnerability in graphite supply and to expose ex-China’s direct and indirect dependence on Chinese graphite. While US automakers engage in joint ventures with South Korean and Japanese battery makers, which are free trade agreement partners, both South Korea and Japan are also largely dependent on Chinese graphite production for their active anode material.

In our view, Chinese actions will also expose flaws in the US IRA’s ambitious targets for local content values in both battery components, including anodes, and critical minerals, including graphite, in the coming years. We have doubts about the feasibility of these initiatives to the extent proposed and in the indicated time frame. Without a dramatic change in current graphite market conditions, the acceptance of graphite anode material that has been at least partially processed in China, or a significant pullback in US EV production targets, we remain concerned that the targets will not be achieved.

We maintain the view that diversification in graphite supply sourcing away from China is only achievable with government intervention, and it now appears that it may be the Chinese government that, in fact, forces other governments to act on graphite.

China’s action on graphite export controls may be just what the market needs to spur global graphite prices and investment forward. Clearly, in the near term, we expect the announcement to trigger a much-needed reversal in graphite pricing, benefiting Chinese producers initially, and probably responsible for China’s reasoning in acting now. Chinese graphite prices have been in a downward spiral for the past year, with prices at or below production costs, and upward impetus is needed to protect the domestic supply chain.

Triggered by the renewed sense of urgency, demand for Chinese graphite exports will surge in the coming weeks, with consumers in South Korea, Japan, the US and Europe expected to seek to secure material before export regulations go into effect on December 1. Pricing gains are forecast to continue into December/January reflecting both stockpiling activity and production cutbacks during the Chinese winter months. Higher prices and a renewed sense of panic regarding future graphite supply availability should encourage increased investment and interest in graphite projects, which would in turn aid the US and EU with achieving their goals of localization of supply and diversification of supply away from the current heavy dependence on China.

For now, Fastmarkets’ assessments of graphite prices are unchanged, with the latest pricing session occurring the day before the Chinese government’s announcement on the new temporary export controls. Fastmarkets assessed graphite flake 94% C, -100 mesh, fob China at $530-604 per tonne and graphite spherical 99.95% C, 15 microns, fob China at $2,000-2,200 per tonne, both unchanged from the prior week. Fastmarkets assessed graphite flake 94% C, -100 mesh, cif Europe at $600-620 per tonne, also stable from the previous week. Given the latest market developments, we expect to see prices trend stable to higher in the coming weeks, in line with our previous forecasts.

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1. The graphite long-term outlook remains strong

Natural graphite flake prices are forecast to rise significantly over the coming decade, propelled higher by exponential growth in the EV battery sector and underlying changes to global graphite supply. This is centered on the industry’s desire to diversify supply away from China, while also localizing supply in areas such as Europe and North America. As the industry targets local, diversified supply, the industry will also face a push for more environmentally friendly production and processing and utilization of green power sources. We expect to see this combination of factors increase the underlying natural graphite cost base, contributing to higher prices.

2. Competition from synthetic graphite intensifies

Despite this favorable long-term outlook, graphite prices have been tumbling this year, after posting impressive gains in 2022. Declining prices this year reflect a number of factors, most critically rising competition from Chinese synthetic graphite active anode material (AAM) in response to lower Chinese power costs and significant increases to graphitization capacity in China. This has been exacerbated by reduced demand from the electric arc furnace (EAF) steel sector for graphite electrodes, leaving more synthetic graphite available for the xEV battery sector.

Synthetic graphite AAM prices have fallen sharply in response to increased production capacity and lower costs, intensifying competition for natural spherical graphite AAM. Natural graphite battery precursor material is now priced at a premium to synthetic graphite battery precursor material, eliminating the key cost advantage of natural graphite versus synthetic graphite and in turn hindering demand for natural graphite AAM.

3. Synthetic graphite AAM capturing rising market share

Rising synthetic graphite supply and declining prices have prompted increased demand from anode manufacturers for synthetic graphite in lieu of natural graphite precursor material.

These factors combined to push synthetic graphite utilization rates in AAM manufacturing to as high as 85-90% in the first half of 2023, up from a more typical industry average of around 70% in recent years.

4. Increased competition from synthetic graphite dampening prices in 2023

We expect these trends to continue to influence demand and pricing in 2023. We have lowered our base case price forecasts for natural graphite uSPG and flake for the next several years, reflecting persistent competition from synthetic graphite.

5. Future growth in natural graphite demand will be driven by ex-China consumers

We maintain the view that natural graphite prices will be rising sharply in the coming years reflecting surging demand from the xEV sector, as well as rising power costs and increasingly stringent ESG regulations. This will push the market into a significant deficit without required investment in the graphite space.

Given the rising dominance of synthetic graphite in Chinese anodes, we expect to see growth in demand for natural graphite precursor anode material and AAM to be centered in ex-Chinese markets. Given significant investment by both US and European governments to encourage localized, diversified and ESG-friendly supply, we forecast natural graphite will play a key role in anode material demand in these regions in the longer term.

We expect to see premium pricing structures emerge in ex-China markets to reflect higher costs associated with ESG friendly supply, but also to encourage the much-needed investment in the sector to prompt the development of localized and diversified supply. Without additional investment, the market will fall into a significant deficit beyond 2030.

Understand the dynamics of the graphite market

Keep up with the latest news, market intelligence and trends in the graphite market when you visit our dedicated graphite market page.

Get an in-depth, 10-year view into where and when graphite supply will come online with our graphite long-term forecast.

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Traditional graphite applications have seen sharp declines this year, with global crude steel production volumes tumbling.

In the first seven months of 2022, global crude steel production fell by around 6% year-on-year, with a similar decline in graphite demand from traditional steel-related applications – namely, refractories for natural graphite and electrodes for synthetic graphite.

With graphite’s traditional applications still representing about 75% of total natural graphite demand, it was no surprise to see sluggish conditions in the graphite market.

Price declines have been relatively modest, however, given the collapse in steel sector demand, and typical margins between graphite grades have been narrowing, reflecting the incredible growth evident in demand for graphite from the electric vehicle (EV) battery sector.

Forecasts for natural graphite consumption

For 2023, Fastmarkets forecasts natural graphite consumption in the battery sector to rise to a par with consumption in the refractories sector, and to far exceed refractories consumption of natural graphite in 2024.

By 2025, we expect natural graphite consumption in batteries to exceed consumption from all traditional uses combined.

In contrast to the expected decline in graphite consumption in traditional applications this year, Fastmarkets has forecast that demand for graphite from the battery sector in 2022 will rise by 40% year on year, in line with growth in the EV sector.

We expect to see natural graphite consumption in the battery sector rise to around 300,000 tonnes this year, up from around 210,000 tonnes in 2021.

Although this would still comprise only a small portion of total graphite consumption, surging demand for graphite from the EV battery anode industry is helping not only to support underlying graphite fines prices, but is also resulting in the compression of traditional margins in China between larger flake graphite and fines graphite, with -100 mesh fines used in the production of graphite active anode material.

Expecting a deficit

We expect to see the graphite market tip back into deficit in late 2022. Strong growth from the battery sector is expected to persist into the final quarter of the year, with Chinese natural graphite production expected to decline as usual during the winter, with production cuts in Heilongjiang province.

The natural graphite market is forecast to remain largely in deficit until 2025.

As the strong demand growth from the EV battery sector propels graphite consumption upward, the industry will be relying on increased graphite production from established producers, primarily in China and Mozambique, with junior mining companies striving to ramp up production at new graphite operations.

The addition of new capacity has already faced significant delays, however, and we expect continued struggles for many new entrants, with an appreciable influx of new supply not expected to hit the market – and to remedy the growing underlying supply-demand imbalance – before 2025.

The direct effect of supply shortages could be felt even more keenly in the precursor and active anode material markets, namely uncoated spherical purified graphite (uSPG) and coated spherical purified graphite (cSPG), because the qualification process for new graphite supply to be used in the battery industry typically takes three years.

The impending graphite shortage, rising power costs, the drive by new entrants to develop renewable power supply sources, and the need to meet increasingly stringent environmental controls and restrictions, will all lead to significantly higher graphite prices in the coming years.

This will reflect both the incredible underlying market demand and the higher costs associated with graphite production. Graphite prices are in a lull, but this lull will prove to be temporary and may well be the calm before the storm.

Graphite prices have slipped from their early-2022 highs. More detailed analysis and 10-year forecasts of demand, supply and price are available in Fastmarkets’ Graphite Long-term Forecast, published October 2022.

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Supply-side concerns, however, have also yet to be resolved, with logistical issues and high container costs for material from both Africa and China supporting prices, while news that graphite production in Heilongjiang province is due to resume at more normal levels was offset by news that environmental inspection teams are halting operations in Luobei county from May 18.

Price remains unchanged

Amid strong underlying fundamentals, and with offsetting supply and demand factors, Fastmarkets’ graphite price assessments remain unchanged. Graphite flake 94%C, -100 mesh, fob China remains at $830 per tonne, with graphite spherical 99.95%C, 15 microns, fob China at 3,500-3,800 per tonne. European prices are also steady with graphite flake 94%C, +100 mesh, cif Europe at $1,400 per tonne.

China graphite prices

Amorphous graphite prices surged amid a recovery in demand from downstream steel producers, with mills switching to amorphous graphite as a replacement for anthracite and pet-coke.

Flake graphite prices were unchanged but tightness has eased with the ending of seasonal winter stoppages in Heilongjiang and amid low liquidity in the refractories sector.

Supply concerns continued with environmental inspection teams halting operations in Luobei county from May 18.

Spherical graphite prices remained stable on sound demand from the anode sector.

European graphite market

Tight supply from China and rising global logistics costs drove the amorphous graphite market to a new multi-year high.

Graphite importers seeking to save money using breakbulk transportation have found that the savings compared with shipping in containers have narrowed to as little as $50 per tonne.

Logistics problems for shipping from Africa have continued, with market participants reporting high costs for containers, around $6,000 per container, and delivery times of two months.

Anode production rises to meet EV battery demand

Chinese anode production is rising rapidly to meet surging demand from the EV battery sector, with impressive growth evident in early 2022, following strong advances in 2021. According to data from ICCSino, Chinese anode production exceeded 90,000 tonnes in March 2022, with production in Q1 2022 reaching 251,000 tonnes, up 81% year-on-year from 139,000 tonnes in Q1 2021. After nearly doubling in 2021 to 677,000 tonnes in 2021, Fastmarkets is forecasting Chinese anode production to exceed 1m tonnes in 2022.

Impressive growth in anode production in China both in 2022 and in the coming years will keep graphite prices, particularly spherical graphite and fine flake graphite prices, elevated this year and through 2025 at a minimum, given delays to new junior miner graphite projects as well as issues affecting synthetic graphite supply including environmental concerns, rising costs, and a shortage of graphitization capacity.

While near-term downside risks to pricing remain, reflecting temporarily reduced demand in China in response to Covid-19 lockdowns and the potential increase in graphite production in the Heilongjiang region, as well as concerns regarding the Ukraine-Russia war, we maintain the view that graphite prices will remain on an upward trajectory for the majority of 2022.

To stay up-to-date with the dynamics shaping the graphite market, visit our dedicated graphite market page for more news and insights.

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Fastmarkets’ graphite supply-demand balance has been updated based on our upwardly revised expectations for growth from the electric vehicle (EV) battery sector. Our forecasts for EV battery production indicate demand for graphite from the battery sector will rise by 36% to approximately 594,000 tonnes in 2022 from around 437,000 tonnes in 2021.

We will need to see rising production of both synthetic and natural graphite to meet the battery sector’s graphite needs this year. We expect to see gains in synthetic graphite production in China, in particular, where the majority of battery anode production is based. Challenges to increased production of synthetic graphite, however, remain centered on both power supply and cost as well as adequate graphitization capacity.

We expect to see increased natural graphite production from the world’s leading producers, China and Mozambique. Existing natural graphite producers will need to increase production to cover rising demand over the next several years while new natural graphite projects remain in various stages of development and as they ramp up to viable production levels.

We believe the graphite industry will successfully boost production to meet rising demand, but the market will remain tightly balanced with periods of supply shortfalls during 2022 triggering higher prices. With Syrah Resources reporting a second consecutive quarter of constrained graphite production and sales due to container shortages in the fourth quarter of 2021, we also expect to see shipping issues impact graphite availability, prompting supply shortfalls and higher prices well into the first half of 2022.

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We highlighted a number of reasons for this, both related to graphite availability and total electric vehicle (EV) battery costs.

By the end of December, the first graphite deal between an automaker and a graphite supplier was announced, with Tesla leading the industry with moves to both secure and diversify active anode materials (AAM) supply.

Tesla has signed an offtake agreement with graphite producer Syrah Resources, with Syrah to supply Tesla with natural graphite AAM from its Vidalia production facility in the United States. Syrah is shipping natural graphite fines from its Mozambique operations to the Vidalia facility in the US state of Louisiana, where the producer is processing the graphite fines to AAM.

The offtake agreement with Tesla supports Syrah’s plans to expand capacity at the Vidalia facility, with Syrah to make a final decision on expanding capacity to 10,000 tonnes per year of AAM in January.

Tesla’s leading move demonstrates both the EV industry’s need to secure future graphite anode supply, rather than focusing only on cathode supply, and the desire of global automakers to achieve localized supply chains.

With over 90% of anode materials produced in China, there is significant potential for new, geographically diversified graphite producers to attract interest from major automakers seeing to reduce dependence on Chinese supply.

As highlighted in our previous analysis piece in early December, and strengthened by Tesla’s advances into graphite, we maintain our view that other EV original equipment manufacturers will shortly move to secure supplies of AAM in addition to their sourcing of cathode components.

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By the end of December, the first graphite deal between an automaker and a graphite supplier was announced, with Tesla leading the industry with moves to both secure and diversify active anode materials (AAM) supply.

Tesla has signed an offtake agreement with graphite producer Syrah Resources, with Syrah to supply Tesla with natural graphite AAM from its Vidalia production facility in the United States. Syrah is shipping natural graphite fines from its Mozambique operations to the Vidalia facility in the US state of Louisiana, where the producer is processing the graphite fines to AAM.

The offtake agreement with Tesla supports Syrah’s plans to expand capacity at the Vidalia facility, with Syrah to make a final decision on expanding capacity to 10,000 tonnes per year of AAM in January.

Tesla’s leading move demonstrates both the EV industry’s need to secure future graphite anode supply, rather than focusing only on cathode supply, and the desire of global automakers to achieve localized supply chains.

With over 90% of anode materials produced in China, there is significant potential for new, geographically diversified graphite producers to attract interest from major automakers seeing to reduce dependence on Chinese supply.

As highlighted in our previous analysis piece in early December, and strengthened by Tesla’s advances into graphite, we maintain our view that other EV original equipment manufacturers will shortly move to secure supplies of AAM in addition to their sourcing of cathode components.

#graphite, #anode, #battery cathode, #lithium, #nickel, #cobalt, #EV, #batteries, #Tesla, #Syrah, #energy transition #battery raw materials

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The research highlights the implications of industry forecasts, including our own, that exponential growth in demand for batteries to be used in electric vehicles (EVs) will require significant increases in graphite production from the existing levels.

The IMF report also highlighted concerns regarding the significant concentration of most key energy transition materials in a small number of countries, an aspect of the market that we have also previously highlighted. In the case of graphite, around 60% of supply is based in China, with a further combined 20% coming from Mozambique and Brazil.

The graphite industry is addressing these concerns, with both new and existing graphite producers seeking both to meet future rapid demand growth from the EV battery sector and to address the need for diversification of supply, as well as to establish localized supply to reduce both country risk and supply chain vulnerabilities, which have been seen across numerous industries in 2020-21.

In our view, the most likely initial increases to graphite supply to meet soaring demand will come from established producers, primarily in China and Mozambique.

In Mozambique, Syrah Resources’ Balama project is producing at less than its maximum capacity for 350,000 tonnes per year, with output estimated at closer to 100,000-150,000 tpy. Output could be increased if warranted by market conditions, which we do expect to see in the coming years.

Natural graphite production projects of various sizes and at various stages are under way in countries around the world including Madagascar, Malawi, Tanzania, South Korea, Finland, Norway, Sweden, Ukraine, Canada, the United States and Australia, but we do not expect to see a significant contribution to global graphite supply from these new projects until 2024-25.

While these projects indicate that there are serious plans to address the longer-term potential graphite shortage, we will need to see many of these projects come to fruition, and to meet projected long-term demand for graphite from the battery sector, if we are to prevent a shortage of the magnitude indicated by the IMF.

Advances in anode technology after 2025, with increasing use of silicon and lithium metal in EV battery anodes, may result in less intense use of graphite in anodes in the longer term. But with uncertainty about the timing of this, and about the exact composition of future anode technologies, the need for additional graphite units in the medium to longer term remains well supported.

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The latest such agreement involved US manufacturer General Motors, which recently announced its intention to form a joint venture with South Korea’s Posco Chemical. They intend to open a facility in North America in 2024, focused on cathode active material – extending a trend seen among carmakers keen to tie-up supplies of lithium, cobalt and nickel.

There has been much less interest among the automotive sector in securing anode material supplies, with the EV battery anode primarily comprised of graphite. There are two major reasons for this, related to graphite availability and total EV battery costs.

Total graphite supply is seen as relatively plentiful and not a potential hindrance to future EV battery production. But while graphite supply was not expected to be a limiting factor for EV battery production in the near term, there are significant costs and environmental issues associated with processing graphite to make active anode material, and this is where there could be supply chain bottlenecks in the years ahead.

Fastmarkets has highlighted previously that, with more than 90% of graphite active anode material capacity currently in China, the anode market remains at risk to supply chain disruptions, such as have been seen in the semiconductor chip sector.

With environmental, social and corporate governance (ESG) considerations becoming increasingly critical for carmakers, the environmental costs of Chinese anode material production will be a further deterrent to the industry’s reliance on Chinese supplies.

While the automotive industry has expressed interest in localized graphite supply chains, and there are a number of graphite projects under way around the world, no carmakers have yet committed to joint ventures with any of these projects.

Although about 50% of an EV battery is composed of graphite, the cost of the anode is significantly lower than the cost of the cathode, with the graphite anode cost estimated at just 7-10% of the total EV battery cost.

The cost of the cathode is about 40% of the total EV battery cost. The relatively minor cost share of the anode relative to the cathode, as well as graphite being a relatively plentiful mineral when compared with cobalt or nickel, has resulted in carmakers focusing initially on securing cathode supplies through joint ventures with battery chemical producers.

So it is likely that there will be more moves by carmakers to secure anode supplies in the coming years, especially once the cathode material ventures are well established, and once leading graphite suppliers emerge from the global array of new projects.

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The latest such agreement involved US manufacturer General Motors, which recently announced its intention to form a joint venture with South Korea’s Posco Chemical. They intend to open a facility in North America in 2024, focused on cathode active material – extending a trend seen among carmakers keen to tie-up supplies of lithium, cobalt and nickel.

There has been much less interest among the automotive sector in securing anode material supplies, with the EV battery anode primarily comprised of graphite. There are two major reasons for this, related to graphite availability and total EV battery costs.

Total graphite supply is seen as relatively plentiful and not a potential hindrance to future EV battery production. But while graphite supply was not expected to be a limiting factor for EV battery production in the near term, there are significant costs and environmental issues associated with processing graphite to make active anode material, and this is where there could be supply chain bottlenecks in the years ahead.

Fastmarkets has highlighted previously that, with more than 90% of graphite active anode material capacity currently in China, the anode market remains at risk to supply chain disruptions, such as have been seen in the semiconductor chip sector.

With environmental, social and corporate governance (ESG) considerations becoming increasingly critical for carmakers, the environmental costs of Chinese anode material production will be a further deterrent to the industry’s reliance on Chinese supplies.

While the automotive industry has expressed interest in localized graphite supply chains, and there are a number of graphite projects under way around the world, no carmakers have yet committed to joint ventures with any of these projects.

Although about 50% of an EV battery is composed of graphite, the cost of the anode is significantly lower than the cost of the cathode, with the graphite anode cost estimated at just 7-10% of the total EV battery cost.

The cost of the cathode is about 40% of the total EV battery cost. The relatively minor cost share of the anode relative to the cathode, as well as graphite being a relatively plentiful mineral when compared with cobalt or nickel, has resulted in carmakers focusing initially on securing cathode supplies through joint ventures with battery chemical producers.

So it is likely that there will be more moves by carmakers to secure anode supplies in the coming years, especially once the cathode material ventures are well established, and once leading graphite suppliers emerge from the global array of new projects.

#graphite, #anode, #battery cathode, #lithium, #nickel, #cobalt, #EV, #batteries, #Tesla, #Syrah, #energy transition #battery raw materials

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