The steel industry, lithium ion batteries (“LiBs”) and expandable graphite account for 70 to 80 per cent of flake graphite demand. The steel market is the largest source of demand and caused graphite prices to increase substantially in 2011/2012. It has been weak ever since the Chinese slowdown in 2012 and there is little optimism there will be a significant improvement. LiB demand was very low five or ten years ago but has been growing at over 20 per cent per year and now accounts for approximately 25 per cent of demand. As major markets such as EVs and grid storage are still in their infancy, substantial growth is expected to continue.
Benchmark Mineral Intelligence estimates that major automobile makers have committed over US$300 billion to developing EVs and that there are over 100 LiB mega-factories in the pipeline. This will require annual world graphite production to more than double. Volkswagen has committed US$91 billion to electrifying its fleet and in doing so, its battery demand alone will increase to 300 gWh which will require an estimated 40 per cent increase in world graphite production. Daimler (Mercedes) has committed US$34 billion to developing EVs and securing its battery requirements which have been estimated at 200 gWh. China wants 25 per cent of new vehicles sold to be electric by 2025 which requires more than 300 gWh of batteries. The outlook for graphite demand is very robust while at the same time, there are no new graphite mines currently under construction.
The expandable graphite market while smaller, is one of the fastest growing markets along with LiBs. It involves treating XL flake graphite with a dilute acid solution and heating it to cause the flakes to split apart and increase hundreds of time in volume. This material is pressed into sheets which can be used in many applications including thermal management in consumer electronics, advanced building materials, heat and corrosion resistant gaskets, fuel cells and flow batteries. Expandable graphite is the only graphite market to experience rising prices in recent years and Chinese production of large flake, which is required to make it, is declining.
Currently, China produces 70 to 80% of the world’s graphite and 100 per cent of the natural graphite used in LiBs. Because of this dependence on China, as well as the importance of graphite to the economy, both the EU and the US have declared graphite a supply critical mineral.
The future direction of Chinese production will be a significant factor in determining where graphite prices go. Traditionally, Shandong Province was the center of graphite mining in China but its production is declining due to the depletion of ore reserves and stricter enforcement of environmental regulations. As Shandong was the main source of large and extra large flake graphite, production of these grades is also declining. Mining has transitioned to Heilongjiang Province and it is now the major producer. There are two main producing areas in Heilongjiang, Jixi/Mashan and Luobei, both of which produce mainly small flake.
The Jixi/Mashan region is the largest and is operating near full capacity. While there do not appear to be any new mines planned or under construction, a large mine that was built in Luobei to serve the LiB market is only operating at 30 per cent capacity. Also a large, new small flake mine came on stream in Africa and for these reasons graphite prices have not responded to growing EV/battery demand. The African mine has essentially closed due to ongoing technical and financial challenges and the replacement of this production may use up much of the excess capacity in China. Minmetals, the largest Chinese graphite producer, forecast a production shortfall starting in 2020 which did not happen due to Covid, and a substantial shortfall by 2025.
The market for large and XL flake graphite is much more robust, in part because of declining Shandong production but also because expandable graphite is the fastest growing market along with LiBs.
Annual Chinese demand for expandable graphite is approximately 70,000 tonnes. China only produces 25,000tpa of +50 mesh flake and the balance is made up of less desirable +80 mesh flake. The demand for expandable graphite with very high expansion rates is growing even more rapidly and this requires +32 mesh flake graphite. There is currently a shortage of both +50 mesh and +32 mesh material in China as there is in the rest of Asia as well as Europe. The market would be larger if the supply was available. China has now started to import +50 mesh concentrates from Madagascar.
In the short to medium term the graphite opportunity is clearly in the large/XL flake markets which are high price and high margin with supply shortages. Longer term, new western sources of small flake production will be required to meet the expected growth in the EV/LiB markets and provide security of supply.
In the second half of 2017 graphite prices increased approximately 40% after a long period of depressed prices caused by the slowdown in the Chinese economy and lower steel demand. The price increase was due to an improvement in the steel market, environmental related production shutdowns in China and continued strong growth in lithium ion battery demand. Since then prices have fallen back due to a big new mine being built in China and another in Africa. Both these mines produce mainly small flake which is used in the lithium ion battery market. While the EV market contnues to grow strongly, it has been a case of too much new production too soon. The African mine has only demonstrated the ability to consistently operate at about 50 per cent of design capacity and has been cash flow negative since startup over two years ago. It is now essentially shut down due to financial and technical difficulties. Replacing its production will use up a lot of the excess capacity in China and the point where EV/battery demand overtakes supply has moved a lot closer. The automobile market is so large that even if EVs only achieve a small degree of penetration, it will have a substantial effect on the relatively small graphite, lithium and cobalt markets.
The outlook for large flake prices is much better as Chinese production is declining, the African mine does not produce much and demand in industrial markets is growing.
The high rate of growth of LiBs started with laptops, cameras and cell phones and then moved into power tools, motor scooters, medical and military applications, forklifts, standby power systems, and many other markets. They are also moving into delivery vehicles, hybrid taxis, buses and other high mileage applications where the logistics and economics of electrification already make sense. Growth in the EV market has been slower than forecast. Initially it has been driven by early adopters, consumers willing to pay the higher cost of being green and subsidies. In China it is very expensive to get a new car license unless it is an EV. Yet EV sales dropped when subsidies were removed.
The last five years have demonstrated that mass adoption of EVs will be an evolution, not a revolution, especially in pickup and SUV centric North America. And it is unlikely there will be major improvements in cost or performance over the next five years to change that. Battery costs have come down significantly but the curve is flattening and improvements in LiB technology are slow and incremental.
But automakers are placing big bets that consumers will come around as costs decline some more, choice expands and comfort levels with the technology increase. In many respects, they have no option as rising emission standards and public opinion force manufacturers to offer lower carbon, price competitive products. While it will be many years before we see an EV in every tenth garage, it does not matter as far as lithium, graphite and cobalt are concerned. The auto market is so large, and these specialty markets so small, that it will be transformational even if projections for EV (and grid storage) growth are only partially realized. And think about the next level of technology. An electric, autonomous driving “Uber” is coming and it will be a big winner out of the gate.
Graphene is one of the top research topics in the world with billions of dollars in funding committed. At present there is no process for making commercial quantities of graphene and there are no commercial products based on the unique properties of real graphene. Dozens if not hundreds of organizations are working on these challenges and once solved, the results could revolutionize the way we work and live. Natural graphite is one source of graphene and will probably supply lower technology applications such as conductive inks and coatings and composite materials. There are up to three million layers of graphene in a one millimeter thickness of graphite so a little goes a long way.